A Disgrace?

Dean Baker:

For folks not familiar with Social Security, it is the country's biggest social program. It costs over $600 billion a year (20 percent of the federal budget) and has 50 million beneficiaries.

At a forum on Monday, after wrongly claiming that Social Security won't be there when young workers retire, McCain went on to say:

"Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed." [Transcript available from Congressional Quarterly]

Of course present-day retirees have always been paid their benefits from the taxes paid by current workers. That has been true from Social Security's inception.

Some folks might have thought Senator McCain's description of Social Security as a "disgrace" was worth a mention somewhere in the media, but the NYT, Washington Post, WSJ, and USA Today don't seem to have noticed. It's not like he said "bitter."

hilzoy:

I was watching CSPAN yesterday, while I was eating dinner, and who should I see but John McCain. And he said the most extraordinary thing. It's the second paragraph of the excerpt that follows; I've included the rest so that you can see that there was no context that made it seem more reasonable...

Let me repeat the astonishing bit: "Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed."

The fact that we are paying present-day retirees with the taxes paid by workers, young or otherwise, is not a disgrace, or a scandal, or a new development. Social Security has been funded this way since its inception.  ... This is not a disgrace; it's the way the system operates. And it's certainly not a sign that we've mortgaged our children's futures, or that something has to be fixed.

One interpretation of this statement would be that McCain is being deceptive: trying to make a straightforward feature of Social Security seem like a scary new problem, in order to gin up support for his nonexistent plans to fix it. I tend to think that he just doesn't know how Social Security works. (This would explain why he doesn't see the problem with privatizing the system: the need to pay a generation's worth of transition costs.) However, it doesn't really matter which explanation is right: either one ought to be close to disqualifying. ...

More hilzoy:

Just one day after releasing an economic plan (pdf) that said that "John McCain supports supplementing the current Social Security system with personal accounts" (p. 5), McCain repeated his earlier claim that "I want young workers to be able to, if they choose, to take part of their own money, which is their taxes, and put it in an account which has their name on it."

Supplementing Social Security with private accounts is one thing. Allowing workers to divert their FICA taxes into private accounts is another. The first just gives workers more options; the second guts Social Security's funding. These are very, very different proposals. Unfortunately, McCain doesn't seem to understand the difference, perhaps because he doesn't understand how Social Security works.

And there's this:

Now, before you think, "Wow, that must be a slip of the tongue, he can't possibly mean that," please note that McCain said essentially the same thing to John Roberts on CNN this morning. ...

This is not the first time that McCain has hinted that he will follow in Bush's Social-Security-dismantling footsteps. In a Wall Street Journal interview published in March, he made his intentions explicit:

"I'm totally in favor of personal savings accounts," [McCain] says. When reminded that his Web site says something different, he says he will change the Web site. (As of Sunday night, he hadn't.) "As part of Social Security reform, I believe that private savings accounts are a part of it—along the lines that President Bush proposed.

(Months later, McCain still hasn't changed his website.)

Does McCain really think he can get away with having two different Social Security plans? Well, as ThinkProgress has pointed out, McCain was denying his history of supporting private accounts just last month. It seems he just can't make up his mind. But perhaps having two different positions makes political sense—especially if one of them has already failed.

It's becoming clear that McCain simply reads what's on the cards (and not very well), but he really doesn't get the finer details of policy and is thus susceptible to confusion, misdiagnosis, and to bad suggestions from those around him. Haven't we had enough of that over the last seven and a half years?

Update: Paul Krugman on McCain's knowledge of policy, doomsaying about Social Security as a badge of seriousness in Washington, and taking bad advice:

A disgrace, all right

Dean Baker points us to John McCain...

I’d guess that there are three things going on here.

First, McCain has no idea how Social Security works. That may sound hard to believe, but not to anyone who has spent any time in or around the federal government. Politicians, by and large, get where they are mainly by looking and sounding good; this may or may not go along with any actual understanding of governing.

Second, McCain lives in the Washington bubble; and as I wrote a while back,

Inside the Beltway, doomsaying about Social Security — declaring that the program as we know it can’t survive the onslaught of retiring baby boomers — is regarded as a sort of badge of seriousness, a way of showing how statesmanlike and tough-minded you are.

Finally, McCain has surrounded himself with people who hate Social Security. They probably tell him that it’s a doomed Ponzi scheme, and he believes them.

Kevin Drum notes McCain also spouted the usual tax cuts are self-financing nonsense. If he doesn't know this claim is false by now, he's not qualified to set economic policy. And if he does know it, and he must, what does it say about his character that he is willing to say it anyway?:

John McCain ... sure seems to think [Social Security's] funding mechanism is a disgrace, and last night he repeated himself... This is nuts. McCain is talking as if he just figured out that this is how Social Security works and he's scandalized by it. ...

But you want something even scarier? In the very same interview, McCain serves up the supply-side full monty to CNN's John Roberts: "You can't get over the fact that historically when you raise people's taxes, revenue goes down," he said. "Every time we cut capital gains taxes, there has been an increase in revenues." The second half of this statement is flat out wrong, and the first half is so wrong that we need a new name for it. This is Jonestown levels of Koolaid drinking.

But maybe we're being unfair. After all, 300 economists signed a letter enthusiastically supporting McCain's economic plan. Or did they? Kevin Drum again:

This is amusing. A couple of Politico reporters called some of the 300 economists who "enthusiastically support" John McCain's "Jobs for America" plan and found that their support was somewhat less enthusiastic than advertised:

In interviews with more than a dozen of the signatories, Politico found that, far from embracing McCain's economic plan, many were unfamiliar with — or downright opposed to — key details. While most of those contacted by Politico had warm feelings about McCain, many did not want to associate themselves too closely with his campaign and its policy prescriptions.

....Constantine Alexandrakis, a professor at the University of Massachusetts-Dartmouth, expressed second thoughts about signing. "I would describe myself as an Obama supporter," he explained. "Maybe I shouldn't have rushed into signing the letter."

Maybe he shouldn't have! As for the others, it turns out that they merely signed on to a brief statement of intent (low taxes, low spending, free trade, etc.), not the 15-page number-free plan that McCain released on Monday. So there's no telling how much of his plan they actually support. ...

Somebody who's not me ought to start dialing up the other 280+ signatories and find out just how much of McCain's plan they really support. Do they think the current Social Security funding mechanism is a disgrace? Are they in favor of a gas tax holiday? Do they think his multi-trillion tax cut will increase revenues? Inquiring minds want to know.

Comments

[pgl]

Hmm - wonder if the cards said Privatization, he'd read that too. At least it would be more honest than his usual flip flopping babble. Of course, it would guarantee that he'd lose the election!

[Dickeylee]

But all you hear from MSM is how SS is doomed. None of them challenge the skewed Republican talking point that SS needs to be privatized.
Could it be because EVERY talking head on TV is pulling down six and seven figures per year? They are the investment class, the fairest of them all, and dammit, they're right about everything!

[anne]

http://www.washingtonpost.com/wp-dyn/content/article/2008/07/07/AR2008070702773_pf.html

July 8, 2008

Candidates Diverge on How to Save Social Security
By Perry Bacon Jr. - Washington Post

Under current law, income up to $102,000 a year is taxed for Social Security. Obama would create a "doughnut hole" by not imposing new Social Security taxes on income between $102,000 and $250,000. His aides said income exceeding $250,000 would be taxed at a rate of 2 percent to 4 percent, rather than the 6 percent tax that people pay toward Social Security on income below the $102,000 cutoff, which is matched by their employer's paying a 6 percent tax. Employers would probably pay an additional tax, but the total tax paid by both employee and employer would not exceed 4 percent of the amount of income earned over $250,000....

Some Democrats are questioning Obama's decision to address Social Security at all....

"From the standpoint of the Democratic Party, I would think it would make the most sense to leave it alone," said Dean Baker, an Obama supporter and co-director of the D.C.-based Center for Economic and Policy Research. "It's not an immediate, pressing issue."

Jason Furman, Obama's economic policy director, emphasized that the proposal is flexible and said that Obama would work with Congress to come up with any proposal on the topic. Furman said the campaign has not determined the extent to which Obama would raise taxes or whether people who made more than $250,000 would receive additional benefits....

During the Democratic primaries, Obama criticized Sen. Hillary Rodham Clinton (N.Y.) for not giving a specific proposal on Social Security.

"Conventional thinking in Washington says that Social Security is the third rail of American politics," Obama said in October. "It says you should hedge, and dodge and spin, but at all costs, don't answer."

At the time, he said he would consider applying the payroll tax to all income, which would largely fund Social Security for the next several decades. But his campaign has emphasized in recent weeks that he would raise taxes only on Americans who make more than $250,000....

Henry J. Aaron, an Obama supporter and economics expert at the Brookings Institution in Washington, said he is concerned that the proposal would fundamentally change Social Security. Unlike other government programs, such as Medicaid, that are targeted for low-income people, Social Security has traditionally operated as a program in which participants get more money in benefits if they have put more in. A person who pays taxes on $90,000 of income, on average, during his lifetime receives higher benefits than a person who retires after making $50,000 in an average year.

Obama's proposal could alter that formula, because he has not specified whether those making more than $250,000 would receive additional benefits.

"I don't think this is the right way to raise the cap, although raising the cap is a good idea," Aaron said. "Traditionally, there is a linkage between benefits and taxes paid. It's what has helped make Social Security a benefit that people claim with pride." ...

[save_the_rustbelt]

To be fair and balanced here (and without supporting McCain), the ratio of workers to retirees is headed for territory we have never seen, and the idea that productivity will solve the problem is more than a little suspect.

[save_the_rustbelt]

On another matter, Obama's plan violates FDR's concept of vertical and horizontal equity. Read the documents.

Just saying.

[Aaron]

According to Milton Friedman shifting to a system of private accounts would be almost costless. You do it by figuring out what everyone is currently "owed" by the system and put a bond payable when they turn 65 into their private account. Any money on top paying off these bonds could be added to the accounts. At worse you are at least as well off then we are today. Basically he is just taking the social security "promise" and turning it into a real security that can't be altered and diminished at the whim of the government. And why not, because it become our property. So we shift from being wards of the state to private property owners.

[Aaron]

You know for supposedly hip new democrat campaign these attacks are pretty tired and worn.

[a]

Just to add that *some* of future retiree's benefits will come from taxes that they themselves have paid, via the Social Security Trust fund.

[save_the_rustbelt]

Aaron:

Friedman was a brilliant guy, but like most brilliant guys I wouldn't hire him to run the cash drawer at a Dairy Queen.

His plan is not connected to reality.

[Aaron]

save_the_rustbelt says...

His plan is not connected to reality

This is not correct. He clearly could have been a cashier at the Dairy Queen.

Look, what is social security anyway? It's a promise (subject to modification) to make payments to you after you retire. So what's a bond? Its a contractual relationship to make fixed or floating payments to you according to an agreed upon schedule. So if both are the same why is it so hard to turn social security into an explicit bond and put it into a private account?

Maybe on top of this bond we can start adding real assets that are net assets from the point of view of the account rather then an asset for one part of the government netted down to zero by the liability to another part of the government, leaving a net asset value of zero in the social security trust fund, but lots of primises.

Remember the movie Dumb and Dumber when they took the cash out of the brief case and replaced with with iou's. Well that's the social security trust funds. Of course Harry & Lloye did not have the authority to print their own money. So at least in this way they were different.

[Nick]

McCain happens to be right on this. It is a disgrace, it's just not a NEW disgrace. Social Security has always been an unsustainable ponzi scheme that survived only as long as the boomers were young. It's an absolute disgrace that young workers now have to pay more for current retirees than they can put away for their own retirement.

I appreciate the concern of the oldsters, who are fearful of their gravy train being withdrawn. But when you've been sold a bill of goods, there is no moral right to then swindle somebody else to make good your loss.

[...]

The Republicans have long tried to turn Social Security into a generational issue. The scary thing is, when I talk to younger workers, they often buy into all the SS fearful BS that's been thrown around by the Republicans and the media. And while McCain is truly being idiotic here, I feel like Obama is using the fear that’s out there to propose changes that will end up hurting SS as well.

It's very simple. American workers need a strong(er) SS system, universal health care, and fully subsidized education. Anything less and the rest of the world will eventually eat our lunch (if they haven't already).

Who stands in our way for gaining these rights?

[...]

Regarding generational divide: see Nick above.

Like I haven't paid my share of supporting older workers over the last 30 years to the detriment of my own retirement account!

[wimpie]

"Americans have got to understand that we are paying present-day retirees with the taxes paid by young workers in America today. And that's a disgrace. It's an absolute disgrace, and it's got to be fixed."

McCain gets it. In the US it is ILLEGAL to run private pyramid schemes. Yet the Govt is ABOVE the law and gets to do what it wants. The govt also takes the right to issue currency without producing anything of value. If private citizens do this it's called COUNTERFEITING.

The govt has got to go. It has NO moral basis. Like the Soviet system and many, many empires before, the people will revolt from being continuously ripped off.

We are getting close to that time.

[anne]

"I appreciate the concern of the oldsters, who are fearful of their gravy train being withdrawn."

Notice the rottenness and lying.

[ken melvin]

Something has gone terribly wrong in America.

[anne]

"The Republicans have long tried to turn Social Security into a generational issue. The scary thing is, when I talk to younger workers, they often buy into all the SS fearful BS that's been thrown around by the Republicans and the media. And while McCain is truly being idiotic here, I feel like Obama is using the fear that’s out there to propose changes that will end up hurting SS as well.

"It's very simple. American workers need a strong(er) SS system, universal health care, and fully subsidized education."

[hari]

Why is it that the press and media don't question McCain's flip-flop on economic issues like SS and FTA?

Is there something unsaid, we don't understand?

[kharris]

When it comes to consumption, everybody lives off of what current workers produce. The fact that the cash flow in the Social Security system reflects the reality of goods and services production and consumption is hardly a scandal. The very young and very old eat the product of the rest. If McCain wants to argue against the cash flow, does he also want to argue against the consumption? Should those in retirement be starved? Should they only be allowed to consume if they produce?

Going from a Trust Fund to a bond doesn't change the reality of who produces and who consumes. Going from a public account to a private account doesn't either. That simple fact makes clear that all this "Ponzi scheme" shreiking is simply misguided. We are talking about who benefits from the administration of the system. We are talking about who does best. The effort to kill Social Security tries to mask this, but any arrangement that allows for leisure in old age has to funnel consumption to retirees, away from current workers.

Ah, you say, if they saved and invested, they should be allowed to enjoy the fruits of that saving and investing. OK, I say, they saved through the Social Security system, and their investment involved accepting reduced return for greater stability - bedrock stuff in retirement planning.

Discussions of public policy often come down to who gets to eat how much of what. The drive to kill Social Security has involved efforts to pretend that Social Security is unique in this regard, that somehow the choices we make through the SS system are unlike other economic and political choices. The are not different. Every tax policy, every public spending choice, involves transfers of cash and benefits. (Often, those transfers are to very well-off people.) Every law and regulation confers benefits to some, costs to others. Just like Social Security.

[bakho]

Aaron, SS is INSURANCE!!! SS is an insurance program against living beyond the earning years.

It is insurance to raise your kids to working age if you die early. It is insurance for your spouse.

SS is NOT a retirement slush fund to pay for travel or other discretionary spending. You need a 401K or a Roth to fund discretionary beyond the minimum that SS will pay that will cover essentials.

Retirement on investments alone would mean everyone (on average) having to pay in a LOT more dollars in order to hedge against the possibility of outliving investment income. Plus people would have to buy insurance on top of that to cover early demise. It would mean a LOT of money tied up in low risk investments with solid income streams. What would the retirement savings look like of someone who had their savings in tech stocks in 1999 and retired in 2002?

[bakho]

What kharris said.

[bakho]

McCain wants to be commander in chief and direct our military. He doesn't have a deep interest or understanding of domestic policy and admits as much constantly. McCain economic policy would be the policy of whoever McCain picks to run his domestic show and what Congress agrees to do. This would most likely lead to a hodge-podge of economic programs that are partly at odds with each other.

McCain is reactive, not proactive so the prospect of a comprehensive forward-looking economic policy under McCain is not a sure bet. McCain simply repeats the last economic advice he has heard. If he has been talking to Kemp, we get supply-side. If it is Peterson, we get caster oil. There is nothing coherent or serious about McCain-onomics.

We should STOP treating his proposal as if it were serious. It isn't.

[Aaron]

"The Republicans have long tried to turn Social Security into a generational issue."

Social security is like the overlapping generations model in economics where the younger generation gives money to the older one and then expect the generation behind to pay them like they paid the generation in front of them.

What's all this nonesense about the Republicans trying to turn Social Security into a generaltional issue. It is what it is, FDR designed it that way.

[JB]

As a 25 year old, I'm happy to pay for Social Security. I'm doing my part to provide food, shelter, and medicine for the elder members of the community who have worked most of their lives.

I'm all for the power of free markets, but there's an increasing number of individuals that preach an extreme, atlas-shrugged style of isolationism that is undermining a lot of the centers of community in our society. There's a reason we have community programs - we are social creatures and we take pleasure in caring for others. Without these types of institutions, we're all left standing alone, saying 'I'd love to help, but I don't know how.' It would be a lot more disgraceful to abandon our largest and most popular social program simply because it's inefficient.

[Aaron]

bakho says...

SS is INSURANCE!!! SS is an insurance program against living beyond the earning years.

It is insurance to raise your kids to working age if you die early. It is insurance for your spouse.

It was sold as a retirement plan. I bet more (many more) Americans think that social security is a retirement plan backed with physical assets then think that Saddam was primarily responsible for the attacks on 911.

[...]

Aaron, SS is a program of social security. It's a "we're all in this together" kind of idea, not an "us against them idea".

But your response sort of makes my point.

[kharris]

"I bet more (many more) Americans think that social security is a retirement plan backed with physical assets..."

Two things. First, this is a data issue. You suspect something that could be demonstrated, but don't bother to demonstrate it. Anyone else could make a similar, opposite claims, and it would be just as valid. All of which comes down to, so what? Who cares what you bet? Second - physical assets? You believe lots of people think the Social Security Administration owns gobs of houses and steel ingots and plywood? Seriously? You need to think about whether you've let convenience assumptions take over yer brain.

[robertdfeinman]

Since Bruce Webb seems not to be around to debunk all the deliberate misinformation by the Republicans I'll just give a link to his site where you can read all his explanations in detail:

http://bruceweb.blogspot.com/

Just for the record SS is insurance. Here's FDR explaining it when he signed the enabling legislation:

http://www.youtube.com/watch?v=aVZijG4WSOw

Which is worse, McCain knowingly lying or being so misinformed about how the system works after decades in government?

Do you want a fool or a liar for president? Currently we seem to have one that manages to be both.

[ken melvin]

Social Security is a subsidizes capitalism. Whithout Social Security, capitalism would have long since fallen.

[Cynthia]

Anne,

Notice that Bob Herbert's last line in his article "Lurching With Abandon" reads:

"David Brooks is off today."

http://www.nytimes.com/2008/07/08/opinion/08herbert.html?em&ex=1215748800&en=c7fc27204b823aa6&ei=5087%0A

[And I thought that was Krugman's line;^)]

[kthomas]

ken, ouch! You cut deep.

[Aaron]

kharris says...

Second - physical assets? You believe lots of people think the Social Security Administration owns gobs of houses and steel ingots and plywood? Seriously?

Silly. The Chinese own U.S. treasury bonds. These are assets from there point of view. They could use them to pay retirement benefits based on their income streams. These are arms length assets for the Chinease government. Not so with the social security trust fund for the U.S.

[Aaron]

ken melvin says...

Social Security is a subsidizes capitalism. Whithout Social Security, capitalism would have long since fallen.

This a strawman argument because we are not talking about having a forced saving system or not, the real issue is the degree to which that system should be funded like a company's defined benefit retirement plan rather then be totally unfunded like the current social security system.

[The Baron]

Aaron has apparently never heard of the Social Security Trust Fund. You know, the one where all of the excess payments made by retirees has been going for decades? The one that current retirees will be getting funding from for the next several decades? Maybe he should read up on it a bit.

Now if he wants to start a discussion on government fiscal responsibility and getting a budget surplus going so that the government can actually afford to repay all those Treasury Bonds in the Trust, we can talk. Or is Aaron claiming that the U.S. government is going to default on all those T-bills, so the Trust obligation will have to be paid solely by current FICA income? that's an entirely different discussion that would be legitimate to have.

The one dirty secret about SS, that is a big reason to oppose private accounts, is that a large portion of SS receivers, actually take out of the system much more than they ever put into it. This is offset by the large portion of folks who pay in, who for one reason or another, never take anything out, or take out less than they put in. By having everyone's money in a big general pot, you can make use of those discrepancies to balance things out. If everyone just has a private account, then you have to actually confiscate those unused accounts at some point to redistribute it, which would be politically messy to say the least.

[paine]

hey
the air pirate just wants wall street campaign funds

the advent of forced
private accounts
would spell a fresh gold rush
on the tip of manhattan

says...

Wall Street is still trying to get control of SS with-holdings. IMO, there is a good chance the mortgage bond debacle was instituted in anticipation of laying off the CDO's etc on retirement accounts.

Would we be better off had Bush and the Wall Street Trojan Horse "Hank P" successfully put the safety net into play ? Hardly.

The risky asset markets of wall street are innappropriate for the SS safety net funds. Period. Most of the people who rely on SS to survive are absolutely incapable of investing their savings wisely.

McCain should concentrate on increasing revenue to pay for the spending binge he and his fellow repubs have been on. The most shameful and egregious swindle against our children is dumping the Republican debt on them. Destroying SS would be the second.

The irrationality of the SS discussion, in light of the imminent collapse of so many other aspects of our society and economy, is weird.

[akatsuki]

Why is it not a disgrace? The New Deal generation got to free-ride off the backs of the young. The implicit "deal" of social security of the younger generation paying for the older has always been questionable at best. The Social Security age has not moved as people have enjoyed longer lives, making the burden that much greater. It may not be insolvent, but it should be.

Now anne and other posters have been trying to make this out as some sort of Republican attack, but frankly, I just don't think the current level of benefits and funding works. And no AARP shills will not convince me that I am not being swindled for the benefit of a generation with a lot more wealth than my generation will probably ever see.

[paine]

folks in particular aaron
who often gets the way it works

keep it real

nobody on the receiving end of any transfer system
voluntary or forced
buys anything built tomorrow to eat today

at least step back from the mirage of the shell game
and note what really happens

whether its internally borrowed funds or tax extracted funds
to the extent this is a closed system we live off ourselves
with whats on hand today
not off our future

(no it isn't closed now but it
can and ought to be made 'closed like'
by force balanced payments )

if you want to increase tomorrows output
you need to build and invent tomorrows production plaform

no amount of paper shuffling relabeling reobligating
can increase tomorrows platform capacity
only actual investments

show me how you plan to increase those by privatizing SSI

and don't talk lower capital costs
thru greater forced savings and thus a greater capital supply
thats pre keynesian bunk

in the last 8 years real capital costs wre often negative and still there was no
serious productive investment here

just more usury

[kharris]

Aaron,

The key word in your speculative claim was "physical" as in "physical asset". I cannot think what China's holding of US financial assets has to do with your (unsubstantialted) claim that many US citizens probably believe the Social Security Trust holds physical assets. Please explain. I have never heard anybody suggest that the Trust holds physical assets. Why do you think people believe that?

[Aaron]

The Baron says...

Aaron has apparently never heard of the Social Security Trust Fund. You know, the one where all of the excess payments made by retirees has been going for decades? The one that current retirees will be getting funding from for the next several decades? Maybe he should read up on it a bit.

No, I've heard that fairy tale. How long would Sheherazade have lasted if Sinbad and Aladdin had only brought back a lock box full of iou's

[paine]

akatsuki

no one will respond to such de facticated dribble

if "your generation" wants relief
your generation needs to demand
a pay roll tax cut
not privitization

are you a broker ???

[donna]

Fine, if you're against Social Security, move your parents in with you. Mine happy to have already passed away, my husband's are living with his sister anyway. And if I can't get my kids jobs in the near future, they'll be living with us anyway until we retire.

If we want to go back to multi-generational households for everyone, that's fine with me. Hey, maybe some of these rich folks who don't want to pay their taxes can just let us all move in with them, hmmm?

Geez, what a bunch of selfish whiners Americans are.

[paine]

aaron must not believe in uncle's taxing authority

[Aaron]

kharris says...
Aaron,

I have never heard anybody suggest that the Trust holds physical assets. Why do you think people believe that?

When your left hand loans your right hand money it's not considered an arms length transaction and thus not a real asset or liability. The trust fund is like this since part of the government loaned another the money.

People have a sense that the social security is like a savings account. But we know that there are really no savings. When you put money into a bank they generally loan it to someone and the money is backed by an asset. The borrower is responsible for paying interest on the loan and if they don't the bank can take the asset and sell it to repay the persion that put money into the bank.

[Bruce Webb]

Thanks RDF. But people might be better off tracking my Social Security series at AB (now up to 30 entries and indexed at the BruceWeb under the thoroughly original and witty title Social Security Posts on Angry Bear)

Boy where to start. Economics starts from the premise that all market particpants are fully informed rational actors. Utter nonsense of course but I'll play along and assume that all posters here have actually fully informed themselves on the economic numbers in play by having actually done their own research via the primary sources which are of course the Annual Reports of the Trustees of Social Security and actually thinking through the concepts of cash flow, insurance, bonds, and the nature of money. That is if you are wrong I am going to assume that you are consciously lying and are not just some ignorant dupe witlessly repeating talking points picked up third hand. Which may be hard on those who are in fact witless dupes. Well you should have thought about that before you posted.

Lets start with the concept of a bond. When you buy a bond from a corporation or a governmental entity you give them money, they spend it on some set purpose of their own, and they give you a promise which may or may not be backed up by a piece of paper. Your expectation of being paid back with interest is backed by two things. One the credit worthiness of the company or governmental entity and two the police powers of the government as exercised through the courts. The Social Security Trust Funds are held (note I did not say invested) in Special Treasury bonds. That the federal government took that cash and spent it on roads and jets doesn't make that some sort of raid or theft, that is what happens when you buy a bond-they take the money and spend it. In this case the issue is muddied a little by the fact that the bond issuer and the bond insurer are the same entity. Which may make some of the more paranoid out there fearful. The rest of us understand that Full Faith and Credit of the United States means something, Treasury bonds traditionally have been the safest instrument on the face of the planet, in fact serving as the 'flight to safety' vehicle of choice. Thinking that the bonds in the Trust Fund are ultimately any different than the bonds held by the Chinese Central Bank is just wrong. Yes I have heard all the arguments that governments can't owe themselves money and that the fact that Special Treasuries are non-negotiable is what makes the difference. Well sorry that is just wrong, some of it sounds good but it is still wrong. Either the government is bound by its promises, by its laws, and by being subject to elections if it defaults on those promises or it isn't. The idea that somehow you would have more protection by converting Social Security's scheduled benefit into a bond in a private account is ludicrous. In the end you have no more protection from a default on that bond than you have from Congress simply changing the benefit schedule is magical thinking. What would you do? Drag the Federal Government into Federal Court to enforce your contract? Good luck with that.

Second the Ponzi Scheme argument. Look almost every investment takes the form of giving someone current cash or cash equivalents in exchange for a best-faith effort to give you a reasonable return. This is true of buying stocks as it is of making a deposit in a bank, ultimately all you have is faith that the corporation or bank will in fact act as a fiduciary in respect to the stockholder or depositor. Giving current cash for a promised future return is not a Ponzi Scheme, that is what investment is. People who confuse one with the other are simply being thickheaded. What makes a Ponzi scheme fraudulent is the operator simply acting in bad faith, of never intending to pay back all investors. Now I am sure there are people out there who don't trust the government. Well me hearties if you can't trust the government on Social Security why would you think you have magical powers to trust them as custodians of your 'private' bond account. In the end your powers are exactly the same, if they are going to break their promise they will. If you are that paranoid than I advise buying gold and a bunch of ammo and retreating to your Own Private Idaho compound.

Insurance. Well really this is the same point as the previous two. When you buy insurance the company takes the premium money and spends it. Some of it goes to pay benefits, some to administration, but the rest of it is invested. There is not in fact a file drawer with your name on it full of cash, all you really have is a piece of paper that represents a promise, a promise which in the end is only as good as your possibility of enforcing it. Which ultimately gets right back to the police powers of government.

Money. What makes a Benjamin worth more than a Lincoln? What makes either of them worth more than a Zimbabwean Pound? Nothing except your belief that some combinaton of the Federal Government and the Federal Reserve will to the best of their ability preserve as much of that dollars exchange function as possible. As we all know that works sometimes better than others, but the notion that the future value of that Benjamin is somehow real in a way that a promise of Social Security benefits is not is simply the result of not thinking through the implications of Full Faith and Credit of the United States. Either they are crooks and liars (in which case the gold/ammo argument kicks in) or they are in fact responsive to the rule of law and the need to get reelected. The idea that Social Security is in some default zone different than the value of the dollar is just the result of not thinking things through.

[paine]

"The risky asset markets of wall street are innappropriate for the SS safety net funds"

hey if all those risky asets end up
tax payer backed
what's the diff

try to focus on who pays taxes now
and who pays taxes then
plan on making the tax rate and base structure
far fa far more progressive
and all will work out fine

at least so long as we put health industry
prices and fee in a figure four submissionhold

those galloping ponies
need to have their legs
clamped
in med-sec wide
mark up market shackles

[Aaron]

donna says...

Fine, if you're against Social Security, move your parents in with you.

Strawman -- Take 2.

[Callahan]

"Haven't we had enough over the last seven and a half years?"

I sure as hell have.

[paine]

aaron
obligations of uncle sam are ultimately backed by every physcal asset in these united state

tax power plus money creation

trump that mr A

[paine]

aaron
where's my straw man

come on pal put em up

[paine]

uncle can't run a ponzi scheme
uncle has the power to pay what ever he is obligated
by the citizenry to pay

[paine]

mr webb
have faith in the jobbled majority

lets tamper ay at your sacred trust funds

the people
hold with their votes
the power
to transfer from whomever
what ever they wish to whom else ever they wish

uncle can do
anything their collective hearts so choose
him to do
nominal or real wealth
transfer wise

[paine]

obviously
the implicit assumption
is ...uncle works for wall street not pleasant st
i'd say that's true...now

but at times
crucial times
the people act
and wall street retreats

[Bruce Webb]

"When you put money into a bank they generally loan it to someone and the money is backed by an asset."

Aaron banks are not pawn shops, the idea that all loans are collaterized by assets has been outdated for hundreds of years. Instead banks lend money based on credit which in turn is based on some historical record whether that is individuals paying their bills or venture capital firms having a good record of picking winners. If all bank lending was backed by actual assets you wouldn't have the current spectacle of banks writing down billions and billions in loans. Tell Bear Stearns that all of its loans were actually backed up by assets.

[Aaron]

paine says...

where's my straw man

You tell me. Americans generally want a social security system. Its easier to argue against elimiating the current system and replacing it with nothing rather the arguing the merits of the empty lock box versus another version of social security. This is the stawman argument. If you made it I missed it.

obligations of uncle sam are ultimately backed by every physcal asset in these united state

The current social security system is not based on a promise, it's the law. But laws can be changed. And nobody will have broken a promise or the law.

trump that mr A

A job done.

[Aaron]

Bruce Webb says...

Individuals use credit cards debt as unsecured loans. I don’t think there are too many other cases. Your mortgage is backed by your house. Your auto loan is backed by your car. Corporate bonds have first dibs on asset sales if the company goes under.

If all bank lending was backed by actual assets you wouldn't have the current spectacle of banks writing down billions and billions in loans.

The banks pooled their loans and created special assets with different tranches. The quality tranche either are protected from pre-payment or credit default by creating a priority system on who gets paid and when. I always wondered who would want to hold onto the crappy support tranches. Well, I guess the investment banks probably held on to the crap that they could not sell. It also probably paid a decent return until the economy or the market they were concentrated in went bad. Then doing their duty to protect the quality tranche they were left holding the defaulted junk.

[Bruce Webb]

"People have a sense that the social security is like a savings account."

Aaron. The fact that most people are not on top of all the details about Social Security financing doesn't mean we have to buy into your 'Phony IOU' frame. Your argument ultimately resolves into a 'Crooks and Liars' narrative whether you understand that or not. Almost every investment out there is ultimately backed up by the police powers of the state. In the case of Social Security the police powers are exerted (as Paine points out) by the state's ability to tax.

As you would know if you were actually informed on this issue, the long term health of Social Security is only in the most tangential ways related to the 'assets' in the Trust Funds. Under current projections the Trust Fund will never be called upon to pay more than 22% of benefits in any future year. I won't go so far as my pal Coberly and claim the Trust Funds could vanish tomorrow with no real harm to long term Social Security financing but he is a lot more right than wrong on this score. Social Security is a Pay/Go insurance plan with current premiums largely funding current benefits, the Trust Funds simply act as a reserve account to buffer benefits from short to medium turn shortages in revenues. That you don't understand that is not really my problem, and certainly not a reason to fundamentally change the system. It is just not broken, something I can't say for your conceptual understanding here.

The Trust Funds are not an investment account, instead they are essentially a bookkeeping and accounting device to track cumulative claims on future productivity based on past excess contributions. The assets are just as real and just as vaporous as future payments on any defense contract. Corporations holding government contracts expect that when they present the bill it will be paid, even if the government has to borrow the money. The fact that the government at any given time doesn't have actual assets to fulfill every established future obligation is meaningless in context of its inherent ability to tax.

People try to draw distinctions between future calls on the General Fund to pay for multi-year contracts and calls for it to honor the obligations it has to Social Security that are not in fact there. It is all just vapid logic chopping meant to deceive the rubes. Well sorry this boy didn't drop off the turnip truck yesterday, or even last week.

[Barkley Rosser]

Bruce Webb is on the job again, but let me add a few points, especially in response to some commenters who exhibit the worst sort of egregious ignorance.

Aaron,

Milton Friedman's bond plan has no more reliability than the current system. Do we have any greater reason to believe that bond will be paid off than those in the SS Trust Fund?

Nick,

We may be going into demographic territory "we" have never seen before, but all the stupid propaganda you hear about (eeeek!) having only two workers per retiree in 2030 or whenever, blah blah, are what we see right now in many other countries, such as Germany, where they pay much larger pensions to their retirees right now with such a ratio and are doing so very well, thank you, without borrowing from abroad as we are doing massively.

More generally, and it is usually Bruce W. who beats this drum, but it is clear that there are a bunch of readers here who have not seen this, the usual projections constantly reported in the MSM are so much horse manure. They are based on the intermediate cost projection of the SS Trustees, which give us this scare story of deficits appearing in 2017 and then "bankruptcy" in 2041. However, in the last decade in more years than not the economy has outperformed the never-reported low cost projection. Under that projection the system NEVER runs a deficit, and sure as hell never goes "bankrupt." If LC holds, as it has over most of the recent years, there simply is not even remotely a problem. This whole "crisis" is just a hoked up lie of the worst sort, pushed by Wall Street scamsters who want to get their mitts on the accounts.

That McCain is buying into this disqualifies him to be president, period.

Oh, and as for that "bankruptcy," if it were ever to occur, SS recipients after it happens would be receiving in real terms more than 120% in real terms more than current recipients are. So, all this prattling about the system not being there is just a plain out lie of the worst sort. The only way it would not be there is if idiots vote in people who kill the system by unnecessarily "privatizing" it.

[jean]

Thank you paine, robertdfeinman and Bruce Webb; you illuminate my mornings. But...please, please, DON'T FEED THE TROLLS.

[Bruce Webb]

"How long would Sheherazade have lasted if Sinbad and Aladdin had only brought back a lock box full of iou's"

Quite apart from this curious mangling of the Arabian Nights, I would say she would have done quite well if that box was full of Treasuries. Of for that matter any balanced portfolio of stocks and bonds. All of which in the final analysis are simply IOU's with varying levels of security and compensating levels of return.

The notion that a dollar bill in your wallet is real and a Special Treasury in a cabinet in Maryland is phony is just to show someone who has never sat down and thought about the nature of money as it actually operates in modern society.

Hint modern banks have very little resemblence to Gringott's Bank. This may come as a shock to Aaron but there is not in fact a goblin protected vault full of his Galleons, Sickles & Knuts deep under his bank branch at the corner of Cherry and Vine. Somehow I don't think it is me that needs to brush up on his analysis of fairy tales.

[save_the_rustbelt]

I left the following on Dean's blog:

"Dean:

Since you are always pounding the media for not providing enough numbers for readers to have proper context, you should include the number on the falling ratio of workers to recipients.

(this is not an endorsement of McCain or his ideas)"

[kharris]

Aaron,

I am beginning to understand where you are coming from. You are using words and concepts either without knowing what they really mean, or without caring. Nothing you've said in response to my initial comment shows any recognition of the actual meaning of "physical asset" so I am left to conclude that you are either using economic terms without knowing what they mean or willfully misusing them. If it is the former case, perhaps I can help.

A "physical" asset is not physical in the sense that you can touch it, like the paper on which stocks are, on rare occassion, printed. Whether an asset is considered "physical" has nothing to do with whether it is exchanged in an arms-length transaction. Physical assets are things like land, buildings, raw commodities, machinery and the like, used directly in the production of goods and services.

You also apparently misunderstand the nature of financial assets, but I am again unable to tell whether the misunderstanding is willfull or just a result of vulnerability to propoganda. So let's try to clear up what a financial asset is.

Financial assets represent an obligation of one party to pay another party, usually in return for some loan or grant of funds, or for some good or service. Note that payment is an obligation, not the result of a force of nature or divine intervention. The possibility always exists that the obligation will not be met. Treasury notes are obligations. Corporate debt, mortgages, eurodollars and swaps are obligations. CDs are obligations. Every one of them carries some risk of not being met. Every one of them is, in many aspects, like an IOU. Seen objectivley, it is among the stupidest of the rhetorical devices used by Social Security opponents to say the Social Security Trust Fund is full of IOUs, because: a) it isn't, and: b) to the extent that what is held shares by the Trust Fund has characteristics of an IOU, those same characteristics are shared by every other asset I've listed here.

A more honest effort has been made by some politicians to say why the Trust Fund may not pay off. They say that it may not be politically feasible to get the money to repay the fund what has been borrowed from it. This is to say that those who have benefited from some financial transaction may decide not to honor their side of the transaction. That risk exists for every financial obligation. The risk may be higher or lower, but it always exists. In reality, what politicians are saying when they suggest Treasury won't repay the Trust Fund is that they intend for it not to run a fiscal surplus in order to make up for past borrowing from the Trust Fund. Some may embrace this dishonor, some may rue it, but it is only through a political decision that the Trust Fund may be unable to pay promised benefits. This same sort of decision, called a "business decision" when made by the boards of private firms, has to do with a calculation of interests. Board members, like politicians, are not obliged to make payment themselves, but their interests are tied up in whether repayment is made. Board members typically do what is best for themselves, and so do politicians.

You can argue over the difference in likelihood that the US govwernment and a particular private firm may ultimately be unable to pay an obligation, but the same comparison can be made between any two firms. Once again, there is no substantive difference between obligations generated by private firms and those generated by the government. The whole point about Trust Fund being full of IOUs is objectively untrue, but metaphorically true in the same way that every uncollateralized financial instrument in existence is an IOU. Metaphorically, we would all hold IOUs in a private account, just as the Trustees hold them on our behalf in the Trust Fund.

So, you have misunderstood what a physical asset is, you have apparently misunderstood the nature of financial obligations. Until you do understand the basics, why should the rest of us pay attention to your views?

[save_the_rustbelt]

"People try to draw distinctions between future calls on the General Fund to pay for multi-year contracts and calls for it to honor the obligations it has to Social Security that are not in fact there. It is all just vapid logic chopping meant to deceive the rubes. Well sorry this boy didn't drop off the turnip truck yesterday, or even last week."

Wow, now that is sretching the truth a bit, given the average duration of a multi-year government contract versus the average lifespans of SS retirees or disability recipients.

Let's play nice with the facts boys and girls.

[Aaron]

Barkley Rosser says...

Aaron,

Milton Friedman's bond plan has no more reliability than the current system. Do we have any greater reason to believe that bond will be paid off than those in the SS Trust Fund?

Friedman was answering the claim that moving to a system of private accounts would be too expensive. You can move to this system and not be made worse off and it not having a material higher cost. The benefit comes as you increment the accounts with other assets with higher rates or return. This could be a mutual fund of corporte bonds. Pretty safe.

That McCain is buying into this disqualifies him to be president, period.

McCain has a duty to the plan's beneficiaries, not FDRs legacy.

The only way it would not be there is if idiots vote in people who kill the system by unnecessarily "privatizing" it.

Again scarecrow, where does this "kill the system" stuff come from.

[howard]

save the rustbelt: the full faith and credit of the united states government isn't good enough for you?

more seriously, we have multi-year obligations to pay interest and principal back to government bondholders: where's the money?

[epar]

Aaron, you need to realize that in essence a govt bond and the govt social security system both rely on the government's promise to fulfill an obligation. One is no more "real" than the other, and relying on one does no more to make you a private property owner than the other.

In fact SS is like a savings account. The only difference is that when it's time for the saver to collect the interest on the account, the ultimate payment source is the (presumably) larger, more productive pool of younger workers. And to the extent that that pool is not larger and more productive, benefits and contributions must be adjusted.

Don't get caught up on the govt holding contributions in its own debt, for practical purposes the govt is just a pass-thru entity, just as a commercial bank is an intermediary between savers and borrowers.

[save_the_rustbelt]

save the rustbelt: the full faith and credit of the united states government isn't good enough for you?

Never said that, I was calling Bruce when he claims that apples and bananas are the same thing because both are a piece of fruit.

A five year contract and a SS committment are not the same thing - that is all I said.

[howard]

Aaron, just who is going to determine which mutual funds and corporate bonds are "pretty" safe? and how safe is "pretty" safe compared to the full faith and credit of the united states government?

then we can move on to other questions....

[howard]

but save the rustbelt: the full faith and credit of the united states government backs both. there is no conceptual difference.

and there's certainly no conceptual difference between SS obligations and interest on government bonds....

[Aaron]

kharris...

An office building is a physical asset. So is a ship, land, factory, truck, car, and fork.

A financial asset is a claim on the rent from the office building, dayrate on the ship, capital gain in selling the land, rent on the truck or car, and a timeshare on the fork.

The social security trust fund does not provide any service such as use of office space or transport goods like the ship, car, or truck. It offers no goods or services that in a free society could be exchanged for cash. Its more like taking the fork back and sticking it to John-Q-public.

[paine]

laws can be changed

and property any property taxed
okay so private accounts are
a species of constrained private property
they offer no greater protection
from the states power
then a changeable law

your point is ridiculous on the face of it

SSI could be repealed tomorrow
then where would the pay roll tax payers of today be
that paid in but lost out when their turn came

where wil they be.... voting

they''ll be voters lots of voters

yes and that makes this notion
ridiculous
unless u find your majority to vote in
the house of representatives that would
pass such a repeal

[Bruce Webb]

STR "To be fair and balanced here (and without supporting McCain), the ratio of workers to retirees is headed for territory we have never seen, and the idea that productivity will solve the problem is more than a little suspect."

Well I suppose. If you have not looked at the numbers in context. The covered worker ratio is largely the result of cherry picking the data to scare people. If you look at overall dependency ratios which includes children alongside retirees you will see that this ratio is never projected to get to the level we saw in the sixties and seventies.
Table V.A2.—Social Security Area Population as of July 1 and Dependency Ratios, Calendar Years 1950-2085. Moreover the ratios generally cited are not in fact worker to retiree but instead worker to beneficiary which includes widows, children and the disabled. It is not all about paying for greens fees for retirees in Phoenix. In point of fact what we know as Social Security is actually Title 2 of the 1936 Act, which by 1950 had replaced Title 1, where the General Fund paid the states to supplement their own welfare based old age pensions. One reason for the much ballyhooed switch from 10 or 16 workers paying in for one retiree drawing out is that previously those workers had been paying state taxes or federal income tax directly to fund senior pensions, a burden that since have been lifted in exchange for a system funded by workers alone. http://www.ssa.gov/history/briefhistory3.html

Social Security not only saved capitalism, by the 50's it actually translated into a tax break on capital. Not that holders of capital returned the love.

And STR you can suspect it all you want. The Trustees have in fact presented us with a model that fully funds Social Security going forward and it is in fact largely predicated on productivity in the future being more or less what it was in the past. Less than a decade ago Greenspan was telling us that 3.0% productivity was to be the expected norm going forward. Maybe he was right, maybe he was wrong, but any amount of average future productivity above 1.7% assists Social Security solvency, any amount above 2.0% almost assures a 100% benefit payout through the 75 year actuarial window. You could look it up.
Table V.B1.—Principal Economic Assumptions . If you can make a principled argument as to why 2.0% productivity by 2012 (and BTW never ever getting better than that in any future year) is so optimistic as to not even be worth discussing (in your words "more than a little suspect") then fine. I just am not in the Roubini crowd that insists that America's future will never be brighter than it was in 2004. They may be right but building in the assumption that double digit and permanent slowdowns in growth over the next four years translates into Rebecca of Sunny Brook Farm optimism (because that is what 'optimistic' Low Cost projects) seems kind of un-American to me.

How did a bet on America get translated into a sucker bet by the gloom and doom crowd? By the way the topic of my AB Soc Sec post XXIX published on the 4th of July What does Patriotism have to do with Social Security 'Crisis' Know it or not people who implicitly embrace Intermediate Cost projections equally embrace an economic future that can only be described as dystopian. If you look at the numbers.

[paine]

aaron
i know u know better

stop playing the stubborn nerd

why play
revenge of the school yard reject
by
holding out against all odds reason and community

if you favor private accounts
make the positive case

ghost stories
about the present system

[epar]

Paine, Aaron just gave you the straw man you wanted:

"The social security trust fund does not provide any service such as use of office space or transport goods like the ship, car, or truck. It offers no goods or services..."

Of course it doesn't, because its only a pass-through from savers to borrowers, just like a commercial bank is. The borrowers are the retirees and the savers are the young workers. When today's young workers retire, they become the borrowers, and tomorrow's young workers become the savers, etc etc. Nor is it a Ponzi scheme because it is designed to pay all investors back.

[kharris]

Aaron,

You keep writing things that you either think addresses what I've said, or that you mean to distract from the fact that you haven't addressed what I've said. Either way, you haven't. Now that you've shown some recognition of what physical assets are (Thanks to me? You're welcome), but then you drifted off into some nonsense about the nature of financial assets. Financial assets can represent claims on things like tax revenue, too. A CD represents a claim on the good management of a bank, often but not always insured by the FDIC. It is simply wrong to offer some narrow definition of financial obligation which leaves out a broad class. Not only wrong, but dishonest when the narrow, incorrect definition just happens to serve your argument.

[Aaron]

epar says...

Don't get caught up on the govt holding contributions in its own debt, for practical purposes the govt is just a pass-thru entity, just as a commercial bank is an intermediary between savers and borrowers.

Well it passes thru what it has to to pay current recipients. The rest goes into the general fund bathtub and you can attibute it to whatever you want too. Giving it to millionaire farmers, building a bridge to nowhere, section 8 housing, midnight basketball, basic research, fighting aids, a new levee, paying for assin drones ... whatever.

Why not put the surplus in a private account.

[lonesome moderate]

"after wrongly claiming that Social Security won't be there when young workers retire"

It won't be wrong if McCain wins the election.

[Bruce Webb]

"The social security trust fund does not provide any service such as use of office space or transport goods like the ship, car, or truck. It offers no goods or services that in a free society could be exchanged for cash."

Well I guess I should just go out and cancel my homeowners and car insurance. Because if I am lucky I will never get any service from them in whether in cash or not. On the other hand as long as I live to be 66 years and seven months old I will get at least something from Social Security INSURANCE. You have simply stuck Social Security into the wrong conceptual slot and then argued that the result is not a perfect fit. Well no that is because the right slot is over there and labeled 'insurance' and not 'investment'.

The trust fund is simply a reserve fund that acts in much the same way as a ban'ks reserve fund held at their friendly regional Federal Reserve bank. That bank reserve fund ideally offers no goods or services to the bank, in fact the bank could do better investing that money in loans. Which doesn't make reserve requirements for banks some dead-weight drag, they like the Trust Fund perform a vital, if somewhat peripheral, function is maintaining the stability of the banking or in our case retirement security system.

(A very sound rule is that once you find yourself in a hole you stop digging. Consider it.)

[mike]

Holy Cow!!! Don't we have enough federally supported private individual savings vehicles? Various types of IRAs, Keough plans, 401s, and so on. -- all retirement savings plans supported by the federal government through varieties of tax advantages. Adding another as a way of dealing with social security is as crazy as bat dung. What are these people smoking?

[kthomas]

"and property any property taxed
okay so private accounts are
a species of constrained private property
they offer no greater protection
from the states power
then a changeable law"

hear hear, Paine, well-said!

Reminds me of a famous quote:
Fool me once, shame on you. Fool me twice.....you cant fool me again!

[Bruce Webb]

"Why not put the surplus in a private account."

Because no one has been able to supply a plan that actually pencils out using identical economic and demographic assumptions. There is actually an excellent argument to be made for diversifying the Trust Fund out of Special Treasuries, and I have been arguing that for years. However that diversification does not require private accounts and there is no actual numerically based argument that shows that private accounts actually perform any positive function as it pertains to actual retirement security for actual workers.

It is all ideology hiding behind a veneer of economics, when privatizers actually get around to putting numbers on the table their argument simply melts down. The overall argument simply boils down to bluster and bullshit. Or you can bring your own numbers and prove me wrong.

[paine]

maybe the problem
starts when u compare the federal gub
to anything other then another sovereign state

aaron knows the diff
and knows his point has to be about an electorate that would renig on its obligations to a huge chunk of the citizenry
in whole or in part

that is not "a strawman"
its the only assumption u got aaron
if you want to make your point
a gub 's paper ghost
is not a machine
---------
as to the higher return
thru a mutual fund
who sez uncle an't invest
trust fund moneys
in equity
real estate ....oil ...

[BJ Feng]

There is every reason for people to be concerned about the huge future SS burden. The arguments above dance around the fact that there are no current savings, the SS Fund's assets are completely canceled out by its obligation to fund those assets. You cannot save by holding your own IOUs or bonds.

Social Security cannot be compared to what private insurance companies do. Insurance companies INVEST some of the premiums they receive, they are able to generate a return from those investments, that's the key part. The government does not generate a return from the SS taxes it collects, the "interest" it gets from holding its own Treasury Bonds are not the same. Think of it this way, if a private insurance company were to collect premiums and swap them solely for their own bonds, then use the borrowed premiums to expand its office locations, increase advertising, and pay out the interest due from the bonds with premium money, that insurance company would be shut down and its executives would be put in jail. IT WOULD BE ILLEGAL FOR A PRIVATE ENTITY TO DO WHAT THE GOVERNMENT IS DOING WITH SOCIAL SECURITY!

Yes the government has police powers, that is all the more reason to be concerned. The government could seize all private property tomorrow and Social Security would be funded, but citizens would still be harmed regardless.

Now the main problem I have is that Social Security is treated differently depending on the situation. Social Security today is just another wealth transfer program, in fact, there is no reason it should be treated any differently or be separated from the general fund. Funds from SS taxes are given to SS beneficiaries and used to fund projects just like any other type of tax.

Yet Social Security is portrayed as an insurance or retirement program, but the way it works does not fit that description. Here lies the disconnect, the confusion, and the controversy. Under the way SS currently operates, there is no reason to link future payouts to what someone pays in SS taxes. There is also no reason to promise any particular payout in the future. Like education, transportation, or the farm subsidies, the program can be cut or expanded as needed, there is no guaranteed spending.

You see, Social Security has been sold as something it is not. It does not operate like an insurance or savings program, yet it claims to be. Either make Social Security into a true insurance or pension program, or stop treating it as one. People have a good reason to worry, they are on the hook for future promises. Social Security under private management would be called a Ponzi scheme, with the government it is much worse. You see, people can run away and refuse to pay into a Ponzi scheme once they figure it out. Unfortunately when government runs its version called Social Security, victims have no choice but to continue to participate.

[kharris]

If the argument is down to "Why not put the surplus in a private account" the answer is obvious. Why put the surplus in a private account?

The very existence of the surplus in the Trust Fund, and the corresponding need of the generaly fund to borrow that surplus, by the way, suggests where the real problem lies. Any changes to Social Security can wait till the general fund is fixed. Till after Medicare, too.

[paine]

"It is all ideology hiding behind a veneer of economics"

too generous there's no economics at all

its cooked books accounting ...period

[paine]

"Any changes to Social Security can wait till the general fund is fixed"

interestingly
its the general fund which is moe progressively extracted
that must pay back the trust funds plus interest
slated by the chicken littles
to start happening
--interest only at first ---
in about ten years
my bet its more like 15

[Aaron]

Bruce Webb says...

I think that most people wished social security were more like a savings account holding assets that at least had the same return as quality corporate bonds or treasury notes and bonds.

Insurance is a contingency claim. It pays generally when unexpected events happen such as your house burns down, you get cancer, or someone steals your car. You're retirement income is not considered to be insurance. Neither are your personal saving (which you also don't get if you die young and unexpectidly). You get it automatically after you reach a certain age and get payed a schedule of payments based on what you put in. The more you contributed the more you get out. Does medicare only give you half a hip in a hip replacement because you did not pay as much as the next guy. That's insurance. Social security is not insurance, its a savings account with a lousy rate of return.

[Bruce Wilder]

rdf: "Do you want a fool or a liar for president?"

Both, say 300 economists, in a statement supporting John McCain's Jobs for America economic plan.

[BJ Feng]

Bruce, where would the money to diversify come from? We would have to increase borrowing or cut current spending elsewhere no? The government can create Special SS Bonds at will, they are just an accounting tactic. As for private accounts, it makes it harder for the government to reneg on future payout promises, and makes it harder to waste or misappropriate the assets that would be dedicated for future payments. Once this account becomes "yours", there are philosophical and ideological obstacles that prevent the government from easily seizing it or using it recklessly. However if it's all under a government account, then that can be "borrowed" or used for other means, none of which have to do with Social Security.

[Aaron]

paine says...

"It is all ideology hiding behind a veneer of economics"

too generous there's no economics at all

Its not about idology, its about return and money. You can have FDRs legacy, i'll take cash.

[paine]

ohh the light dawns

aaron
he don't like the regressive pay out side
of the present system

if u want what u put in
times some universal multiplier
as your take

then say so

[paine]

i'll take cash

ain't that
just like a true anti state
tax and transfer redistribution hater

fine i'll mark you down for a tax audit

[Barkley Rosser]

BJ Feng,

Your story is only true if the intermediate cost projection is true. There is good reason to believe that it is not. If low cost holds, as it has in a majority of years over the last decade, your story is bogus. The trust fund runs a surplus forever, lending money to the rest of the government forever. No problem, none, nada. To sound like anne, get it?

STR,

Guess you did not read my comment did you? Everyone knows about the declining worker to retiree ratio. But for the US it is really a hohum, not remotely a catastrophe. We are in better shape on this than any other high income, developed economy. Our ratio in 2030 will be what Germany's is right now, and they pay more generous benefits than we do, right now, no borrowing from abroad, indeed, just the opposite. No crisis. Not a big deal. You are just repeating idiotic hysteria propagated by propanadists. Do not be an ignorant buffoon/sucker.

Aaron and the Rest,

Of course social security is a system in which current workers pay for current retirees. The "good faith" of the US government is simply the willingness of current voters at any point to continue the system. We have lots of people trying to convince them to change it based on baloney.

As for the idea that privatizing will not hurt the system (even if it does not kill it), look at the problems that the Bush proposal had, and McCain's looks a lot like the leftovers of that never quite fully articulated proposal, although probably you were not closely following these matters when Bush wasted his political capital on a 60 stupidity tour of the country trying to sell the "social security is in crisis" scam.

So, the problem with these semi-privatization schemes is precisely that one starts reducing the revenues going into the system so that young people can start putting them into private accounts. This does not solve the financial problems of the system, it makes them worse, necessitating the increases in retirement ages and reduced future benefits that McCain touts (we must reduce your future benefits because we might have to reduce your future benefits, how logical). The Bush "plan," never officially put forward, had about a six year age group that would have gotten the shaft big time, no private accounts but all the benefit cuts. They were roughly around where the tail end baby boomers turned into the front end Gen-X-ers, the planned victims to take the heat for this garbage.

BTW, private accounts are not as safe as US Treasuries. Look at any financial market to see what is safe and what is not.

You want a government-run private account system beyond all the existing IRAs, etc.? Then do it the honest way as Sweden did. Add it on as a separate system on top of existing social security, paid for by its own taxes, not those stolen from social security that create a fiscal crisis for the otherwise doing just fine thank you social security system.

[paine]

its about return

not really its about
something else
its about
intergenerational inter class community

[paine]

we must reduce your future benefits because we might have to reduce your future benefits

beautiful bark e bark

[BJ Feng]

There is a declining ratio as you've mentioned. That means SS taxes or overall taxes will have to be increased, or payouts decreased. Voters should worry about higher taxes.

And if this is just a wealth transfer program, then why pretend it is sacrosanct? We should ask if the beneficiaries really need the money and whether workers should be giving them a payment, no? As soon as you take the wealth transfer approach to SS, means testing and necessity automatically pops in. Seniors are the wealthiest segment of our population by age, young workers the poorest, there is absolutely no justification to continue SS as it would take money directly from the poorest to the richest.

But as you said, we don't have the funds necessary to make SS an insurance or pension program. So right now, folks are trying to sell SS as if it were an insurance or pension program when it really is a wealth transfer program. Quite a pickle.

[paine]

"do it the honest way as Sweden did"

blap

a case of neo lib weak kneeing nordic style

the gorgeous benign bums
made these other racket plans
look legit

the clintons were all for it..once

the idea who's time thankfully may be passe

let the giffs take ownership and empower em too

"yes mr and mrs wage hour
this is all yours no one can take it away
and you can choose how to invest it too"

monsterous bull shit
for god's sake
look at the history of these corporate sponsored
defined contribution plans
it's chicago style
chile dog economics

[paine]

Voters should worry about higher taxes.

u oughta had said that.... back in 1983

says...

Roughly speaking, there are 2 options

(a)If I were to put the money in a private account,
I would get
-what the stock market returns
which is based on
->the economic growth/productivity growth

(b)If I were to put the money in the SS trust fund I would get
->what the payroll taxes collects + General Fund repayments to SS
which is based on
->what labour gets as wages + share of income taxes
which is based on
-> wages + profit
which is based on
->economic growth/productivity growth

Dean Baker had a much more rigorous definition of this, and posed it as a challenge - "No economist left behind". The challenge was to come up with values of economic growth/productivity growth that would make (b) better than (a)

So far, NONE, - NONE - has risen to the challenge.

Option (b) however will allow a few things.

1. It will allow one set of people to fleece the rest (scams, ponzis - YES - real ponzis like Enron, CountryWide, Pets.com etc) and live large. The fleeced of course will be condemned as incompetent, sheeple, deserving to be screwed etc, and be allowed to subsist on dumpster diving.

2. It will eliminate the need for taxes to be raised to repay the Trust Fund. As Bruce Webb says, this may never be required, but still the gluttons want to be extra sure.

3. It will create a subservient workforce. NEVER underestimate the cunning of capital to create slaves. The less secure workers are, the less demands they make.

No point arguing withe STRs and Aarons and psychopaths like that.

Especially STR. He lives off the Health insurance tit.

[paine]

"Seniors are the wealthiest segment of our population by age"

wanna means test this program ??? why ??

just tax wealth instead
rig it right and we doubtless
can skim more from the cream class
then we'd save by a fair means tested system

fact:
take out ssi and medicare
and frighteningly
huge chunks of old folks
will fall into poverty