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November 16, 2007
On Krugman on Social Security
Don Boudreaux
Paul Krugman thinks that it is plain silly -- or, really and worse, an ideology-induced lie -- to say that Social Security faces a financial crisis. Here's Krugman writing in today's edition of the New York Times:
Inside the Beltway, doomsaying about Social Security — declaring that the program as we know it can’t survive the onslaught of retiring baby boomers — is regarded as a sort of badge of seriousness, a way of showing how statesmanlike and tough-minded you are.
. . . .But the “everyone” who knows that Social Security is doomed doesn’t include anyone who actually understands the numbers. In fact, the whole Beltway obsession with the fiscal burden of an aging population is misguided.
As Peter Orszag, the director of the Congressional Budget Office, put it in a recent article co-authored with senior analyst Philip Ellis: “The long-term fiscal condition of the United States has been largely misdiagnosed. Despite all the attention paid to demographic challenges, such as the coming retirement of the baby-boom generation, our country’s financial health will in fact be determined primarily by the growth rate of per capita health care costs.”
How has conventional wisdom gotten this so wrong? Well, in large part it’s the result of decades of scare-mongering about Social Security’s future from conservative ideologues, whose ultimate goal is to undermine the program.
The only evidence that Krugman presents to support his case against the proposition that Social Security is headed for insolvency (unless it undergoes big changes) is simply that Medicare and Medicaid are headed for insolvency that's even worse.
So Krugman's case that Social Security presents no real problems to worry about is like, say, a lawyer advising client Jones that the grand-larceny charges against Jones are really nothing to worry about because client Smith is facing the more serious charge of murder.
It's true that the fiscal problems looming for Medicare and Medicaid are worse that those that loom for Social Security. That this fact is so is admitted by those who believe that Social Security faces real and serious problems.
For example, Texas A&M economist Thomas Saving, an eminent scholar and a Clinton-appointed Public Trustee of the Social Security and Medicare Trust Funds, testified to Congress in March 2005 that Social Security faces big fiscal problems. Mr. Saving admitted explicitly that the problems confronting Medicare and Medicaid are larger than are the problems confronting Social Security -- but he went on, quite correctly, to highlight the nevertheless large problems with the current Social Security system. And in an essay that Mr. Saving published a few monts later, in July 2005, he said
The recent annual report issued by the Social Security Board of Trustees demonstrates with undeniable clarity that Social Security faces a looming financial crisis. Worse still, the report shows Social Security's lurch toward insolvency has accelerated.
In just a little more than a decade, Social Security will begin to run a deficit, the study shows. Deficits will continue and amplify every year well beyond the turn of the next century. Despite early protestations from many on Capitol Hill that "there is no crisis," few serious observers of the current state of Social Security hold out hope the system can survive as presently constructed.
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Comments
As a relatively young person, I don't care if social security is doomed. The program itself, when functioning properly, is a gigantic screw job. To give 12% of your income to a retirement system that pays out at poverty levels is highway robbery. If a private company was selling social security as a plan, its executives would be jailed for a host of fraudulent actions, starting with accounting, and including breach of contract (every time Congress decides to change the terms of the deal) and mismanagement (forcing clients into such an incredibly terrible deal).
It would be extremely difficult to find someone who had privately invested 12% of their lifetime earnings who received less back in benefits than they will get from social security.
Posted by: kebko | Nov 16, 2007 10:41:08 AM
Don, did you see my comments on Robert Higgs treatment of interest rates in the 1930s.
The way he displayed long rates as a multiple of short rates is a major methodological error
that makes falling rates appear to be rising rates. Consequently, his conclusion that the
market was reacting negatively to FDR is completely wrong.
Do you care to defend his methodology or demonstrate why my criticism is in error?
Posted by: spencer | Nov 16, 2007 10:56:52 AM
Of course, what Krugman also fails to mention is that Social Securtiy is an easier problem to tackle and the sooner we start the better.
Shifting part of the payroll tax an individual pays into a private account, as opposed to paying it out for current govt spending, will allow today's youth to accumulate a significant nest egg by the time they retire. That will in turn make changes down the road (i.e. traditional Social Security benefit cuts, which eventually must happen) much easier.
Posted by: PM | Nov 16, 2007 11:05:06 AM
As I understand it both social security and Medicare/Medicaid can be relativily painless fixed by linking the growth in payouts to price increases rather than wage increase. How true is this?
Maybe this seems painless to me because I'm 22 and not planing on getting social security anyway.
Posted by: Mason | Nov 16, 2007 11:23:57 AM
"Why should the overall surplus be no less than the combined surplus of the trust funds? Or, to use Washington jargon, why should we put those trust-fund surpluses in a 'lockbox'? First, because we know that the projected surpluses in Social Security and Medicare, though enough to postpone the eventual crises in the two systems, are not enough to put off those crises forever." --Paul Krugman, "Going for Broke", The New Republic, 5/21/01
Posted by: Paul Zrimsek | Nov 16, 2007 12:01:41 PM
Qoute from Kebko: "As a relatively young person, I don't care if social security is doomed."
Qoute from Mason: "Maybe this seems painless to me because I'm 22 and not planing on getting social security anyway."
If young people have this attitude about Social Security, then I'm not surprised that politicians don't think its a crisis. If people don't care that 7% of their money is basically being flushed down the toilet (14% if you count the "employers contribution"), then there's probably plenty of room for raising that tax rate much higher.
I look forward to living off your future income.
Posted by: Keith | Nov 16, 2007 1:31:25 PM
Mason:
It will help the solvency of SS but not totally secure it. The CPI is what the benefits would be indexed to. However, the CPI is a government statistic and can be manipulated by government officials to underhandedlly decrease benefits over the long run. I would heartily applaud the destruction of SS, but the possible use of CPI to undermine benefits strikes me as evil and dishonest.
The real financial crisis will come long before SS Trust is actually in danger. It's because the SS Trust and Medicare Trust Funds are all mixed up into one big slush fund for general spending. Once the SS surplus and the Medicare surplus starts decreasing, the entire US Federal Government will be in danger of insolvency. It will no longer have enough money to pay for people do its most important task, National Security.
Posted by: TanGeng | Nov 16, 2007 1:32:50 PM
Essentially this is the prefunding con job. Since FICA revenues will cease to support general expenditures in the near future what we must do is... increase the FICA tax so it continues to support general expenditures. In other words, we need to increase the regressive payroll tax so that we don't need to raise other taxes. And we're doing it to "save" social security.
This is the con, laid out clearly for all to see. This has nothing to do with "saving Social security" and everything to do with increasing the regressivity of the tax code.
Posted by: Duncan | Nov 16, 2007 1:54:25 PM
What Krugman says now is a bit astonishing in light of what he was writing in 1996.
Posted by: Stuart Buck | Nov 16, 2007 1:54:38 PM
Krugman and other economists have written extensively on Social Security, with compelling arguments to support the notion that it's solvent. So, it's misleading to imply that his reasoning rests on the principle that Social Security is not as bad off as Medicare.
Kebco, over your lifetime you may pay a substantial portion of your income into home insurance, and if you're lucky (i.e., you don't suffer a fire or other disaster) you never will receive a payment in return. Will you regard this as "highway robbery"?
PM, if SS is an "easier problem" to fix, as you say, that supports Krugman's claim that it's not in crisis. Also, if the market continues to whipsaw as it has recently, and with global pressure and oil above $100/barrel, can you guarantee private accounts will allow workers to accumulate a nest egg?
Mason, it is not correct to say that "SS Trust and Medicare Trust Funds are all mixed up into one big slush fund for general spending. Once the SS surplus and the Medicare surplus starts decreasing, the entire US Federal Government will be in danger of insolvency." They have separate trust funds, and none will throw the government into receivership.
TagGeng, there are other options to raising "the regressive payroll tax." For instance, we might make a progressive tax.
As for Krugman's seeming change of heart from 1996, for that I have no explanation. If the Krugman from 11 years ago truly thought Social Security faced a demographic-driven crisis, then evidently he was wrong.
Posted by: David | Nov 16, 2007 2:42:48 PM
Look, this is not complicated:
"In just a little more than a decade, Social Security will begin to run a deficit, the study shows."
Krugman does not deny this at all, so it's not an effective rebuttal. What this "deficit" means is that the excess SS contributions that go into the trust fund go to zero, and SS instead needs to start cashing in the Treasury bonds in the trust fund (to cover said "deficit"). That is *by design* the outcome of the Greenspan commission's plan of '82; it was the *whole point* of building up the trust fund. Ergo, 2017 is not a "crisis."
The people proposing SS "fixes" that amount to either increasing SS payroll taxes or reducing benefits in order to stretch out the trust fund further, instead of raising general (progressive) income taxes or cutting general expenditures to allow for paying back the debt from the general budget to SS, are essentially proposing that a regressive tax (SS payroll) be continued to be used to subsidize lower rates on progressive taxes; the math here is inescapable.
What about the longer term health? The CW expectation that the trust fund will be depleted by mid-century is based on using a pessimistic productivity growth assumption of 1.3%; however, historical productivity growth tracks much more closely the middle-of-the-road assumption of 1.6% (it's actually between that and the optimistic assumption of 1.9%). At 1.6% productivity growth, the trust fund is depleted after 2075. At 1.9%, it lasts indefinitely. Again, note that it was *always* the case that the trust fund would eventually be depleted as it was originally created by the Greepnspan Commission to cope with the demographic bomb of the baby boom. Pre-Greenspan, SS was a pay-as-you-go system. Ergo, 2042 (or 2075, or whenever the fund is depleted) is not a "crisis" either.
What happens after it is depleted? SS returns to being a PAYG system, as it was for almost 40 years without a problem; trustee projections indicate that after depletion, PAYG contributions can fund 75% of scheduled benefits (again, based on pessimistic assumptions). Given that there are reasonable odds that trust-fund depletion is way in the future (the number of years until depletion varies by around 100% depending on the assumptions used), it's reasonable to address it when it's closer.
Krugman is right. The political objective of the people pitching the "crisis" rhetoric is to postpone as much as possible using progressively-taxed general revenues to pay back regressively-taxed SS. It's pure-and-simple class warfare.
http://en.wikipedia.org/wiki/Social_Security_Trust_Fund
Re: 1996, Krugman does not talk about SS on its own, but about SS, Medicare, and overall fiscal health.
Posted by: Ivan | Nov 16, 2007 2:58:39 PM
"If young people have this attitude about Social Security, then I'm not surprised that politicians don't think its a crisis."
I didn't say I didn't care about the SS crisis, I said a change now would would be much less painfull for me because I'm young; I haven't lived my life expecting SS when I retire.
TanGeng-
Why is a price index more easily manipulated than a wage index?
Posted by: Mason | Nov 16, 2007 3:07:34 PM
Why does anyone still pay attention to what Paul Krugman says? As economists go, he would make a good garbage man. Or fry cook.
His typical approach to refuting free market economists is to state the evidence for the free market position as if it was evidence against it.
He argued that California's electric utilities were really deregulated by naming three regulation imposed on the market by the deregulation.
He argued that the SS trust fund is solvent, not just a bunch of IOU's, because there is a law that says the government must pay back its treasury bonds.
Posted by: SaulOhio | Nov 16, 2007 3:10:39 PM
Krugman didn't have to say anything on the big lie about the Social Security prognosis because he has previously had many columns debunking it. Keep up.
Posted by: Gary Denton | Nov 16, 2007 3:12:18 PM
Calling the SS tax regressive is a bit dishonest. A straight percentage of income is neither regressive or progressive--it's neutral. Regressive is a captitation tax. The only sense in which one might call the tax regressive is that it's capped at a level of income that represents a cap on benefits, but that hardly deserves the "regressive" label.
Posted by: M. Hodak | Nov 16, 2007 3:19:10 PM
If Paul Krugman could lump SS and Medicare together in 1996 for crisis-mongering purposes without becoming a conservative ideologue thereby, why can't we do it now? (And why did he say "crises", plural, in 2001?)
How big a seller would homeowner's insurance be if it left you worse off than self-insurance even when it paid off? Why, they might have to pass a law forcing people to buy it whether they wanted to or not!
Posted by: Paul Zrimsek | Nov 16, 2007 3:23:32 PM
Excellent post, Ivan. I would add that it's unclear how private accounts would enjoy the yields their proponents advertise, in the face of the pessismistic 1.3% productivity growth rate which is the basis for the 2042 SS shortfall prediction.
SaulOhio, has the government ever in its history defaulted on treasury bonds? Do you imagine such a default wouldn't have grave consequences? Do you expect any future politician facing re-election ever to be in favor of such a default?
Posted by: David | Nov 16, 2007 3:28:18 PM
Paul Zrimsek, self-insurance of one's home--when it's feasible--always is economically more advantageous than the shared risk + profit model of purchased homeowners' insurance. When it's feasible. Usually, it isn't, which is why people continue to buy homeowners' insurance. Your analogy is bad.
Posted by: David | Nov 16, 2007 3:33:58 PM
there is no trust fund, period. only iou,s and where will the bucks come to redeem them? Ha just guess.
Posted by: roger o. | Nov 16, 2007 5:14:44 PM
For his own sake, the possibility that Krugman is developing schizophrenia should be seriously considered by people that are emotionally close to him. It's sad to see a once-great economist losing it like this.
Posted by: Badger | Nov 16, 2007 5:16:18 PM
SaulOhio, has the government ever in its history defaulted on treasury bonds? Do you imagine such a default wouldn't have grave consequences?
The unmarketable SS bonds aren't Treasury Bonds in the same sense that the marketable Treasuries held by China are. Default on the SS bonds might have a positive effect on the U.S.'s credit rating.
Posted by: Patrick R. Sullivan | Nov 16, 2007 5:25:16 PM
The US government currently covers a higher percentage of its spending through deficits than Social Security would have to on the day that this supposed financial doomsday arrives in 30-40 years.
Calling this a crisis is nothing short of absurd.
Posted by: JoshA | Nov 16, 2007 5:32:05 PM
self-insurance of one's home--when it's feasible--always is economically more advantageous than the shared risk + profit model of purchased homeowners' insurance. When it's feasible.
If this were true, so much the worse for SS. Self-insuring against retirement is eminently feasible.
Posted by: Paul Zrimsek | Nov 16, 2007 5:58:48 PM
Roger O., has there ever been a trust fund since perhaps Pharaoh's that doesn't consist of promissory notes to pay? So why should I be more concerned about the SS trust fund than about any other? In addition, it's misleading to characterize the bonds as merely "IOUs". Scribblings and a signature on the back of an envelope given to my brother for the 20 bucks he loaned me is merely an IOU, and no law other than filial says I have to redeem it. Are such IOUs exactly the same as the SS bonds?
Paul Zrimsek, self-insurance against retirement is not feasible for people who earn too little throughout their working lives, for some spouses who are widowed, or for some people who become injured.
Posted by: David | Nov 16, 2007 6:19:21 PM
As an earlier post noted, were you to publicly offer this type of “investment,” with no guarantee of payout and major financing problems, and a pyramid scheme-structure, you would be arrested, especially if you used the mail to do so.
Assuming for one moment that solvency projections carry us optimistically out to 2040, and assuming productivity manages a nice 1.6 – 1.8% clip (very optimistic), aren’t you - and Krugman – completely missing the point that this is nothing short of generational warfare, not class warfare?
When the demographics line up just right (like now, and because it is a horrible Ponzi scheme) Socialist Security saddles future generations with obligations they had zero input in creating, and receive nothing
What’s that “social obligation” b.s. again?
Posted by: Mesa Econoguy | Nov 16, 2007 7:05:54 PM
Mesa Econoquy, SS is not an investment. It's insurance. Whether or not it has a "pyramid scheme-structure", well that you'll have to explain. As for whether it has major financing problems, that hasn't been established as fact.
"Warfare" isn't a neutral term, it's a pejorative one that I don't use. SS is, however, both a generational and class wealth transfer mechanism, which is a policy I endorse. Of course you're entitled to reject it on idealogical grounds, but then you'd be wandering away from the subject of Krugman's opinion piece, which is on SS's solvency.
Posted by: David | Nov 16, 2007 7:16:06 PM
Not to be too judgmental, but people endorsing wealth redistribution who don’t know what pyramid schemes are…..yikes.
Pyramid scheme:
http://en.wikipedia.org/wiki/Pyramid_scheme
I wholeheartedly reject your philosophy, and reading of Krugman. And you’re damn right it’s pejorative. Wealth confiscation by the state in any form is generally offensive.
Do I need to define that for you as well?
Posted by: Mesa Econoguy | Nov 16, 2007 7:29:39 PM
And insurance is an investment. Up front charge, future return/benefit.
Please get your terminology straight.
Sheesh…..
Posted by: Mesa Econoguy | Nov 16, 2007 8:04:09 PM
From the first paragraph in your link, a pyramid scheme is "a non-sustainable business model that involves the exchange of money primarily for enrolling other people into the scheme, usually without any product or service being delivered." Social security does not require money to become enrolled into the program. You are enrolled in the program when you are associated with a social security number, which these days typically happens at birth. Also, it does provide a service, called insurance. If you reach retirement, or are widowed, or are injured and cannot work, you will receive a distribution. Finally, Social Security has been sustained continuously since 1935. So, you can put that charge to rest.
As for the rest...
Well, taxes of any form (federal, state, city, school millages) are wealth confiscation by the state. Are you offended by them as well?
Posted by: David | Nov 16, 2007 8:04:51 PM
A annuity is insurance-like investment that is sometimes used as insurance, but there are other types of insurance which are not investments. At least, not in the sense of an expected financial return in equity growth, dividends, or interest (though insurance is an "investment" in peace of mind). For instance, I recently made my semi-annual car insurance payment. I'm a good driver, though, I drive little, and I don't live in the city, so it's very unlikely I will have an event (e.g. a crash) causing me to receive a financial return. In fact, in my 15 years of making car payments I must have paid about $15000, I only ever have received about $1000 in return (a parking lot dent). If this was an investment, evidently it's a very poor one.
Posted by: David | Nov 16, 2007 8:12:14 PM
And when (if?) you get what we call “a job,” money is automatically withdrawn from your paycheck, regardless of your consent (in the medical profession, when a patient is unconscious and requires treatment, that’s called “implied consent”), which in practically every other transactional situation is illegal.
This is definitely illegal when you couple it with conditional payout: “if you reach retirement,” “if you are widowed,” if something else happens,” etc. You already paid in, and there is zero obligation or guarantee of payout later. Plus, the rate of return on so-called Socialist Security “benefits” is, as we say in the investment industry, “shitty.”
Social Security has been an enormous mistake since 1935, so you can pretty much be quiet now, Democrat.
As for the rest of your post, well...nothing really factual. So you can go back to your socialist cave and sell your stupid elsewhere, please.
Posted by: Mesa Econoguy | Nov 16, 2007 8:24:42 PM
What makes you think I don't have a job, and why does it matter? Your argument is not strengthened by ad hominem attacks. Or by telling the person with whom you're having a policy discussion to "be quiet". Is that how you like your political discourse? Only the people who agree with you are allowed to speak?
Now you're saying that all taxation is illegal. Is that it? Have you given up criticizing the financial health and long-term prospects of SS in particular (which is what this thread is about...it's not about libertarian fantasies)
Posted by: David | Nov 16, 2007 8:34:03 PM
"wealth transfer"
What a nice euphemism. You do realize that that means taking money from someone to give to someone else, because you believe it's best?
Posted by: shawn | Nov 16, 2007 8:43:31 PM
Answers to your questions in order of appearance:
1) I have no idea if you do, nor do I care (but I have a guess)
2) I’m not having “discourse,” I’m informing you of facts
3) Apparently you spoke before, and…
4) No.
5) No.
Now, will you please be quiet, Democrat?
Posted by: Mesa Econoguy | Nov 16, 2007 8:52:19 PM
Shawn, yes, it means taking money from someone to give it to someone else. Like, from me, to give to an elderly person in your family who is older than the Social Security age, of which I bet there's at least one. Do you tell that person not to take the benefit? Don't bother on my behalf. I don't mind.
Mesa Econoguy, you wrote that money is automatically withdrawn from your paycheck, regardless of your consent...which in practically every other transactional situation is illegal. That describes almost all other taxes, therefore if you believe what you wrote, you must believe all taxes are illegal.
As for whether I have a job, if you don't care then why did you bring it up?
As for facts, you have written about few if any. Mostly, it's been opinion, which is OK (I wouldn't ask you to be quiet), as this is a forum for expressing opinion.
And as for me being quiet, why do you want me to be quiet?
Posted by: David | Nov 16, 2007 9:10:36 PM
Actually, Mesa Econoguy, I do care, for some odd reason, whether you think I have a job. So, do you think I have a job? You said you had a guess. What is your guess?
Posted by: David | Nov 16, 2007 9:13:38 PM
Geez, it's late. You know what? Never mind. Last post(s) to you.
Regards,
David
Posted by: David | Nov 16, 2007 9:16:11 PM
My work is done here….
Posted by: Mesa Econoguy | Nov 16, 2007 10:45:06 PM
I was under the impression that the SS trust fund, while existing "on paper" had been spent "in reality" each year, so that there really is no trust fund...
If I'm saving for a new car, and I set aside 15% of every paycheck, but instead write myself an IOU and put it in a box, then maybe through some crazy accounting mechanism I have the money, but it will not be there when I go to buy the car.
This means that when SS starts to dip into the trust fund, the money will have to come from somewhere...
Posted by: David | Nov 16, 2007 11:39:12 PM
Other David:
If you don't mind giving that money to Shawn's grandmother, why don't you just cut her a check directly instead of having a sizable portion of it go to bureaucratic waste? I also think the reason he might not tell her refuse the check is that she has been forced to pay taxes all of her life...
As taxation goes- No, not all taxes are illegal(roads, post offices, schools, military, courts, etc.), but taxes solely for wealth transfers should be.
Posted by: David | Nov 16, 2007 11:44:27 PM
What is that talk of 'generational warfare'? In most cultures the younguns are expected to take care of the eldery. "People shouldn't live too long as they don't have a right to expect others to care of them"? Oh well, in the case of Futurama the suicide booth is released in 2008.
Posted by: Gil | Nov 17, 2007 1:07:49 AM
David: "has the government ever in its history defaulted on treasury bonds? Do you imagine such a default wouldn't have grave consequences?"
David: "In addition, it's misleading to characterize the bonds as merely "IOUs"."
The "trust fund" has no meaning whatsoever. Regardless of what you believe is in the fund - bonds or IOU's or accounting tricks - it has no meaning. The money to pay for the promised future benefits of social security must come from future taxpayers.
Congress can, at any point, decide to shift the burden of funding social security benefits. It can raise the payroll tax to 20%. It can lower it to 0% and fund social security benefits from progressive income taxes. But whatever method it chooses, the trust fund still has no meaning.
Those who have built the trust fund can claim that through these bonds we have obligated future generations to fund social security benefits. But Congress can change the promised benefits at any time. Congress has already reduced benefits for some and raised benefits for others. There is no legal requirement for the federal government to meet the "obligation" of the trust fund bonds at any set schedule. The social security trust fund has no meaning.
Posted by: John Dewey | Nov 17, 2007 3:10:55 AM
Other than the problems of transitioning off of social security, what is the economic rational given for not allowing people to keep their own money and spend it how they see fit? I certainly can't see any sort of externality or market failure involved.
If people were allowed to keep their payroll taxes, surely market would respond with many alternatives to save for retirement. The number of people investing long-term would increase, and their funds would be put to use creating new capital. I wonder how such a shift in time-preference would effect the (in)stability of the stock market, since more funds would be dedicated to long-term investments?
Posted by: G | Nov 17, 2007 6:58:33 AM
David:
If I'm saving for a new car, and I set aside 15% of every paycheck, but instead write myself an IOU and put it in a box, then maybe through some crazy accounting mechanism I have the money, but it will not be there when I go to buy the car.
No, it's even better. You forgot the part where you tell your kids that they owe you back for the things you spent the money on.
Social Security is criminal fraud. It should die. Now.
Posted by: cpurick | Nov 17, 2007 8:24:40 AM
Other David from 11:39:12 PM: I was under the impression that the SS trust fund, while existing "on paper" had been spent "in reality" each year, so that there really is no trust fund
You have gotten the wrong impression.
Other David from 11:44:27 PM: If you don't mind giving that money to Shawn's grandmother, why don't you just cut her a check directly instead of having a sizable portion of it go to bureaucratic waste?
Because it'd be a paperwork nightmare for me to write checks to Shawn's grandmother, my mother, my cousin, your grandparents, and the other millions of people who I believe need social insurance. Also, SS's overhead is less than 1%.
By the way why don't you want to the elderly and the infirm?
John Dewey from 3:10:55 AM: The "trust fund" has no meaning whatsoever. Regardless of what you believe is in the fund - bonds or IOU's or accounting tricks - it has no meaning. The money to pay for the promised future benefits of social security must come from future taxpayers.
If you think the SS trust fund has "no meaning", you must think there are other financial vehicles that do have "meaning." What are they? What property do they possess that endows them with "meaning?"
G from 6:58:33 AM:Other than the problems of transitioning off of social security, what is the economic rational given for not allowing people to keep their own money and spend it how they see fit?
One rationale is that some people don't have enough money--even if they work--to secure their retirement. Another is that market volatility means that even people who do earn enough money in their working lives may have their retirements threatened by underperforming investments.
cpurick from 8:24:40 AM: You forgot the part where you tell your kids that they owe you back for the things you spent the money on
My kids won't mind, because I'll tell them the money was spent to build and maintain the safe and productive society into which they were born.
You also wrote, Social Security is criminal fraud.
How is it criminal, and how is it fraudulent?
Posted by: David | Nov 17, 2007 9:18:49 AM
Apparently my work here is not done.
Okay, so here comes the not-so-nice part. Apologies to anyone else named David.
David:
1) Do you normally go around giving random people your “hard-earned” money?
2) Give me some, now
3) What gives Paul Krugman and you the right to determine what comes out of my paycheck?
4) Are you so completely deluded that you think that there is some Socialist Security “lockbox” (there isn’t)?
Since I work in the investment industry and you and Krugman don’t, you need to disclose how you and the government will handle my money better than I will, using very specific (and legally defined) performance time horizons and benchmarks.
http://www.cfainstitute.org/centre/ips/gips/pdf/GIPS_2006.pdf.
When you fail this scrutiny, which you will, I demand all of my money back, with interest (historical 30-year Treasury rates will suffice), and I demand any remuneration received by Paul Krugman from the New York Times, and every other publication for which he has written.
Socialist Security is an unsolicited and unapproved automatic confiscation of money from people who temporally don’t exist yet. That’s illegal, and fraudulent.
Posted by: Mesa Econoguy | Nov 17, 2007 10:13:15 AM
'it's nothing but a bunch of I.O.U.s'
Actually aren't most financial vehicles nothing more than I.O.U.s? Shares, bonds, bank statements, mutual funds, etc? Is this another reason to be a commodity bug? If you own various metal ingots they have an unlimited investment life? Whereas an I.O.U. is only valid as long as the other party holds up their end of the view?
Posted by: Gil | Nov 17, 2007 10:13:33 AM
1. Mesa, I do give random people some of my hard-earned money, via FICA taxes, Medicare taxes, and general income taxes.
2. If you become injured and cannot work, I will give you some money, via SS disability payments administered by the government.
3. Like other citizens of the U.S., you participate in a social contract by which you forfeit some rights to the state, in order to enjoy the benefits of a safe and productive society. Taxes, including FICA, are part of that.
4. I never have thought there is a "lockbox". That was a clumsy rhetorical device popularized by the 2000 Democratic Presidential candidate. While I believe I understood what Gore was trying to say, as a marketing tool it was underwhelming.
5. What, specifically, do you mean by "handling your money better"? Do you mean realizing a higher rate of return? At what level of risk? I don't believe I, personally, can give you a higher rate of return at lower risk than you can. I do believe, however, the SS administration can give you A modest rate of return at lower risk than you ever can achieve on your own. In addition, I care about more people than just you or myself. I also care about people who have less wherewithal than you or I do to achieve economic security.
6. SS security was solicited, in 1935. It was approved, in 1935, and reaffirmed by every Congress since then. Like other policies, it will affect future Americans who don't currently exist. That's how the Republic works.
Gil, excellent point, to the favor of SS. In order to say that SS bonds are "IOUs", one has to adopt such a sufficiently loose definition of "IOU", that all financial instruments fall under that definition. Even precious metals don't have a guaranteed value.
Posted by: David | Nov 17, 2007 10:34:01 AM
David:
You are highly confused.
The original Socialist Security tax rate was 2%. It is now 12.4%, and will go much higher.
There is absolutely nothing different between my claim on Paul Krugman’s (unearned) paycheck and his fraudulent claim on mine. The only difference is I happened to be born after him. If anything, he owes me for all the economic bullshit he concocts for amateurs like you to digest.
As an investment professional (which you aren’t), I am far more capable of managing my money than you are, so there is absolutely zero reason I should be restricted to your sub-optimal performance and limits, or the government’s. Are you insinuating that Bawney Fwank knows more about Reg NMS Rule 611, CAPM & MPT, and what I should do with my money than I do? If so, I’m going to have to ask you to step outside, so I can punch you (and Bawney Fwank, a vewy impowtant pewson) in the face.
I can do [much] better than a “modest” rate of return – that’s not for you, or the government to decide. Yet that is precisely what you are arguing. I should forfeit my expertise because of some non-existent “social contract.”
Government does almost nothing efficiently, especially manage money. It is flatly absurd to assert otherwise. You are ignorant if you believe so.
Even if we are somehow miraculously successful at avoiding the current Social Security/Medicare/Medicaid trainwreck, there is absolutely nothing preventing an identical situation from recurring in future, as there is [currently] no government enforced demographic framework. I’m sure you’ll be arguing for that next.
The point is Paul Krugman is free to write anything he wants, including this absurd claim that Social Security is solvent. The marketplace has decided that he’s basically dumb and irrelevant, for obvious reasons. His idea that somehow other people are responsible for paying his debts is economically vacuous. That is the underlying assumption of Socialist Security. There is no such obligation. There is no “socialist contract.”
Posted by: Mesa Econoguy | Nov 17, 2007 11:09:05 AM
I think some comments are confusing the difference between when I buy a government bond (I have nothing against government bonds when used properly), and when the government buys its own bonds.
When I buy a bond, I give X value to the government. In Y years they pay me back X value plus interest.
With the trust fund, taxes have been paid into the fund, and the government borrows X value and spends it. When SS starts to dip into the trust fund, the government pays back X value into the trust fund.
Here's the problem though...do you really think the government will be running budget surpluses in 2017? So where will the money come from to pay back the bonds issued to the trust fund? FROM TAXES.
I never argued the government wouldn't be solvent as some of you say. That's dumb. My argument is that every dollar the government spends comes from taxpayers, even to pay back treasury bonds issued to itself.
Posted by: David | Nov 17, 2007 11:26:51 AM
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