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October 23, 2003

SOCIAL INSECURITY, PART 2....Every once in a while I feel like writing a post titled "Myths of Social Security." Unfortunately, it would be about 10,000 words long, it would be really boring, and no one would read it anyway.

But sometimes I just can't help myself. Last week Megan McArdle wrote a column about Social Security that basically said it was underfunded and we ought to do something about it. No argument there. I don't have much patience for lengthy arguments about the "solvency" of the trust fund, but I certainly agree that over the long term Social Security needs to be properly funded.

On Tuesday, however, Megan followed up with a column that rehashes possibly the most tiresome conservative trope about Social Security ever invented: it's a Ponzi scheme. Unless we have a continuing influx of youngsters to fund all the old people, the system is doomed.

Megan quite correctly says that the basic problem with Social Security is that as the baby boomers retire they will suck up a larger and larger portion of our national wealth, but then mysteriously suggests that this trend will continue forever until finally Social Security falls "off the cliff into insolvency."

But here's the truth. The graph on the right is straight from the 2003 report of the Social Security trustees and it shows how much Social Security is projected to cost for the next 75 years. The answer is simple: today Social Security allocates about 4% of the total output of the country to retirees, this increases to about 7% over the next 30 years, and then it flattens out.

4% of GDP is not a huge sum, and neither is 7%. As a country, we could afford to spend 7% of GDP on our retirees today if we needed to, and in 30 years we'll be able to afford it even more easily. And if you prefer to think of it in terms of taxes, it means nothing more than gradually increasing the income cap on Social Security taxes from today's $80,000 to about $300,000 by 2035 (adjusted for inflation, of course). It's just not that big a deal.

I'm genuinely mystified by the legions of people who insist on perpetuating the myth of Social Security disaster. What's the point? They can read graphs as well as I can, and they must know perfectly well that long term funding of Social Security is not that difficult a problem. So why the apocalyptic rhetoric?

Apparently it's to scare everyone into thinking that we should scrap the whole idea of Social Security and move to private accounts. Megan makes a brave effort to wave her hands and claim that somehow it's OK to allocate 7% of GDP to retirees as long as it comes from mandatory investments in private accounts instead of from federal taxes, but this is nonsense. We can either afford to divert that much of our output to nonworking retirees or we can't. It doesn't really matter where it comes from.

(And her claim that mandatory accounts increase national savings is purest moonshine. Trading a $200 billion deficit for an extra $200 billion invested in the stock market does us no good at all. If it did, then we could have a real Ponzi scheme in which the feds crank up the printing presses and give us all a bunch of money to invest. By and by, we'd all be rich!)

Bottom line: starting around 2010 or so we need to begin raising the income cap on Social Security taxes. In addition, we may want to raise retirement ages and cut back modestly on benefits in other ways. But we don't need to do anything dramatic, and private accounts are mostly a matter of taste, not something that's likely to change this dynamic in any serious way. After all, once the system got cranked up you'd have workers putting money into private accounts and retirees all withdrawing from private accounts. Net investment: about zero.

The chart above is as simple and clear as it can be. Social Security funding is not that big a problem, expenditures flatten out rather than going off a cliff, and the entire system can be maintained with modest benefit cuts and a gradual increase in the income cap. The folks who pretend otherwise are just trying to scare you.

NOTE: Medicare is a different issue entirely, and a discussion for another day.

Posted by Kevin Drum at October 23, 2003 03:36 PM | TrackBack


Comments

"starting around 2010 [...] we may want to raise retirement ages"

Guess when I'm planning on retiring? Anyone? Anyone?

Posted by: squiddy at October 23, 2003 03:51 PM | PERMALINK

2009? :)

Posted by: Mo at October 23, 2003 03:55 PM | PERMALINK

Doug Henwood has been consistently great at debunking the libertarian and Republican screeds against Social Security, including the question of whether it is insolvent at any point in this century.

See Henwood over at Left Business Observer and perhaps his articles on Soc Sec are still there.

Posted by: mitchell freedman at October 23, 2003 04:01 PM | PERMALINK

Kevin
You don't address the demographic issues that dictate the number of workers paying into the system declines and their tax burden increases. Much of the gloom/doom revolves around taxpayer resentment at supporting a huge cohort of retirees.

Retirement ages are already being raised in the system. I believe mine is 67.

And you are right - it won't last forever - just till us boomers die off.

Posted by: TR Farmer at October 23, 2003 04:03 PM | PERMALINK

TR Farmer: yes I did. The demographic imbalance is precisely the same as the fact that the % of GDP that retirees get is increasing. The tax burden does indeed need to increase, and I even suggested a way to do it.

There are other ways, of course, but increasing the income cap is the simplest to understand.

Posted by: Kevin Drum at October 23, 2003 04:06 PM | PERMALINK

Where does the $300,000 figure come from? It's obvious that that's the easiest solution to maintain the system into the future. It's exactly what we did with Medicare about 12 years ago, and no one seems to complain that much about it.

Why is my $85,000 taxed, and the next guy's $170,000 only half-taxed? I mean, it's a purely regressive scheme, and no one seems to care?

Posted by: Edge at October 23, 2003 04:06 PM | PERMALINK

If you believe Social Security's projections about the future cost of the system to taxpayers, I have a certain bridge for sale. . . .

Posted by: Ben at October 23, 2003 04:10 PM | PERMALINK

"As a country, we could afford to spend 7% of GDP on our retirees today if we needed to, and in 30 years we'll be able to afford it even more easily."

The second half of this claim sounds false. Why in the future it will be easear to spend the same %?

Posted by: GB at October 23, 2003 04:12 PM | PERMALINK

@GB

Because, historically a higher % of the GDP will be available for consumers after paying for necessities.

Or, another way of putting it: a higher percentage of your annual income will be disposable, so the same tax burden would be less, er, burdensome.

Posted by: Jeff at October 23, 2003 04:18 PM | PERMALINK

"And her [Megan's] claim that mandatory accounts increase national savings is purest moonshine. "

Didn't they cover Modigliani-Miller at Chicago?

Posted by: Tom at October 23, 2003 04:19 PM | PERMALINK

I presume that we are not taking into account increased life spans from better medical technology? I presume that 'percentage of GDP' suggests a briskly growing GDP which may or may not be true under the burden of nearly doubling the tax burden required for Social Security. (You are positing SS spending of 175% of that which is spent now.)

As for not talking about Medicare, I understand you desire to keep things simple, but it is a closely related disaster and it is both more dire, and more immediate.

As for 'net investment zero', this avoids noticing that the investment is creating output in the private system instead of being used for bloat in the public system. (Investing $100 in the widget makers gets us a product, 'investing' $100 in the government for the same return get us no product.)

The fairness doctrine for retirees logically cuts both ways. If they want to say that they put in less than 4% of their incomes, I could say that young people shouldn't be forced to put in more than 4% of their incomes. See what happens when you pretend that a pay as you go system is a retirement fund?

Posted by: Sebastian Holsclaw at October 23, 2003 04:21 PM | PERMALINK

Social Security sucks. I am in my mid-30's, earn an income of less than $85,000 and feel every payday as if I am being screwed by the payroll tax. I doubt very much that I will every collect anything approaching what I am paying in to the system, and, even if I do, I cannot make anything near the rate of return my 401K is generating (even with the stock market the way it is). What reason do I have to support this system?

Posted by: Ben at October 23, 2003 04:25 PM | PERMALINK

4% of GDP is not a huge sum, and neither is 7%.

Wait a minute, that's a 75% increase as a percentage of GDP. Assuming the economy doubles in size over 30 years (hardly an heroic assumption), that's an incremental $300 billion annually. That's a huge number!

As a country, we could afford to spend 7% of GDP on our retirees today if we needed to,

True, but what else could we be spending upwards of $300 billion annually on? Or better yet, what would the American people otherwise do with $300 billion annually?

and in 30 years we'll be able to afford it even more easily.

Huh? Unless you are forecasting productivity enhancements and increasing prosperity (sseemingly at odds with your prior posts) I don't know where this comes from. You may be right, but I don't understand your assumptions for saying this.

And if you prefer to think of it in terms of taxes, it means nothing more than gradually increasing the income cap on Social Security taxes from today's $80,000 to about $300,000 by 2035 (adjusted for inflation, of course). It's just not that big a deal.

Increasing the cap by 2 1/2 times (assuming inflation is 2%, it's still a real doubling) is a big deal IMHO.

In addition, we may want to raise retirement ages and cut back modestly on benefits in other ways. But we don't need to do anything dramatic

OK, let me get this straight, we have a system that all by itself is going to take up 75% more GDP than it does now (representing an increase of 30% of today's Federal Budget) and as a result we need to increase the cap by 2 and 1/2 times, raise retirement ages and cut back modestly on benefits...but those aren't dramatic???????

I don't disagree with your math at all by the way. But would you yawn if I told you that the military budget was going to have to require a 75% increase as a percentage of GDP over the next thirty years? No you'd have a melt-down. As you should, and you'd try to find a better way.

Here's my better way. Over the next 20-30 years we gradually introduce more and more means testing into the system, so that by 2030 say, you have to have a net worth below x, or a current income below Y to qualify. Make SS a real safety net, not merely the wealth transfer it is now.

Sorry about the length.

I'm glad you've outlined the math for everybody. This is among your more useful posts. (That's an honest compliment, not a left-handed one.)

Posted by: spc67 at October 23, 2003 04:28 PM | PERMALINK

Sebastian: "As for 'net investment zero', this avoids noticing that the investment is creating output in the private system instead of being used for bloat in the public system. (Investing $100 in the widget makers gets us a product, 'investing' $100 in the government for the same return get us no product.)"

All you "free marketers" make the mistake that the government does not obey the market laws. It obeys, despite the bargaining method to be little bit different (election). A $100 invested in the government returns much more money (by giving you some things that you will have to purchase otherwise - security/ education etc.) than $100 invested in Enron/WorldCom. The investors in Enron/WorldCom received much less even than the returns "enjoyed" by the Soviet Union taxpayers.

Posted by: GB at October 23, 2003 04:40 PM | PERMALINK

What I find most irritating about the current Social Security system is that the sulrpluses go into the general fund. Since contributions are capped at the higher end, this amounts to yet another regressive tax that has a greater impact on the lower income levels.

Posted by: jri at October 23, 2003 04:40 PM | PERMALINK

"Investing $100 in the widget makers gets us a product, 'investing' $100 in the government for the same return get us no product."

That is about the biggest pile of economic hooey I've ever heard, one you can see quoted all the time. It is, however, nothing but hooey.

When the government collects $100 in taxes it spends it. In return we get all kinds of things -- capital investment (roads, for instance), a redistribution of that money (social programs, including social security), or services (a vast array of them, in fact, little things like national defense, police, the legal system, and countless other things that support and make capitalism work in this country). The fact that the government provides those services matters not an economic whit. The difference between Uncle Sam providing it and GE providing it is exactly zero. They both contribute to the economy and they both provide a return on that "investment." That is an economic fact, Sebastian.

One may think that we shouldn't purchase what we do, or one may prefer that we seek another provider -- one that provides more value, if you will -- but your statement is categorically false. And I'm not your run of the mill fiscal liberal, just someone who doesn't merely pretend to understand economics.

Posted by: pblsh at October 23, 2003 04:54 PM | PERMALINK

You haven't mentioned Krugman's point about the disaster that comes from privatization of Social Security -- I understand again your desire to keep it simple, but.

When I pay money into SocSec, it doesn't go under the government's mattress. It immediately goes to pay some retiree somewhere. (Yes, I understand that it really goes into the general fund. There is still a SocSec inflow and outflow of money.)

If the program is changed such that I can have an individual investment account, suddenly the money that I pay into SocSec is diverted to my account, and no longer goes to retirees.

Yet the current retirees, who paid into the "old" system, will continue to collect their SocSec paychecks.

Where would that money be coming from?

Posted by: eyelessgame at October 23, 2003 05:12 PM | PERMALINK

"The fact that the government provides those services matters not an economic whit. The difference between Uncle Sam providing it and GE providing it is exactly zero. They both contribute to the economy and they both provide a return on that "investment." That is an economic fact, Sebastian."

Nope you are quite simply wrong. The fact that the government provides the services matters a lot because the government is not very responsive to shortages, oversupply, and waste. It is also much slower at moving over to more productive systems one they are identified. The market is sensitive to all of those things. As a result the market comes to more efficient uses of resources than the government does in most cases. This is especially true in the case of long term investments of money (i.e. the way Social Security is portrayed as opposed to how it actually works.)

Posted by: Sebastian Holsclaw at October 23, 2003 05:23 PM | PERMALINK

Normally I don't correct typing mistakes but this one makes the sentence very confusing. It should read "It is also much slower at moving over to more productive systems once they are identified.

Posted by: Sebastian Holsclaw at October 23, 2003 05:25 PM | PERMALINK

The referenced article is part of a campaign that you will be hearing more and more of over the next two years. It is being sold by the conservative movement as "restructuring Social Security." The plan works like this:

A bill (which is pending right now in Congress) will allow couples to save up to $15,000 per year completely tax free. It will be called a "lifetime savings account."

Once the populace starts getting drawn to this shiny bauble (Oooh! $15,000 per year! Squeal!), we can now posit that Social Security is no longer needed because everyone will have these wonderful lifetime savings accounts. Current recipients will continue to collect.

With great fanfare and much rejoicing in the streets, voters will go for this like kids for ice cream. Current retirees are still going to collect, so they won't object. Almost everyone else will be mezmerized by the shiny bauble of the lifetime savings account. That little slice of people who are within, say, 10 years of retiring? Not a big enough voting block to worry about.

Fast forward 10 years. We now have a substantial number of elderly who either work til they drop or die in the streets. And all those voters who wet their pants over the prospect of $15,000 a year? The vast majority discover that it's not physically possible for them to sock away that much cash. Indeed, most will put away a fraction of that, if anything. Only the wealthy, with their greater disposable incomes, will be able to take full advantage of the program.

Bye-bye safety net. Hello old and disabled people living in the streets and/or grinding poverty.

Look for Medicare and Medicaid to get this same treatment, too.

Posted by: Derelict at October 23, 2003 05:37 PM | PERMALINK

I've been slogging it out in the comments over at Megan's, and I can't for the life of me figure out the reasoning behind her and Jim Glass's positions.

Posted by: Jason McCullough at October 23, 2003 06:06 PM | PERMALINK

Here is the gist of the conservative policy proposal on Social Security:

The government should borrow money at a 2-3 % real rate of interest, and then give it to individuals to invest in the stock market. Since we *know* that stocks *always* yield a 7% real return "in the long run", this will save the social security system, as well as transform it from a "Welfare State Ponzi Scheme" into a system of Fully Funded Private Accounts.

I assert that if you boil down any conservative proposal on Social Security from all the padded rhetoric and verbiage, you will come up with this "borrow at 2% and invest at 7%" assumption.

I wouldn't quite call it a fallacy though. The idea, while crazy, is not *completely* crazy. Specifically, the failure of the idea will take many, many years to play itself out.

While I understand why someone might innocently fall for a privatization proposal without understanding the extraordinarily risky assumptions underlying it, I don't quite understand the motivations of fully-informed, knowledgable people promoting privatization. Any ideas?

Posted by: roublen vesseau at October 23, 2003 06:20 PM | PERMALINK

IMO, the resolution of the eventual Social Security shortfall by 2040 will look a lot like the one crafted back in 1983 where taxes were raised a bit and benefits were cut a bit. The sooner Congress gets down to the job it'll be that much easier on everyone involved. Hopefully after 2004 we can dispense with the stupid scare tactics and forge a decent compromise on the issue.

Posted by: David W. at October 23, 2003 06:22 PM | PERMALINK

roublen hits the nail on the head.

The ratio of workers to retirees worries me though. It's three to one now I think and will be two to one.

Unless the workers are more productive they will not accept supporting the retirees.

Megan and other conservatives might consider concentrating on ways to improve productivity instead of encouraging politicians to get into a suicidal fight with the old.

Posted by: Eric M at October 23, 2003 06:35 PM | PERMALINK

"I'm genuinely mystified by the legions of people who insist on perpetuating the myth of Social Security disaster. What's the point? They can read graphs as well as I can, and they must know perfectly well that long term funding of Social Security is not that difficult a problem."

I know we're all supposed to be civil and not impugn people's motives, but isn't it time to stop assuming good faith on the part of people who must know better?

Posted by: gmanedit at October 23, 2003 06:43 PM | PERMALINK

You have to start with the two basics of the conservative view on private accounts:

1. The current system is deeply flawed. Even Kevin's projection assumes you have to nearly double the cost of the program inside 30 years just to stand still. And for most people, SS is a crappy deal in terms of the investment return.

2. If you had to start the system from scratch, a system of private accounts would be better. Yes, to keep it a true 'safety net' you'd need to use some general tax revenue to support people who couldn't put much away, but for most folks, the returns would be superior. (Citing Enron or recent volatility is a bogus argument; a diversified portfolio over 30-40 years would more than even out the risks of its components).

So what's the core of the Democratic argument? Transition costs. I.e., we created a bad system but it will cost you, the voters, too much to change it, so you'll just have to pay more taxes to pay for our mistake.

No wonder the Democrats are losing ground politically if the best its partisans can do is argue that the only thing wrong with a relic of the 1930s is that it doesn't impose enough taxes.

Posted by: Crank at October 23, 2003 06:44 PM | PERMALINK

Sebastian,

The premises that underpin your argument amount to rhetoric and platitudes. Where are the facts?
pblsh is right, the money just doesn't disappear in some bureaucratic black hole. Seniors will spend their income (e.g. gifts for grandkids and, increasingly, drugs) and even save (investment!) some.

Derelict,

Good post. Here in Canada we have the RRSP (registered retirement saving plan) which a self-directed savings plan with tax benefits contigent on your income (with limits). It is, of couse, a juicy tax deduction for the relatively well-off. As as you noted in your example, most Canadians don't come close to their limit.

Posted by: Stephane at October 23, 2003 06:46 PM | PERMALINK

Just an odd thought here, but I noted elsewhere earlier this evening that the population of the U.S. has grown by over 100 million since 1970. By definition, this means they aren't baby boomers. This represents an increase of over 50% in population since 1970, FYI. So arguments about the numbers of workers per retiree being an issue affecting Social Security seem, well, somewhat suspect on the face of it.

Posted by: David W. at October 23, 2003 07:02 PM | PERMALINK

A couple of notes:

1. No, 3% of GDP isn't a big deal. Right now the federal government spends about 20% of GDP, so this would increase it to 23%. I'm not suggesting there's no pain at all, but going from 20% to 23% just isn't that bad.

2. Transition costs are a reality, and you can't ignore them. If we don't increase taxes, then those costs will increase the deficit. Increasing the deficit to finance private investment doesn't do the economy any good.

3. I am assuming that productivity and economic growth will continue at good rates. Increasing taxes by 3% of GDP has virtually no effect on this (tax rates don't appear to seriously affect economic growth until they hit approximately the 40% level, and we're well below that.) Thus, allocating 7% of GDP will be easier in the future simply because the economy will be bigger and everyone will be richer. That's all.

Posted by: Kevin Drum at October 23, 2003 07:09 PM | PERMALINK

And for most people, SS is a crappy deal in terms of the investment return.

Crank, you're forgetting the 'return' for those who receive disabillity benefits from Social Security or survivors benefits. Not a small thing for them, certainly. I don't know what the break-even point is for Social Security, but the point isn't that every one wins financially - it's that the losers at least have enough to live a decent life in their old age.

Posted by: David W. at October 23, 2003 07:11 PM | PERMALINK

"Bye-bye safety net. Hello old and disabled people living in the streets and/or grinding poverty."

The safety net has been removed for children by welfare reform, property tax reform, etc.--and investing tax $$ in raising and educating children pays off economically. Why do we keep it for the elderly?

Posted by: Shamhat at October 23, 2003 07:21 PM | PERMALINK

Two points I haven't seen addressed here. First, a big part of the future SS crunch will come because of the way the current surplus of income relative to payouts is being handled. It's being "banked" in the form of special bonds that the Federal Reserve holds, while the surpluses are being spent as general revenue. When it's time for payouts, the cash will come from redeeming these bonds. But that will have to be done out of then-current revenue (aka taxes) or through borrowing. This is something no one wants to discuss, and an additional reason why these $4-500 billion structural deficits are so disastrous.

Second, strictly speaking, anyone who buys stock after the initial offering is not providing capital to a company for productive purposes. Only the initial buyer does that. A secondary market indirectly encourages initial investments, but, as Bernard Baruch said in the last century, it's really nothing more than speculation.

Posted by: Altoid at October 23, 2003 07:34 PM | PERMALINK

Sorry for skipping over much of the commentary, but there is a point here that is so universally ignored that I thought it worth jumping right in. There is no social security trust fund. It simply does not exist. Instead, all of the excess social security taxes collected over the last 25+ years have gone to supplementing income taxes in supporting general expenditures of the U.S. Government. I don't know how much that is, but, simply put, it is an amount that should be repaid. In other words, the INCOME TAX should be used to fund social security to the extent that the social security tax falls short in the future, at least to the extent that social security taxes have exceeded social security payments over the last decades. (This would be an amount in the trillions of dollars.) In addition, INTEREST on those "excess" social security taxes should also be paid out of general revenues. It is simple equity, and it is a point that is all too often ignored.

THERE IS NO TRUST FUND. THE MONEY HAS BEEN USED TO SUBSIDIZE GOVERNMENT OPERATIONS. THE MONEY SHOULD BE REPAID OUT OF (PROGRESSIVE) INCOME TAXES.

Posted by: fear is the mind killer at October 23, 2003 08:01 PM | PERMALINK

Crank writes: If you had to start the system from scratch, a system of private accounts would be better.

I would like someone who favors private accounts to explain how they are different from eliminating social security altogether. If there were no social security taxes, we'd be free to use that money to invest in mutual funds (or whatever). Why would someone who favors private accounts not favor eliminating social security altogether?

Part of the problem with social security is that just about everyone is dishonest about what it is about. Conservatives talk about it in terms of it being a "bad investment". That's because it's not an investment! When you put money into a mutual fund, or bonds, or a 401K, that's an investment. When you put money into social security, you are supporting today's retirees. You are paying a tax, and your "return" is having fewer elderly living in cardboard boxes eating Alpo.

But the dishonesty of conservatives is payback for liberal dishonesty about social security. What it really is about is a safety net. It's social insurance against the possibility that you might retire without having saved enough money. Given that that's the real role of social security, then two things should have been done differently: (1) It should have been means-tested; only the poorest retirees (along with the disabled, etc.) should receive social security benefits. (2) It should have been funded with general (progressive) taxes.

I think that FDR didn't adopt these because he thought that it wouldn't fly. He thought that people wouldn't be willing to pay more in taxes so that other people could be taken care of in their old age, so instead he sold it as some kind of savings plan---he pretended that retirees are just drawing out money that they paid in years before (well, all except for the first crop of retirees, who benefitted from the "float"). So that pretense necessitated allowing everyone to receive social security when they retire, not just the needy.

FDR's sales pitch worked wonderfully as a means of achieving public support. Note how popular social security is, in comparison with welfare for the poor. People resented welfare because they personally didn't expect to receive any welfare payments. People resent social security much less because everybody can cash in on it.

Maybe Johnson should have proposed sending $500 a month to every man, woman, and child in the country, regardless of need. Maybe that would have been more popular.

Posted by: Daryl McCullough at October 23, 2003 08:20 PM | PERMALINK

MEDICARE --

As I recall, one of the sad facts of Medicare is that 30% of the expenditures come from end-of-life Emergency Room extended procedures, at a time when the dying and their families would be better served by hospice care.

This is one aspect of American Health Care that could be constructively addressed by a Democratic MD in the White House.

(a shameless plug for Howard Dean)

Posted by: Charles Knutson at October 23, 2003 08:25 PM | PERMALINK

When people talk about the demographics aspect of the social security crunch, they don't seem to realize that a 2:1 ratio of workers to retirees is the same problem regardless of whether those retirees pay for their retirements out of general funds, or out of stock market investments, or out of gold doubloon dredged up from sunken pirate ships. No matter how you slice it, you're going to have 2 working people needing to produce all the goods and services needed to satisfy themselves plus 1 retiree. Exactly how that retiree is funded makes no difference, fundamentally.

Well, actually, things are much worse if the retiree is a multimillionaire, consuming tens of thousands of dollars worth of goods and services each month. So private investments that promise to make us all wealthy when we retire will just make the demographics problem much worse.

Posted by: Daryl McCullough at October 23, 2003 08:28 PM | PERMALINK

Crank,
Can you refute the arguments about privitizing
social security given at The Social Security Network
(A Century Foundation Project)
http://www.socsec.org/facts/
The "What Would Really Happen" points.

They've got it right. Privitizing Social Security
"solves" the problem, by creating a bigger problem.

Posted by: J Edgar at October 23, 2003 08:32 PM | PERMALINK

"Borrowing at 2% and investing at 7%". Not crazy you say? Tell that to legions of bankers who have gone bust. Remember the county convinced they could beat the game by selling tax exempts at 3% and invest "safely" in the market to cream off 3-5% the easy way? If only it were so easy.

Read Thomas Frank's essay, "The Trillion Dollar Hustle" from Harper's for a good take on this issue.

Posted by: bobbyp at October 23, 2003 08:34 PM | PERMALINK

I would appreciate it if someone could explain to me why it was a good idea for the Social Security program to be in surplus for decades, but the moment it spends more than it takes in (and starts collecting back some of the money loaned to the wealthy in the form of lowered tax burdens), that?s an emergency. Did the Republicans who sold us this ?trust fund? idea really never intend to make good on their loan?

Posted by: Lori Thantos at October 23, 2003 09:03 PM | PERMALINK

"When people talk about the demographics aspect of the social security crunch, they don't seem to realize that a 2:1 ratio of workers to retirees is the same problem regardless of whether those retirees pay for their retirements out of general funds, or out of stock market investments, or out of gold doubloon dredged up from sunken pirate ships. No matter how you slice it, you're going to have 2 working people needing to produce all the goods and services needed to satisfy themselves plus 1 retiree. Exactly how that retiree is funded makes no difference, fundamentally."

Except that if the retiree spent his life investing, then he's getting a cut of the increased productivity that his investment made possible. In both cases, the retiree needs a cut of today's production, but today's production is made possible by yesterday's capital investments, and if the retiree spent his life chipping in for that, he takes his cut.

"All you "free marketers" make the mistake that the government does not obey the market laws. It obeys, despite the bargaining method to be little bit different (election). A $100 invested in the government returns much more money (by giving you some things that you will have to purchase otherwise - security/ education etc.) than $100 invested in Enron/WorldCom. The investors in Enron/WorldCom received much less even than the returns "enjoyed" by the Soviet Union taxpayers."

The law of diminishing returns has long since kicked in. If we didn'thave a government, then investing in one would yield a spectacular gain. But, given a $2 trillion dollar per year government, adding additional money to it just isn't the best available use of that money.

Posted by: Ken at October 23, 2003 09:03 PM | PERMALINK

Keep in mind that if you increase the cap on which people pay the FICA tax, that will automatically increase the payout to those people somewhat.

Of course, we currently pay close to 15% of GDP in medical care. If we get the single payer into place soon, that will drop to a more reasonable level, since it is twice what any other nation pays. Such a drop may permit more money to go to retirees, or the more reliable health care may permit more people to live longer without retiring. Most of us really don't want to retire unless we have to anyway.

Posted by: Rick B at October 23, 2003 09:55 PM | PERMALINK

Oh, yeah. and think about the source of funds for all kinds of retirement. Regular corporate fixed retirement plans and 401(k)s and their ilk all come from the finance markets. Social security comes from tax money, a different source with different forms of risk. That is the definition of diversification.

So they want you to put your social security funds into the same pool of money already being used to pay your other retirement money, so that all of the possible retirement comes from the same source at the same types of risk - oh, and by the way, you pay them another 1% to 2% to manage that for you.

The pie-in-the-sky-by-and-by guys will give you all kinds of scare stories about Social Security and promises about how much better you can do in their investments. They will NOT tell you the additional risks you run by handing then your bottom-level retirement funds to invest for you, nor do they talk about how much they will make doing it. And they will make their money even after they leave you invested in Enron or WorldCom.

Take a look at the current growing scandals in both mutual funds and in accounting in general. There is nothing proposed that would protect Social Security from any of those scandels.

Posted by: Rick B at October 23, 2003 10:07 PM | PERMALINK

As for 'net investment zero', this avoids noticing that the investment is creating output in the private system instead of being used for bloat in the public system. (Investing $100 in the widget makers gets us a product, 'investing' $100 in the government for the same return get us no product.)

Except that the Social Security fund is not being used to fund government for the most part. It is going directly out to be spent by retirees, creating more demand for goods than would exist without the program.

With interest rates at 1% there is clearly no need right now for more capital. The problem in our economy is not presently a shortage of capital. It is a shortage of demand. If you have a business plan that shows a likelihood of increased sales, there is no shortage of potential investors to put money into it. Interestingly, this has been the case in the US for most of the last 40 plus years. The problems in our economy have involved a shortage in demand recently, and there is little likelihood that will change.

The only thing putting more money into the markets will do is raise prices for earlier investors and reduce the return for the later ones, while guaranteeing the bankers more profit to pay bonuses from. Oh, and increasing the danger of loss to retirees as they lose the guarantees of Social Security.

Posted by: Rick B at October 23, 2003 10:16 PM | PERMALINK

If Social Security is a Ponzi scheme, then we are missing the bigger point. The Ponzi scheme idea means that we have an ever growing elderly population, and an ever dwindling young population. This may or may not be the case in the near term (it is certainly false in the long term -- worst case America ceases to breed, and we die a slow death of attrition). But if that does turn out to be the case -- Social Security is really the least of our problems. This 'Ponzi Scheme' of ours will be a minor, unimportant footnote -- the real problems will be how the fcsk does our economy function when there are no young people left to provide labor, and everybody is retired.

Posted by: Timothy Klein at October 23, 2003 10:28 PM | PERMALINK

Simple. Raise the social security retirement age to 95 for those currently 50 and under. This functionally accomplishes privatization. Also eliminate the cap on income. SS taxes then are just tax revenues that can be fully used for other non-retirement related entitlements like they are now and eventually for some small payments to spry, deserving 95 year olds.

My investment income will be triple what I will receive in social security next year. I invested for the future throughout my career and notwithstanding 3-4 recessions, 9-11, and the out-of-control Clinton Stock Market Bubble I did okay. That old fart passing you in a big gashog RV next summer will be me. You might want to do the same because the SS retirement age will eventually hit 70-73. Has to.

Posted by: Ernie Smeal at October 23, 2003 10:34 PM | PERMALINK

Bottom line: starting around 2010 or so we need to begin raising the income cap on Social Security taxes. In addition, we may want to raise retirement ages and cut back modestly on benefits in other ways.

It is already very hard for the government to make cuts to SS because seniors are such a large voting block. Won't it be even more difficult in the future when the boomers start to retire and the senior citizen population grows?

Posted by: Mario at October 23, 2003 11:16 PM | PERMALINK

the out-of-control Clinton Stock Market Bubble

Words to live by for those unable to read a stock market graph. The rest of us are blessed with the ability to note that there have been a couple of bubbles under the Bush regime and that the market is much more ?out-of-control? than anything under Clinton.

Posted by: Lori Thantos at October 23, 2003 11:36 PM | PERMALINK

I disagree with the proposition that a system of mandatory private accounts would be "better." It certainly would be different. And it may be true that for many, such a system would have yielded better returns than SS. But there are serious problems/questions:

1. Do we want the U.S. Government managing massive investments in stocks? This seems problemmatic in a variety of ways. It could become overtly politicized ("If I am elected, I will disinvest National Retirement from any corporation doing business with ...") It could be privately (which is to say publicly) corrupted. Would a change in President or congress see investment shifts from Tyson to Halliburton?

2. If these are privately-managed accounts, what happens to those who blow it on dot.coms? Capitalism is about winners and losers. It's called SOCIAL SECURITY because it provides SECURITY. This idea of private accounts is more like SOCIAL INSECURITY ...

The SECURITY provided by SOCIAL SECURITY has helped America develop a remarkably cohesive and risk-tolerant society. That risk-tolerance has allowed people to try new things, new careers, etc. Our system has helped make America the most prosperous, most powerful state in world history. WHY do some people want to screw this up?????

Posted by: Brendan at October 24, 2003 05:54 AM | PERMALINK

Ken,

You write: Except that if the retiree spent his life investing, then he's getting a cut of the increased productivity that his investment made possible.

You're right. But the moral of that is this: Whether we as a nation can afford 50 million retirees or not is completely determined by the state of the economy at that time. If the economy is booming, then we can afford our retirees, regardless of whether they have saved enough for retirement or not. If the economy is flagging, then we can't afford it, regardless of whether each retiree has socked away $10 million a piece. As a matter of fact, the latter situation would be much worse for non-retirees---if it's difficult to provide for retirees living on modest retirement income, it will be much more difficult to provide for retirees living high on the hog (that's a Southern expression---I don't know whether non-Southerners use it or not).

Posted by: Daryl McCullough at October 24, 2003 06:10 AM | PERMALINK

Brendan,

You ask: Our system has helped make America the most prosperous, most powerful state in world history. WHY do some people want to screw this up?????

I'll tell you what I think is ultimately behind it. There are a bunch of very expensive government programs (welfare, social security, medicare, public education) that certain people want to get rid of. They know they can't just come out and say "Let's eliminate social security. Let's eliminate public education. Etc." because those programs are popular. So instead they are trying to come up with a "kinder, gentler" way to eliminate the programs. They want to gradual change those programs until they are, in effect, eliminated---but not suddenly or directly enough to raise any public alarms.

Posted by: Daryl McCullough at October 24, 2003 06:17 AM | PERMALINK

I don't deny that SS provides wealth transfers to some elderly poor people. While I'm not a big fan of wealth redistribution, I don't have a big problem with that. The fact is, though, that for most people, you would be better off if the money went into a retirement account outside SS. If the goal is to support the poor, the program could be much smaller.

Gotta run, but I still mean to get to some of this stuff on my own blog (when the World Series is over).

Posted by: Crank at October 24, 2003 06:36 AM | PERMALINK

Is SS such a crappy deal?

Certainly, if the comparison is with amazon.com in the 90's, but it's not as if you or I know who is going to be the next Amazon (or the next Enron, either).

There's a place in every retirement portfolio for investments that are low-yield but extremely low-risk, and I claim that's where SS fits in.

Sure, I could stock up on T-bills in a 401K program. But what about the risk of the broker or mutual fund going bust (or being fraudulent), or the insurance that covers such events? Risks like this seemed like a tiny risk in the high-flying 90's, but not so small today.

The risk of SS going bust is equivalent to the risk of T-bills defaulting, and that's about as low as it's possible to get. SS isn't really enough to retire on comfortably, but it does get one to the "surviving" level...and that's the level that one wants to have covered with as close to zero risk as possible.

One can argue about how much risk is acceptable or how much money it takes to survive in retirement, but SS certainly has a useful place in one's overall financial planning for retirement. For the (ahem) more conservative part of the investments.

Posted by: Satan luvvs Repugs at October 24, 2003 06:40 AM | PERMALINK

...the most tiresome conservative trope about Social Security ever invented: it's a Ponzi scheme.

The current systems pays more to the average retiree that it had collected from him/her. The "Ponzi scheme" is based on the assumptions that: (1) In long term the productivity will not grow enough to compensate for the difference (quite probable). (2) The future retirees will want and get the same (or higher) rate of return than the previous ones had had. They will hever settle for an average return of 90 cents per dollar.

As a result they offer the following solution: to give next generation nothing for the FICA dollars, because this will be more acceptable.

Posted by: GB at October 24, 2003 07:08 AM | PERMALINK

The idea of SS as a self-funding program is a "Ponzi scheme," although a relatively stable one.

You can absolutely have a Ponzi scheme that does what SS does - roughly, sell annuities and keep the first generation's contributions for yourself and pay them out of the second generation's contributions. Increase contributions and benefits by a little bit from generation to generation.

The problem is, the system works only while your contributor/collector ration is stable or increasing.

I guess you could say that because the US Government is capable of paying SS benefits from the general fund, and is not insolvent, it's not *literally* a Ponzi Scheme, but that's only true if you make the assumption that the Government is prepared to make up any shortfalls.

Posted by: J Mann at October 24, 2003 07:23 AM | PERMALINK

The fact is, though, that for most people, you would be better off if the money went into a retirement account outside SS.

Not really, Crank. For a low-income married couple for example, the rate of return on Social Security (in 1996) was 6.6%. For a medium-income married couple, the rate of return is even better at 6.7%. Considering this is a no-risk return, that's pretty darn good. High-income earning couples at a 5.7% rate of return don't do all that badly either.

Of course Social Security isn't an investment program and doesn't pretend to be. But to claim that a majority of people would be better off with straight retirement accounts instead of Social Security omits the fact that you have to take into account how long people can and do live. If it wasn't for Social Security, many eldery people, especially widows, would quickly exhaust their life savings and have nothing left to live on.

More on all this can be found at:

http://www.ssa.gov/policy/docs/ssb/v64n2/v64n2p57.pdf

Posted by: David W. at October 24, 2003 07:40 AM | PERMALINK

"1. Do we want the U.S. Government managing massive investments in stocks? This seems problemmatic in a variety of ways. It could become overtly politicized ("If I am elected, I will disinvest National Retirement from any corporation doing business with ...") It could be privately (which is to say publicly) corrupted. Would a change in President or congress see investment shifts from Tyson to Halliburton?"

We most certainly do not want this. Mandatory private investment is an even worse idea than mandatory participation in a government-run pension scheme.

Far better to just collect less FICA and leave people free to invest on their own, without politicians having such a big carrot & stick to hold over every enterprise that might go on the official "permissible investment" list.

"If these are privately-managed accounts, what happens to those who blow it on dot.coms?"

30-40 years of generally profitable investments more than make up the difference, that's what happens.

"With interest rates at 1% there is clearly no need right now for more capital. The problem in our economy is not presently a shortage of capital. It is a shortage of demand."

Which means that people aren't satisfied with more of what's currently available, and want new things to be introduced. Making it easier for vendors to offer new things for sale in every industry without asking anyone's permission will definitely help on that front.

Then new capital will definitely be useful.

"And all those voters who wet their pants over the prospect of $15,000 a year? The vast majority discover that it's not physically possible for them to sock away that much cash. Indeed, most will put away a fraction of that, if anything. Only the wealthy, with their greater disposable incomes, will be able to take full advantage of the program."

Maybe they won't save 15% of their income. So the solution is to take it away from them and put it into a mandatory pension scheme?

If someone isn't voluntarily saving money, that means he has a better use for that money from his own point of view. Sometimes it's a house (which is a good long-term investment). Sometimes it's an extra kid (who will then help you out when you get old, provided you educate him properly and don't mistreat him). Maybe it's medical treatments, without which he'd be dead long before retirement and that 15% would be flushed directly down the toilet for all the good it would do him.

Or maybe he doesn't have any intention of ever retiring and would like to live better in the meantime. There's no guarantee he'll live long enough to collect that pension, anyway.

Who are you to tell him he must devote such a large fraction of his resources to that purpose that you have dictated to him?

"The pie-in-the-sky-by-and-by guys will give you all kinds of scare stories about Social Security and promises about how much better you can do in their investments. They will NOT tell you the additional risks you run by handing then your bottom-level retirement funds to invest for you, nor do they talk about how much they will make doing it."

Don't the folks working for the Social Security Administration get paid?

"And they will make their money even after they leave you invested in Enron or WorldCom."

And a bazillion other firms that turn out to be legitimate enterprises.

"Take a look at the current growing scandals in both mutual funds and in accounting in general. There is nothing proposed that would protect Social Security from any of those scandels."

But there is something that would protect you in the absence of Social Security - time. Lots and lots of time for the market to recover from any downturns and wind up way ahead of the game.

Posted by: Ken at October 24, 2003 07:42 AM | PERMALINK

The commenter who cited the danger of the government investing in companies was on the mark. Can we really leave it up to the government to decide where to risk our money? How do we know they wouldn't put it all into Worldcom/Enron? In 1999 that looked like the best deal. Fund managers were fried for NOT investing that way.

Let the market pick which companies are the best, not the government.

Posted by: Eric M at October 24, 2003 07:50 AM | PERMALINK

I think this boils down to the following:

There may be good reasons to change our SS system for one totally or partially privatized. But arguing that SS is a Ponzi scheme that simply can't be maintained over time (as those on the right do) is demonstrably false. It can be maintained.

There will certainly be costs involved in keeping SS just as there will be costs involved in changing it. Ultimately it will be a political decision.

Posted by: GT at October 24, 2003 07:54 AM | PERMALINK

In any case, Social Security is a PUBLIC purpose, not a private one. I say this as a conservative. The money allocated to Social Security will be allocated as a PUBLIC resource whether it is in private accounts or public accounts.

If the money is managed and allocated according the public goals, the stock market will not outperform Treasuries, you can bet on that.

Posted by: Eric M at October 24, 2003 07:54 AM | PERMALINK

The problem is, the system works only while your contributor/collector ration is stable or increasing. I guess you could say that because the US Government is capable of paying SS benefits from the general fund, and is not insolvent, it's not *literally* a Ponzi Scheme, but that's only true if you make the assumption that the Government is prepared to make up any shortfalls.

No, the garantee that the average contributor will have higher return ratio than 1 (inflation adjusted) makes the system a Ponzi scheme.
You can classify as Ponzi scheme also all the insurances, private and public. The difference is that the average return ratio is about 0.95. If the insurers are forced to keep the average return above 1 they will go bankrupt very fast.

The "disaster" theories come from the assumptions that the return ratio must always be positive.
The "solution" - private SS, sounds attractive because quite recently it looked that the market can go only up. But if the private sector (Dow, SP500) keeps their negative returns one or two more years, "private SS" will be harder to sell.

Posted by: GB at October 24, 2003 08:12 AM | PERMALINK

"We now have a substantial number of elderly who either work til they drop or die in the streets."

Quotes like this are great. Damn uncaring Republicans. Of course the writer is obscuring the fact that Social Security, as originally implemented, was designed so that most of the retirees would die within 2 years of beginning benefits.

"Megan and other conservatives might consider concentrating on ways to improve productivity instead of encouraging politicians to get into a suicidal fight with the old."

This one is hilarious. One of the best mechanisms for improving productivity is called the 'free market' Having liberals complain that conservatives don't care enough about improving productivity is almost cute.

"Except that the Social Security fund is not being used to fund government for the most part. It is going directly out to be spent by retirees, creating more demand for goods than would exist without the program. "

I hate to be rude, but no. Every cent of the surplus is going out to be spent by the government. Every cent that is going out to be spent by retirees could just as easily be spent or invested by the workers being taxed.

"There's a place in every retirement portfolio for investments that are low-yield but extremely low-risk, and I claim that's where SS fits in."

Yup, but SS is crappy even when compared to low risk, low yield investments.


The rate of 'return' for a low-income couple is irrelevant. They will be getting poverty assistance even under whatever the Social Security replacement is. That isn't return on an investment, that is pure poverty assistance. I'm not against a poverty assistance program, I'm against fake retirement schemes.

I don't understand why so many people think that Social Security is an investment. An investment involves putting money into something for productive use, allowing it to be productive, and hopefully getting more money out. Social Security involves workers putting money directly in the hands of non-workers. The workers never get the productive benefit of that money. The best the workers can hope for is that there are plenty of workers when they retire to take money from. When the number of non-workers increases dramatically, they have to assume that the the workers will be much more productive than they themselves were.

All those who complained that Bush gave the impression that there was an imminent threat, I'm calling you on your understanding of how argumentation works. Since most people believe that SS is a retirement fund, you must be arguing that it is. Why do you lie about that?

Posted by: Sebastian Holsclaw at October 24, 2003 08:16 AM | PERMALINK

Of course, these projections (how accurate have they been in the past?) depend on an ever expanding economy. It's just a projection, not necessarily the truth.

Posted by: Ken B. at October 24, 2003 08:19 AM | PERMALINK

"Apparently it's to scare everyone into thinking that we should scrap the whole idea of Social Security and move to private accounts"

Why is it that whenever anyone talks about tweaking SS to improve it, they are accused of wanting to abolish it? When your car has a flat tire, you fix the flat, not junk the car. Same concept applies here.

As for the graph showing how expenditures flatten out over time, two things:
1) I'd love to look at the same type of graph circa 1940/50. It would be interesting to see how the projections were then as apposed to what we spend today. I'll bet they "flattened out" back then too. Way too much can happen over 50 years for it to be accurate, which makes projections past about 20 years moot.

2) Expenditures may flatten out, but where are the projections for collections during that time in that graph. Do they go up, down, stay the same? If they don't track on the same percentage basis as the expenditures - particularly if they go down or stay the same - then the issue actually becomes worse than that graph indicates.

SS needs to be means tested now. Why is Ross Perot et al getting a check? It shouldn't even be an option for someone like him.

SS needs to be partially (please note that word) privatized so that individuals can control more of their retirement. Then when they get to the SS age and are means-tested, the actions they took 20 years earlier will (maybe) enable them to possibly not even need SS. For those that couldn't or didn't, SS will be there for them.

Posted by: Black Oak at October 24, 2003 08:23 AM | PERMALINK

No, the garantee that the average contributor will have higher return ratio than 1 (inflation adjusted) makes the system a Ponzi scheme.

GB, you're forgetting that since the U.S. economy as a _whole_ grows over time, you can sustain an return ratio of greater than one for Social Security.

Posted by: David W. at October 24, 2003 08:36 AM | PERMALINK

Crank, Now that the baseball game is over,
Can you refute the arguments about privitizing
social security given at The Social Security Network
(A Century Foundation Project)
http://www.socsec.org/facts/
The "What Would Really Happen" points.

They've got it right. Privitizing Social Security
"solves" the problem, by creating a bigger problem.

Posted by: J Edgar at October 24, 2003 08:42 AM | PERMALINK

BTW, to all those liberals who correctly notice that the private accounts method assumes a growing economy--if we don't have a growing economy, Kevin's projections dramatically understate the Social Security percentage of the GDP. So if we don't have a growing economy, we are totally screwed whatever system we use.

Posted by: Sebastian Holsclaw at October 24, 2003 09:18 AM | PERMALINK

Black Oak is right; partial privatization to fix the flat tire breakage (10% mandatory retirement savings seems best). Means testing to reduce checks to rich retired (should be an increasing portion of the elderly, too).
And increasing the tax burdens.
These changes help, the NEED for changes prove the system is not sustainable (as is, today). Prolly doing all is best.

But going from 4% to 7% GDP is HUGE HUGE HUGE. I don't think the Pentagon increases, including Iraq, is even close, for instance. Since this represents pure consumption, zero investment, it MUST mean the future growth is heavily, and negatively, impacted. Just as Pentagon increases are negatively consumptive; although at least with guns the, relative to no guns, security presumably increases. (I much prefer Bush's Iraq over Clinton's North Korea, for instance).

Posted by: Tom Grey at October 24, 2003 09:22 AM | PERMALINK

Black Oak makes some good points for someone who supports a lunatic extremist like Misha.

Unfortunately, he also makes some errors. First, SS is not a retirement plan; if you're banking on SS as your retirement nestegg, you're not going to have a real pleasant retirement. Even the SSA clearly asserts SS is not a retirement plan.

Is SS perfect? No. But it also isn't in the dire straits many claim. Again, the projected failure of SS in the 2035(?) timeframe is predicated upon an annual economic growth rate of 1.6% or less.

Think about that. 1.6% or less growth over the next 30 years.

Should that transpire we'll likely have much bigger problems than SS insolvency.

Posted by: JadeGold at October 24, 2003 09:46 AM | PERMALINK

Sebastian says: BTW, to all those liberals who correctly notice that the private accounts method assumes a growing economy--if we don't have a growing economy, Kevin's projections dramatically understate the Social Security percentage of the GDP. So if we don't have a growing economy, we are totally screwed whatever system we use.

Right. That's why private accounts are a red herring. Social Security is a safety net. Introducing private accounts does nothing to change the need for such a safety net---you will still need such a safety net for those who retire without enough savings. That safety net will have to be funded somehow.

Posted by: Daryl McCullough at October 24, 2003 09:51 AM | PERMALINK

Black Oak says: SS needs to be partially (please note that word) privatized so that individuals can control more of their retirement.

Why must Social Security be partially or completely privatized to accomplish this? I was under the impression that there were other retirement vehicles (401K, IRA, mutual funds, savings bonds) that serve that purpose. Why do you want Social Security to duplicate the function of those programs?

Private accounts are not social security. They are something that we all should have in addition to social security.

Advocating that social security money be used in private accounts is like a child advocating that he be allowed to buy Yugio cards with his lunch money. Whether or not money spent on Yugio cards is worthwhile, it doesn't seem right to call it "lunch money".

Posted by: Daryl McCullough at October 24, 2003 10:02 AM | PERMALINK

JadeGold and Daryl McCullough,

I am not confusing SS as a retirement plan. I'm saying is that there is going to have to be some sort of means testing in the future. Does anybody dispute that, or think that SS can stay exactly as it is now and remain viable? If so, I have this nice bridge for sale...

By partially privatizing the system we may get more people who don't even need the safety net in the first place. Wouldn't that be a good thing?

And JadeGold,
As for Mish'a site and the many others that I peruse, I like a diversity of opinion. Since when is that a bad thing?

I'd hang out at Dem Underground, but they alter and delete posts that don't march in lock step with the owners of the site, so what's the point. I like sites where the free flow of all ideas is open to all.

I hate those that squash dissent or apposing opinions. Damn, I'm sounding like a Liberal here.

I also have little respect for those that would discredit what I said by attempting to associate me with a site that most here wouldn't visit.

Posted by: Black Oak at October 24, 2003 10:24 AM | PERMALINK

I am not confusing SS as a retirement plan. I'm saying is that there is going to have to be some sort of means testing in the future. Does anybody dispute that, or think that SS can stay exactly as it is now and remain viable? If so, I have this nice bridge for sale...

Black Oak, there are plenty of other things that can be done to resolve the projected Social Security shortfall beginning around 2040 that don't involve means-testing. Check out Senator Russ Feingold's list for a rundown if you're interested.

Posted by: David W. at October 24, 2003 10:47 AM | PERMALINK

Here's the URL in plain text, since the link above doesn't work:

http://feingold.senate.gov/forums_socialsecurity.html

Posted by: David W. at October 24, 2003 10:49 AM | PERMALINK

I think the claim that social security is facing insolvency is a cover for the real reason conservatives would like to abolish it, just as the claim that Saddam had nukes was cover for the decision to go to war.

Many years ago, maybe twenty or thirty years ago, I read an article by Gertrude Himmelfarb (mother of William Kristol) in the American Scholar, in which she argued that the middle class cannot be allowed to become dependent on the government. I think this is the conservative philosophy regarding both social security and medicare.

I think it is also conservative philosophy that "the people will vote themselves more and more benefits if allowed to do so." I think recent history has actually proven quite the contrary: the people will vote themselves fewer and fewer taxes if allowed to do so, until there is no money left in the treasury for any basic services. Just look at what's happening in Alabama.

Posted by: mary at October 24, 2003 10:58 AM | PERMALINK

Daryl,

In response to my point about a non-growing economy being a disaster for whatever system, you write:"That's why private accounts are a red herring. Social Security is a safety net. Introducing private accounts does nothing to change the need for such a safety net---you will still need such a safety net for those who retire without enough savings. That safety net will have to be funded somehow."

First of all, if Social Security were just a safety net, it would be about 1/4 as expensive as it actually is. It is so expensive because we are paying rich and middle class people Social Security.

Maybe I'm not understanding your point, or I'm not being clear. If for some reason we don't have much growth over the next 20 years, Kevin's graph of Social Security expenditures as a function of GDP will have an even steeper incline than his current (and enormous) projected 75% increase. That means even more of our economic production capacity will be used in transferring money to non-workers. That means even a higher percentage of the worker's money will be taxed away from them. That means even less growth in the long run. The safety net will not 'have to be funded somehow' if the money isn't there. The money isn't there in a non-growing economy. In a non-growing economy Social Security will either totally collapse, or it will totally collape the economy.

My point in all this is that it is stupid to complain about the inability of private accounts to pay for retirement in a long-term non-growth scenario, because in such a scenario Social Security will collapse too. This isn't a worse feature of private accounts. It is an equally bad feature of private accounts. In a declining economy, NO retirement system is going to be successful for any large percentage of the population.

Posted by: Sebastian Holsclaw at October 24, 2003 11:00 AM | PERMALINK

Yeah, mary you caught us. We conservatives are just hoping to see millions of retirees starving in the streets, with open sores and gnashing of teeth. We dream of it every night, and wake up with smiles on our faces.

It isn't that we think the current solution lulls people into a false sense of social security only to cause huge economic problems later. Nope, we are just hoping to see old people suffer.

How did you ever figure it out?

The middle class can't be allowed to become too dependent on the government because the government needs an efficient and productive middle class to tax.

Posted by: Sebastian Holsclaw at October 24, 2003 11:06 AM | PERMALINK

David W.

I don't have a problem with most of those per se - although a lot of them seem to hinge on increasing or manipulating various taxes - something I'm probably not going to like.

I'm advocating a paradigm change wherein the goal would be to try and have everybody well off enough that they wouldn't need SS to begin with.

Imagine that if you will.

People pay into a system their whole life. Part of the tax ensures a viable safety net for all. Part is privatized for the person paying in. He/She gets to retirement age and starts living off his/her various income sources - be they pensions, IRAs, 401ks, cash etc - including a private SS account that they control. They suck nothing out of the current system. That is good for everybody.

Should they, at some point, fall below the income threshold, SS kicks in and is there for them. For the person who was never abel to attain that level of financial security, SS is still available.

I think that's where we need to go. Even if the persons SS account only lasts 5 or 10 years before it runs out, that's 5 or 10 years that the younger generations won't have to support that person.

Posted by: Black Oak at October 24, 2003 11:09 AM | PERMALINK

GB, my point was that the government is solvent and able to pay.

If GM decides to issue a bunch of bonds, and then they issue more bonds to cover the cost of paying off the first generation, and so forth ad infinitum, they're not necessarily in a literal Ponzi scheme, which is what I think Kevin's trying to say. As long as GM is able to pay off the outstanding bonds if necessary, they're just engaged in a financing arrangement that is likely to be unstable in the long run.

Posted by: J Mann at October 24, 2003 11:12 AM | PERMALINK

The middle class can't be allowed to become too dependent on the government because the government needs an efficient and productive middle class to tax.

Gosh Sebastian H., guess we'd better do away with all public services then, regardless of whether or not they make sense or not. That way, the middle class would have to become all the more efficient and productive! Good thing we liberals have you conservatives to figure such things out for us!... ;-)

Posted by: David W. at October 24, 2003 11:13 AM | PERMALINK

I'm advocating a paradigm change wherein the goal would be to try and have everybody well off enough that they wouldn't need SS to begin with.

Black Oak, while that's a laudable sentiment, not everyone is going to do well enough over the course of their working life to be able to have a decent old age. Social Security does help to fill that need and also provides for those who become disabled or are survivors. It really is, as FDR put it, 'social insurance' and it's worth keeping as a part of a civilized society.

Posted by: David W. at October 24, 2003 11:19 AM | PERMALINK

Black Oak,
If Social Security is not enough to be a retirement plan, only a
safety net, then how would any privitizing help? Do you want people
dependent upon a safety net to be gambling, I mean investing, their
lifeline? That's riskier then buy that bridge

Privitizing would 'get' money from people who don't (at this moment)
need the safety net? I've tried to think of the scenarios, and I just
can't.

Posted by: J Edgar at October 24, 2003 11:19 AM | PERMALINK

Black Oak,
I see your post of 11:09 now.
People who don't need SS are given the opportunity to put the money back in the Treasury when they pay income taxes. They would have more opportunity the more progressive the income tax.

If you don't think the income tax take back of SS amounts to much, you don't know any old people.

Posted by: J Edgar at October 24, 2003 11:27 AM | PERMALINK

"I think the claim that social security is facing insolvency is a cover for the real reason conservatives would like to abolish it"

Again we see that anyone advocating changing SS is really trying to abolish it. What nonsense.

Aren't Conservatives supposed to be the ones to maintain status quo and Liberals the ones who advocates change? No conserviative is advocating the abolishment of the SS system. Those that say so are idiots.

Posted by: Black Oak at October 24, 2003 11:36 AM | PERMALINK

David W. Context. I was responding to a post which implied that the idea of avoiding middle class dependence signaled a conservative plot to abolish Social Security just for the fun of it.

BTW RE: the feingold link. His tax increase suggestions (increase wage cap) are fine so far as they go. They don't solve the problem but the help a little. (points 2,3)

His point 1 (Use Social Security to pay down debt) doesn't really help anything because of the accounting issues. The Social Secutiry surplus is currently used to pay for general fund programs. If the surplus is used to pay down debt, we will have to borrow money fo pay for these programs, or cut these programs. In effect this point says "We need to spend less money on other stuff". As a Republican I can agree with the point. Do you?

His point 4 is relatively minor and also got very little support.

His point 5 has the same problem as point 1. Either he is suggesting cuts in Medicare (I think not) or he is making an accounting point which won't help anything.

So, his points 1 and 5 don't help at all without spending cuts. Points 2 and 3 help a very litte, but are not able to get rid of the problem because there just aren't enough rich people to pay for everyone. Point 4 might help a little but can't garner any support. None of these options 'fix' Social Security, because none of them deals with the fact that there are going to be a much worse ratio of retired people compared to workers than there has ever been in the past.

Posted by: Sebastian Holsclaw at October 24, 2003 11:41 AM | PERMALINK

J. Edgar and David W.,

I'm advocating a system where people are forced to save for retirement (through SS) and don't get SS until a means testing trigger kickes it in.

Read what I wrote. Those that couldn't save enough would still get SS! Those that "run out" of savings would still get SS. The safety net would still be there.

It can't stay the way it is. Very wealthy people draw on it now. It can't continue. That means means-testing.

I'm just advocating that people get control of SOME of that moeny they pay in every week.

It's a pradigm change.

I have to go pick up my three year old from daycare now.

Have a nice weekend.

Posted by: Black Oak at October 24, 2003 11:45 AM | PERMALINK

Under privitization, everyone would be screwed -
http://www.socsec.org/facts/really_happens/part1.pdf

Posted by: J Edgar at October 24, 2003 11:51 AM | PERMALINK

His point 1 (Use Social Security to pay down debt) doesn't really help anything because of the accounting issues. The Social Secutiry surplus is currently used to pay for general fund programs. If the surplus is used to pay down debt, we will have to borrow money fo pay for these programs, or cut these programs. In effect this point says "We need to spend less money on other stuff". As a Republican I can agree with the point. Do you?

Sure, Sebastian H. If Social Security was put in that famous 'lockbox', Congress would be bound by Gramm-Rudman to either cut spending by that amount or raise more revenue. Of course, since the current Social Security surplus is being put in Treasury notes, the day of reckoning can't forever be put off. As a Democrat, I see those Bush tax cuts as essentially a windfall for today's well-off, and a burden for our children in the future.

None of these options 'fix' Social Security, because none of them deals with the fact that there are going to be a much worse ratio of retired people compared to workers than there has ever been in the past.

None of Feingold's options alone is a total fix, which is partly why I posted the link in response to the claim that means testing was a necessity to 'fix' Social Security. As in 1983, I think concerns about Social Security's long term fiscal balance will be resolved by a modest increase in revenues and a modest reduction in benefits.

BTW, I wouldn't bet on the demographic picture forecast today, given how immigration and other factors will affect the U.S. I posted earlier that our population has grown over 100 million since 1970 (an increase of over 50%), which certainly wasn't anticipated back in 1970.

Posted by: David W. at October 24, 2003 12:00 PM | PERMALINK

For all you conservatives who wonder where many of us get the idea that there is a slow push on to do away with Social Security, you might want to refer back to Kevin's previous posting of the Texas GOP platform.

As for the notion that the movement conservative relish the idea of the old and infirm languishing in the streets, I believe most of the conservatives don't even stop to think about it. It's not that they WANT this to happen--it's just one of those unintended consequences from not really thinking things through.

To frame the problem: There will always be a substantial segment of our retirement-age population who, for whatever reasons, have been unable to save enough money to actually survive being retired. Right now, Social Security acts as a safety net for those people. Conservatives believe Social Security is (or should be) doomed.

So, what practical mechanism can be put in place to prevent those who were unable to save for retirement from turning our streets into a third-world scene?

Posted by: Derelict at October 24, 2003 12:04 PM | PERMALINK

"I think it is also conservative philosophy that "the people will vote themselves more and more benefits if allowed to do so." I think recent history has actually proven quite the contrary: the people will vote themselves fewer and fewer taxes if allowed to do so, until there is no money left in the treasury for any basic services. Just look at what's happening in Alabama."

And they'll still vote themselves more and more services if they're allowed to do so. Just look at what's happening in - well hell, just about everywhere there's a democracy in operation.

"To frame the problem: There will always be a substantial segment of our retirement-age population who, for whatever reasons, have been unable to save enough money to actually survive being retired."

If he's unable to save that money, then he's also unable to survive having that money taken from him to go into the Social Security system, and he's unable to survive having it taken from him to be put into a mandatory savings plan.

Some people need that money for more important purposes than retirement.

Where do we get off telling such people "You'll get this money back in 40 years if you live that long. No we don't care what you need it for, you can't have it. It's for your own good."

Jeez, we're not dealing with 10 year olds that need to be told to put their coins in the piggy bank.

I think the best solution would be to abolish the FDA and deregulate the entire medical sector. Then when we have the anti-aging treatment, shut down Social Security and Medicare.

Posted by: Ken at October 24, 2003 12:27 PM | PERMALINK

Social Security is NOT JUST A SAFETY NET.

It would be much cheaper as a safety net. I'm not arguing about the safety net features. I'm arguing about the silly idea that the government ought to be providing retirement income for people, NO MATTER HOW RICH THEY ARE.

That is a bad idea. The middle class and rich are perfectly capable of providing for their own retirements. If we weren't paying social security to them, there woudn't be much of a problem. Then Social Security would be more like unemployment taxes. You hope you never need them, you get taxed even if you are never going to be unemployed before you retire, but it is a safety net if you need it.

Posted by: Sebastian Holsclaw at October 24, 2003 12:42 PM | PERMALINK

And they'll still vote themselves more and more services if they're allowed to do so. Just look at what's happening in - well hell, just about everywhere there's a democracy in operation.

Well, Ken, that's not what happened back in 1983 when Republicans and Democrats last got together to resolve the long-term fiscal house of Social Security. They did a decent job then, and there's no reason why it can't be resolved in a responsible manner today also.

Jeez, we're not dealing with 10 year olds that need to be told to put their coins in the piggy bank.

No, we're dealing with millions of people, not all of whom will have saved enough to have anything to live on in their old age, or who become disabled or are survivors. It would be wise if you'd start to take this issue seriously, since you yourself may become one of them after all.

I think the best solution would be to abolish the FDA and deregulate the entire medical sector. Then when we have the anti-aging treatment, shut down Social Security and Medicare.

Sage advice. Not!... ;-)

Posted by: David W. at October 24, 2003 12:50 PM | PERMALINK

Sebastian H., the problem with your idea of doing away with Social Security and replacing it with a program that only provides benefits for the indigent elderly is that it could give many elderly the incentive to beggar themselves so they can get benefits. Of course, most elderly people wouldn't stoop so low as to actually do that sort of thing. But you can bet that conservatives would recycle every 'welfare mother' story in the book and replace with with a 'welfare old fart' story. Of course, then we'd have to be ever tougher on those old folks who use their IOFB's (Indigent Old Fart Benefits) to buy tender cuts of meat, when they could be saving the taxpayers money by getting Alpo instead. We can't be too vigilant with the taxpayer's money, after all.

Posted by: David W. at October 24, 2003 12:58 PM | PERMALINK

"No, we're dealing with millions of people, not all of whom will have saved enough to have anything to live on in their old age, or who become disabled or are survivors."

If they don't have the resources to save for retirement, then where do we get off taking 15% of their income that they need right now?

If they've been saving for a while and run into an emergency and need that money, it certainly isn't much consolation that they can't have it now, but they'll get it in 30 years.

Some things are more important than retiring at age 65 or 67.

"Sage advice. Not!... ;-)"

Well, then, how do you propose that we get an anti-aging treatment developed? Remember, your life depends on it.

Posted by: Ken at October 24, 2003 01:07 PM | PERMALINK

If they don't have the resources to save for retirement, then where do we get off taking 15% of their income that they need right now?

For the same reason we have taxes in general, Ken. Including sales, gas, excise, income taxes, etc. that we all have to pay. Social Security is set up to benefit working people who have paid into the system, and as such isn't a welfare program.

If they've been saving for a while and run into an emergency and need that money, it certainly isn't much consolation that they can't have it now, but they'll get it in 30 years.

That's why we have _other_ government programs that do serve to help the poor, Ken. Why, we even have bankruptcy laws that benefit even the wealthy. Imagine that.

Well, then, how do you propose that we get an anti-aging treatment developed? Remember, your life depends on it.

Ask Ben Bova. For my part, I'm resigned to my eventual demise. After a nice long life, of course... ;-)

Posted by: David W. at October 24, 2003 01:20 PM | PERMALINK

Sebastian writes: First of all, if Social Security were just a safety net, it would be about 1/4 as expensive as it actually is. It is so expensive because we are paying rich and middle class people Social Security.

Okay, maybe I should phrase it like this: the only purpose for social security is its safety net aspect. It should be just a safety net, not the foundation for anybody's retirement savings.

Posted by: Daryl McCullough at October 24, 2003 01:32 PM | PERMALINK

Black Oak writes: Even if the persons SS account only lasts 5 or 10 years before it runs out, that's 5 or 10 years that the younger generations won't have to support that person.

It doesn't make any difference to society at large whether the retirees have savings or not. No matter how you slice it, the people currently working support those who are currently retired. Money doesn't change that---you can't eat money.

Suppose that there are two workers for every one retiree. That means that those two workers have to build enough houses to house 3 people. They have to grow enough food to feed 3 people. They have to manufacture clothes and cars enough for 3 people. Bottom line, they have to work 1.5 times as hard as if there were no retirees. How does it change things if that retiree has a sack of gold doubloons in his mattress and can pay for his keep?

Well, it changes how much the workers resent him, possibly. But it doesn't change how much the workers have to work in order to maintain the retiree's standard of living. If the retiree is very rich (and so he consumes more than 1/3 of all the food, housing, cars, etc.) then that means that the workers must work even harder and get even less.

Making sure everyone is rich by the time they retire might be a laudable goal for various reasons, but it doesn't at all decrease the burden on young workers.

Posted by: Daryl McCullough at October 24, 2003 02:01 PM | PERMALINK

Ok. I can't resist.

Social Security is confusing. Very confusing. In actual fact, it is an intergenerational transfer: young people put money in that pays for benefits that old people receive. That's the simple definition.

In the minds of the people, Social Security is a savings plan. Yes, I know that it really isn't. But it's a substitute for savings. People think "I put money in today and when I get old, I'll be getting money back out". The fact that the money you put in pays for someone else and that your kids pay for you is immaterial. Money goes in today and comes out later. That's savings to many people.

Since SS isn't really savings, it only pretends to be, it isn't counted in the national savings rate. So, if SS were privatized into savings accounts, national savings would increase. This is a truism. And the existence of SS partly explains why the US savings rate is so low: it's a matter of what counts as savings and what doesn't.

That doesn't make it right to privatize SS. The goal is to provide a safety net for retirees and SS does that. We have 401k accounts, IRAs, etc for people who want additional savings. For most of the middle class, the combination will be enough. Privatizing SS is wrong because it distorts its mission. The same confusion between an intergenerational transfer and a savings plan is driving the call.

Posted by: Paul M at October 24, 2003 02:06 PM | PERMALINK

Ken has obviously never been poor. When it takes every time you have to keep a roof over your head and food in the kids' mouths, you're likely to "squander" the extra dough you now pay into SS into things like slightly better food.

The sad fact is, if you have two kids and a household income of $30,000, it's not possible to save for your retirement. Unless, of course, your family lives in a minibus and showers at the local convenience store.

So these are the people for whom the safety net of social security is intended. They work hard all their lives, do the right thing, contribute to the general welfare by paying taxes and not committing crimes. It behooves our society to make sure these people are not reduced to lving in dumpsters when they are no longer physically able to work.

Posted by: Derelict at October 24, 2003 02:38 PM | PERMALINK

BlackOak:

Please don't attempt to characterize frequenting a site like Misha's as seeking a diversity of opinion; it's a little like claiming you read StormFront for the fashion tips.

The fact is SS remains constant in terms of benefits--as far as the eye can see--so long as the economy grows at an annual rate of 2.2% or better. Now, I understand 2.2% growth annually may not happen but it is far more likely than the annual 1.6% annual growth rate upon which the gloom and doom prognosticators base their assumptions.

So, yeah, SS needs tweaking--but not a major overhaul.

I'd also add that if we privatize all or part of SS--should we not base projections of the ROI of privatized plans on the same 1.6% annual growth rate we use for SS?

Posted by: JadeGold at October 24, 2003 02:56 PM | PERMALINK

"Ken has obviously never been poor. When it takes every time you have to keep a roof over your head and food in the kids' mouths, you're likely to "squander" the extra dough you now pay into SS into things like slightly better food."

Then why force them to participate in Social Security and take 15% of the income that they obviously need for other things?

"The sad fact is, if you have two kids and a household income of $30,000, it's not possible to save for your retirement. "

Then it's not right to force them to participate in Social Security to the tune of $4500 per year.

Yeah, I know that the money's really going to today's older people, and tomorrow's poor bastards trying to get by on $30,000 per year will end up paying them.

If they had that $4500, could they save it? I guess they could, since they're forced to do without it right now. But they have other needs and desires that they consider more important than retiring at age 67. Why take that away from them?

Posted by: Ken at October 24, 2003 02:56 PM | PERMALINK

I see no one has tackled the question of why it is an emergency when the Social Security program goes into deficit when it was fine to be in surplus for decades. There are two parts to this of course. First, when is the emergency; does it occur when the outlays exceed income, and if so, why is there a problem paying off the obligations incurred by excessive tax cuts? Second, where is the evidence that, once it goes into deficit that it will take longer than the 3 or 4 decades for it to return to surplus; this is important because for those decades of surplus the Republicans demagogued the issue as ?your money? when handing back the bulk of tax cuts to the wealthy, when in fact the ?excess taxation? was the result of overcharging the working class ? resulting in a transfer of wealth from the working class to the wealthy.

As a liberal I am, in fact, in favor of abolishing the FICA system whereby the working class is punished for working and the wealth class is rewarded for being wealthy. Instead of funding Social Security out of regressive taxes we should simply use the general fund and at retirement everyone gets an equal amount. It certainly solves Ken's problem above.

Posted by: Lori Thantos at October 24, 2003 04:59 PM | PERMALINK

7.5% plus 7.5% does not necessarily equal 15%. The assumption that the employer will pass on all of a SS tax cut to the worker is probably false, depending on the elasticity of wages. It is quite possible that dropping the employer's SS contribution will result in higher dividends, more waste or a higher salary for the CEO, but not more money for the employee.

Posted by: McDruid at October 24, 2003 05:31 PM | PERMALINK

Another unfounded assumption is that money spent on government projects is not productive - or at least not as productive as money spent in the private sector. Although this may very well be true for some areas of government spending, it is not true of all government spending.

Expenditures on roads, for example, probably has a relatively high return on investment. Certainly Arpanet had a ROI of as much as 1,000%.

Posted by: McDruid at October 24, 2003 05:39 PM | PERMALINK

Ken, let's try to follow your idea to its logical conclusion. We'll give that family with the $30,000 per annum income their FICA money. That gives them less than $100 per week extra money, which will (in all probability) be spent on useless stuff like food, clothes, etc.

Fast forward. Dad's 69 years old and too infirm to work anymore. Too bad he didn't sock away all that extra money you had since he wasn't paying FICA. There's a real nice heating grate down by town hall, and the dumpster behind McDonalds is always full. Maybe his wife could join him there.

Is that REALLY the kind of America we want? A place where the unfortunate are cast aside or set adrift on a sidewalk?

Posted by: Derelict at October 24, 2003 06:39 PM | PERMALINK

The should read "all the extra money HE had..."

Posted by: Derelict at October 24, 2003 06:40 PM | PERMALINK

Uhh, sorry Kevin, but by 2080 the share of GDP going to Social Security isn't 7% its more like 12.24%. Check your own damn source again. Go to the content page and go to the bottom. Your graph leaves out HI, hospital insurance.

I don't about you, but $45 trillion is a huge number...especially when you realize that Social Security will be short by about $23 trillion.

Sheesh.

Posted by: Steve at October 25, 2003 01:39 AM | PERMALINK

And you are right - it won't last forever - just till us boomers die off.

Wrong! That is precisely the opposite story Kevin's links and graphs are showing.

Man, talk about missing the obvious.

Posted by: Steve at October 25, 2003 01:40 AM | PERMALINK

Wow, a poor person gets to spend $100 on 'on useless stuff like food, clothes, etc.', and this is a liberal defense of Social Security? Please tell me that you are my alternate personality doing a brilliant parody on liberal arrogance!

I'd talk slower, but it won't show up on the screen. Social Security is not just a safety net. If it was, we could afford it. Sob stories about poor grandpa are defenses of the safety net side excuse for the program. I'm not about getting rid of the safety net, I'm about getting rid of the idea that the government should provide retirement income for middle class and rich people.

Posted by: Sebastian Holsclaw at October 25, 2003 11:10 AM | PERMALINK

I'd talk slower, but it won't show up on the screen.

Let?s see, a combination of idiocy and arrogance ? it?s, no wonder you?re a conservative. Let?s walk you through this and see if you can understand what really happened. The poster talking about ?useless stuff like food, clothes, etc.? is MOCKING the notion that by having this extra money in his pocket a working stiff is going to be able to invest it and have MORE at the end than Social Security provides; not, as you appear to have cluelessly determined, suggesting that these things are in fact useless. The term you are looking for is sarcasm.

But you are right Sebastian; perhaps we should eliminate Social Security taxes (since they do keep that working stiff from his extra $100/week) and go to a truly progressive tax that funds retirement from there. If we were to go to a fixed payout for retirement, then the subsidy for rich and middle class (for whom it is already a fixed subsidy and not a substantial portion of their income) would be merely cosmetic and we could eliminate the idiocy of borrowing from the working class (thank you Red-Ink Ronnie) to give massive tax breaks to those who have plenty. It would also help improve the rhetoric about taxation as there would be no Republican dodge about how so many people don?t pay taxes (with a silent, but implied ?income? inserted before that), those people finally wouldn?t be paying taxes.

Posted by: Lori Thantos at October 25, 2003 01:34 PM | PERMALINK

Why fund everyone's retirement? Why not just help out poor people? Do rich people need a fixed retirement payout from the government? No they do not.

Posted by: Sebastian Holsclaw at October 25, 2003 02:42 PM | PERMALINK

The truth is Mr. Holsclaw is that my scheme is more politically palatable than yours. But the answer to your question is that I?m not arguing in favor of funding retirement for the wealthy; I?m arguing for a flat stipend. While there are a few who would find this more than sufficient to live on, most people will still do what they do now ? save for retirement. It has a real upside too; it is very simple. If everyone gets a check for the same amount there is less overhead; the questions become ? are you old enough to receive this, are you only one person (that is, one still needs to guard against multiple checks to an individual), and are you still alive? With a very simple system we all benefit. With a fixed amount the money that goes to the wealthy becomes a smaller and smaller percentage, at the very top the progressive taxation will be greater than the stipend.

I want to point out that we agree more than we disagree on this issue. I don?t think the guy making $30k/yr should be penalized for working by having 15% of his income taken (as a contractor) while the lawyer making $300k/yr has only 1.5%. I would rather the guy at the bottom have the opportunity to waste his money on food and clothing :-p I think the ability to accumulate wealth is harmed by high taxation on the working class resulting in increased wealth stratification and decreased class mobility. Those afraid to make it a real safety net hobbled Social Security, to our continuing detriment.

Posted by: Lori Thantos at October 25, 2003 09:22 PM | PERMALINK

Sebastian,

I disagree with you---social security is just a safety net. The universal aspect (everyone gets social security, if you live long enough) was a political move to increase its support. The problem is that if social security were only available to the poorest of seniors, it would be whittled away to nothing.

If you want to restrict Social Security payments to just the poor, I'm in favor, and I'm also in favor of changing its funding from payroll taxes to general income tax. I'd like to know how that would work, politically, though.

Posted by: Daryl McCullough at October 26, 2003 04:29 AM | PERMALINK

"That gives them less than $100 per week extra money, which will (in all probability) be spent
on useless stuff like food, clothes, etc."

Uh, 15% of 30,000 is $4500, which works out to $375 extra per month.

And the point remains the same: if they need that money now for current needs and can't afford to save it, then they can't afford to have it taken away for 40 years either.

And it's not a consolation to turn around and give them charity either.

Posted by: Ken at October 26, 2003 10:52 AM | PERMALINK

"I disagree with you---social security is just a safety net. The universal aspect (everyone gets social security, if you live long enough) was a political move to increase its support. The problem is that if social security were only available to the poorest of seniors, it would be whittled away to nothing."

Food stamps exist, and rich people don't get them. Anti-poverty programs which don't incentivize long term unemployment have broad support. Disaster relief has broad support, and a huge majority of people never get money from it. Agricultural subsidies are still around and they effect a vanishingly small number of people.

If it is true that you really just want a safety net for poor people, you have chosen the most ridiculously wasteful and expensive method for doing so because more than 3/4 of the money in the project does not go to your stated aim for the project. It isn't surprising that Republicans think Democrats are wasteful if they think that 1/4 of the money going to the aims of a project is a defensible percentage.

Your actions show that you are either lying about your stated aims, or your are completely incompetent at fulfilling them.

Posted by: Sebastian Holsclaw at October 26, 2003 11:59 AM | PERMALINK

I see Sebastian and Ken manage not to deal with the honestly liberal aspects and focus instead on the compromises forced by the Republicans. And I would hardly have such a haughty attitude about wasteful spending ? it wasn?t the Democrats who sent our soldiers to die in an effort to increase terrorism recruitment and demand that we spend more than $150B to do so; it wasn?t the Democrats who blew the surplus; it wasn?t the Democrats who setup a scheme of borrowing from the working class to pay for tax cuts for the wealthy.

Let?s get something clear ? the liberals are the ones who want this to be a safety net; the political class contains those who want to default on their decades of borrowing from the working class (Republicans) and those who are afraid of converting a successful program into something truly progressive because of the predictable demagoguery that would come from the other side (Democrats).

No Republican proposal to ?fix? Social Security does any such thing. No proposal from anyone has even the slightest chance of making it if it does not continue to pay out to the broad middle class. In other words, you can discuss ideals (in which case the liberals have the right ones), or you can discuss politically viable solutions (where the Republicans aren?t trying to actually solve anything but are intent on defaulting on their obligations in order to wreak havoc so as to ease the transition back to no safety net at all). What you can?t do is talk about the politically viable solutions as if they were the ideals. That?s dishonest and you are smarter than that (I?ve been to your blog).

Posted by: Lori Thantos at October 26, 2003 12:26 PM | PERMALINK

"I see Sebastian and Ken manage not to deal with the honestly liberal aspects and focus instead on the compromises forced by the Republicans."

"Let?s get something clear ? the liberals are the ones who want this to be a safety net"

Where is the evidence that liberals really just want a safety net, but were forced to universalize Social Security to placate Republicans? This is a bald-faced assertion, with no proof. I do not believe that liberals just want a safety net. If they did, they would have set up a safety net. They actually set up a universal system where 3/4 of the payments go to the rich and the middle class. By definition that is not a safety net. I have seen zero evidence that this was made universal because Republicans were threatening to scuttle it if rich people weren't paid. I believe that such evidence is vanishingly slight. Does it exist at all, or is this yet another case of liberals rewriting history?

Your whole premise is that Social Security was universalized as a sop to Republicans. Until I see some evidence that this highly counter-intuitive concept is true, I can't really debate with your other thoughts because they derive from something which seems to be imaginary.

Posted by: Sebastian Holsclaw at October 26, 2003 02:04 PM | PERMALINK

A point I have not seen made above is the dampening effect social security provides on economic turbulence.

There's a nice post on this at http://theclarksphere.com/archives/000339.html

A quote from the above is:

This law, too, represents a cornerstone in a structure which is being built but is by no means complete. It is a structure intended to lessen the force of possible future depressions. It will act as a protection to future Administrations against the necessity of going deeply into debt to furnish relief to the needy. The law will flatten out the peaks and valleys of deflation and of inflation. It is, in short, a law that will take care of human needs and at the same time provide the United States an economic structure of vastly greater soundness.

FDR August 14th, 1935

Posted by: Anurag at October 26, 2003 02:50 PM | PERMALINK

I see SH has decided on the sophistry argument rather than one based on facts. SH, what did the Republicans do with Roosevelt?s work projects? Did they fight them because they were ?welfare?? The fact is, a system that could be reasonably described as welfare could not have been passed in the 30s (and if it had been, the Republican infested court system would have struck it down, or have you forgotten Roosevelt?s attempt to pack the judiciary and its cause?). What did Reagan do in the eighties concerning welfare? Did he demagogue the issue as one of ?Welfare Queens?? Does the party of wealth have a long history of painting those in need of assistance as leeches?

In other words, my assertion is not counter-intuitive; it is exactly in line with historical Republican behavior.

Here?s a counter question for you: Where is the evidence that the Republicans (past or present) are working towards making Social Security a safety net? Here?s a follow-up for you: If the government pays out Social Security to those in need, and those not in need derive little effective benefit from it, how is that NOT a safety net - and the answer that it is too broad isn?t an answer, it is an admission of failure on your part?

(oh, and do you want to provide evidence that 75% of its recipients don't really need Social Security? - you've been hammering that little talking point for some time with nothing but your word to back it up)

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