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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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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
Mesa,
1. So the FICA tax rate has increased. I never said it didn't. Relevance?
2. Why do you write "Socialist Security", "Socialist Contract", and "Bawney Frank"? Those aren't the correct terms and that isn't the name of the congressman from Massachusetts.
3. Barney Frank might know more about investment regulations than you do. How do you know he doesn't? And what does it matter?
4. When you talk about how well you can manage your own money, you always talk about performance and never about risk. I would not appreciated it if my investment adviser routinely discounted risk the way you seem to.
5. You seem to think only investment professionals should be allowed to discuss U.S. economic policy, you frequently have asked me to "be quiet", and now you would punch me? Over an abstruse economic debate? Are you for real?
6. As I wrote above, SS administration occurs with less than 1% overhead. By any measure, that is "efficient".
7. Do you really not accept social contract theory? Certainly it's had its critics, and is still debated, but it hasn't yet been consigned to the dustbin of history, and there's little dispute that it informed the work of the Founding Fathers. Are you smarter than they were?
Posted by: David | Nov 17, 2007 11:31:22 AM
Other David wrote: My argument is that every dollar the government spends comes from taxpayers, even to pay back treasury bonds issued to itself
That is not an argument. It's a fact. (I'm agreeing with you). No one who knows how SS really works, and who doesn't have an incentive to lie about it in service of an idealogical vendetta against it, would say that the trust fund bonds won't be redeemed by taxing future people. That is exactly how they will be redeemed.
Posted by: David | Nov 17, 2007 11:35:28 AM
All this talk about a social contract, and I feel like I am back in philosophy class.
We cede rights to the government, like David said, such as driving wherever we want, and adopt punishable rules for public safety. The problem is that you can't cede to the government a right that you don't have. Where did the right to take money from one to give to the other originate? I don't think the citizens can cede that right. And if the government derives its powers from the governed, where did it come from?
That's why private charity and volunteer work (I stress these are voluntary) are so great. Something seems wrong intuitively about forced charity. It is not really charity at all.
Posted by: David | Nov 17, 2007 11:35:49 AM
Other David, I do not cede the state a right to "take money from one to give to another". That right does not exist. I cede to the state my right to keep all of the money I earn, because I understand that I get a benefit by doing so. Having ceded that right, means the government now has the power to take some of my income (which they do) in order to pool it with a similar portion of the income from other citizens, in order to achieve ends that I cannot on my own. Such as, buying a battleship, building a bridge, and helping the needy.
Posted by: David | Nov 17, 2007 11:41:05 AM
Rising tax rates? Relevance? Are you that stupid? This is an economics blog.
Your reading of history is in diametric opposition to the founders’ intent, and you’re offensively ignorant of facts, like Paul Krugman.
Thomas Jefferson didn’t write “We hold these truths to be self-evident, that all men are created equal, and will be forcefully retained by the State as such, that they are endowed by their Creator with certain unalienable rights, that among these are Life, Liberty, the pursuit of Happiness, and in order to ensure equality, progressive taxation and state-run retirement pyramid schemes.”
That’s not what this republic was built upon.
It was built upon the premise that we should be free from people like you, who incorrectly think you are owed something.
I have made it my mission to make sure people like you are either shouted down or silenced in public debate because of your dangerous collectivist ideas, which get more than ample public forum in the media.
I am no longer asking you to be quiet; I am telling you. Shut up, moron.
Posted by: Mesa Econoguy | Nov 17, 2007 11:55:21 AM
There is no “ceding” of anything. There are sets of public goods and services, and private goods and services.
Liberals always confuse the two.
Retirement (Socialist Security) is a privately consumed good/service, and I have no more obligation to fund your retirement than you have mine. There is no such obligation. IT DOES NOT EXIST.
Posted by: Mesa Econoguy | Nov 17, 2007 12:05:40 PM
The point is Paul Krugman is free to write anything he wants, including this absurd claim that Social Security is solvent.
What's absurd is the claim that Social Security is not solvent.
Social Security is a social insurance program of the type in wide use throughout the rich world. If memory serves me right it currently eats something like 4% of US GDP. In another half century it might require another two or three points of GDP. As long as there exist sufficient votes in Congress to give the program the money it needs, it will continue to pay its bills. It may get much of that extra money from progressive taxation (my first choice) or indeed from increases in the payroll tax (not a good idea in my view). But I think there's very little likelihood it won't get at least most of that extra couple of points of GDP it needs, given the program's overwhelming popularity, and the voting strength of the baby boomer cohort (I do think modest trimming, ie., increases in retirement age, could well be in the cards). In any event the country will almost certainly be able to afford a modestly larger (in terms of GDP consumption) Social Security program in the year 2050. Insolvency really is fantasy talk.
Posted by: Jasper | Nov 17, 2007 12:06:41 PM
Mesa Econoguy wrote: I have made it my mission to make sure people like you are either shouted down or silenced in public debate because of your dangerous collectivist ideas, which get more than ample public forum in the media.
I am no longer asking you to be quiet; I am telling you. Shut up, moron
If your arguments had strength, you wouldn't have to resort to shouting people down, silencing them, telling them to shut up, or calling them names.
Posted by: David | Nov 17, 2007 12:08:51 PM
Excellent points, Jasper. Future politicians not voting to sustain Social Security, or voting to default on the Trust Fund, is about as likely as if they installed a ban on country music. It won't happen.
Posted by: David | Nov 17, 2007 12:11:50 PM
Shut up moron.
My arguments stand up on their own, and you’re free to stop reading anytime, and sell your stupid elsewhere, as I suggested above.
Now, since you are offensively ignorant of economics and history, let’s start from the beginning, shall we Paul? Can I call you Paul? You sound an awful lot like Krugman.
Anyway Paul, I don’t have to pay for lazy morons like you because I don’t ask you to pay for me. Pretty simple, eh, Paul?
If you actually had something intelligent to say Paul, you probably would’ve said it already, Paul.
So, Paul, care to enlighten the rest of us as to exactly where it says we’re obligated to pay for your stupidity?
Posted by: Mesa Econoguy | Nov 17, 2007 12:12:54 PM
Mesa, if you arguments stood on their own, it would be evident for all to see, and you wouldn't need to tell us that they do.
You have to pay for the CDC to fight infectious diseases, even if you have the healthiest constitution imaginable. You have to pay for the national defense, even if you're a pacifist. Similarly, you have to pay so that the elderly and infirm do not freeze to death in hovels or die of starvation. And, you realize a benefit from all of these things. Even if you're a healthy, wealthy pacifist, it's good for you to live in a disease-free society, safe from foreign invaders, and free of indigence.
Posted by: David | Nov 17, 2007 12:18:54 PM
mmm...a ban on country music...
[cue fuzzy daydream sequence]
Posted by: shawn | Nov 17, 2007 12:20:36 PM
Mesa Econoguy wrote: care to enlighten the rest of us as to exactly where it says we’re obligated to pay?
Article 1, Section 1 of U.S. Constitution, vesting Congress with the law-making powers of the nation, and ratified by the original 13 states by the end of 1789.
Posted by: David | Nov 17, 2007 12:24:38 PM
Given current budgetary patterns, Socialist Security/Medicare/Medicaid is estimated to consume up to 30% GDP by 2040.
Related taxation will cripple the economy. And there is a likelihood that we will expand these programs, because “it’s not real money.” This is irresponsible, immoral, and illegal.
Socialist Security is a fantasy Ponzi scheme. It will fail at some future point, and threaten the existence of this country, more than it does currently.
C’mon people. It is designed to fail, and was a bad idea crafted by well-intentioned morons (David, muirgeo) from its inception.
Posted by: Mesa Econoguy | Nov 17, 2007 12:31:21 PM
Where exactly in Article 1 does it say “Future generations are obligated to fund current retirees benefits?”
I missed that part. Please do enlighten us, moron.
Posted by: Mesa Econoguy | Nov 17, 2007 12:37:08 PM
It was designed in 1935, so if it was designed to fail, this must have been done then. And yet in 72 years it hasn't. I wonder why that is. Maybe it wasn't designed to fail.
Also, the 30% of GDP doesn't jive with what I recall, which is ~ 3%-7% for SS.
Posted by: David | Nov 17, 2007 12:37:42 PM
Where in Article 1 does it say the U.S. will embark on an ambitious scientific and technical venture to bring men to the Moon and return them safely?
Posted by: David | Nov 17, 2007 12:39:20 PM
David: Government bonds are repaid out of TAXES. Thats the problem. The more of those bonds that have to be cashed in to pay benefits to new retirees, the more the government will have to increase taxes.
The point I was trying to make was that Krugman was trying to argue that the SS trust fund was solvent because it was in the form of bonds, and there is a law that says the government must repay those bonds. Does the existence of such a law matter? The ability of the American people to pay higher taxes without ruinous consequences is limited.
Posted by: SaulOhio | Nov 17, 2007 12:39:40 PM
Again, moron, SS has expanded significantly since Democrats designed it and approved it in 1935. Original tax rate was 2% (see above).
You have horrible short-term memory.
And yes 30% GDP is a good estimate for SS, Medicare, and Medicaid (CATO, looking for link). God knows what else we’ll legislate in the interim to stack on top of this.
Posted by: Mesa Econoguy | Nov 17, 2007 12:41:36 PM
Where does it say we should go to the Moon? IT DOESN’T! VERY GOOD, idiot! You got one right.
Now, apply this thinking to everything you’ve posted on this blog so far.
Most of your statements are economic nonsense and philosophical horsecrap.
Posted by: Mesa Econoguy | Nov 17, 2007 12:43:52 PM
SaulOhio, I think I understand your point. The thing is, it's not good to say the trust fund will be redeemed by future taxes, as if by saying so you're revealing an embarrassing secret that SS advocates don't want the public to know about. We know the fund is to be redeemed by future taxes, and you can hear us above all of Mesa Econoguy's shouting, we say so. The existence of a law that says the fund must be redeemed does matter, if any law matters. It means that, in order for the fund not to be redeemed, future politicians would have to embark on an ugly, embarrassing campaign to change the law, which almost certainly would doom them at the election booth.
Mesa, how does the expansion of the FICA tax since 1935 indicate that SS was designed in 1935 "to fail?"
Posted by: David | Nov 17, 2007 12:48:18 PM
Mesa:
"No" on SS? Check.
"No" on the Mercury, Gemini, and Apollo space programs? Check.
What about the war in Iraq? Like SS and the Moon program, that also required legislation. Against that, too?
Posted by: David | Nov 17, 2007 12:50:58 PM
Actually, Paul, thank you for bringing up the moon. I think I found your disconnect here.
Should we go to the Moon? I don’t know. Neither do you, even though you think it sounds neat. I personally think you should go there, David, but that’s a different topic.
Is your life significantly different due to the spinoff benefits from the government undertaking that venture? I doubt it.
Can private enterprise do it better? Probably not right now, but there is no need. In the future? Definitely, and it will be cheaper and more efficient to do so, too.
Can we, using government resources, go back to the moon currently? Yes.
Just because you CAN do something doesn’t mean you SHOULD do it. Just as something may be permissible, it may not be advisable, or even economically possible. Your mother should have taught you this.
YOU NEED TO UNDERSTAND THIS, dummy. Just because paying for others’ retirements sounds good and generous and gives you a warm fuzzy feeling (and possibly moves your utility curve via karma or something) doesn’t mean it should be done, Paul. There are many, many reasons for not doing so, among them it has never been done in the past.
Posted by: Mesa Econoguy | Nov 17, 2007 12:55:22 PM
War is a constitutionally proscribed function of government, and sometimes unfortunately necessary.
Funding others’ retirements is not.
Posted by: Mesa Econoguy | Nov 17, 2007 1:01:13 PM
Mesa, the Moon program is merely one example among many of a popular policy which couldn't have been spelled out in 1787, yet which required legislative action which was made possible by the social contract that was spelled out in 1787. World War II, the TVA, and SS also fall into that category. It's merely an example to illustrate why we don't adopt the proposition that the government only can do the things which are spelled out in detail in the Constitution.
By the way, if you line up against the Moon program, you are almost certainly on the wrong side of public opinion.
Posted by: David | Nov 17, 2007 1:04:15 PM
War is a constitutionally prescribed function, one that is not possible to undertake without a social contract (embodied in the Constitution). Similarly, law-making activity (which is how taxation and SS came into being) in general is a constitutionally prescribed function.
Posted by: David | Nov 17, 2007 1:07:15 PM
How is SS designed to fail? I just finished explaining that to you. Man, you’re dense! Pay attention.
Socialist Security relies entirely on the fact that there will be enough people to pay into a pool to fund not only their own future benefits but also current recipients, especially if there are way many more current obligations compared to people paying in (inflow/outflow, simple).
On top, also note that the scope of the program is expanding (prescription drugs, for example).
So not only do we have the baby boomer time bomb, you have more benefits going to those boomers.
You are arguing that if we pool those costs, we will be better off (collectivism). This is not how this country works, or has worked. Ever.
If you want to have the discussion that we need to move in that direction, then have at it.
That’s a separate discussion, and if you argue so, you will again be in violent disagreement with historical fact, Paul.
Posted by: Mesa Econoguy | Nov 17, 2007 1:11:32 PM
Bear in mind, war (i.e., "defense") is not the sole purpose of the Constitution. The other reasons it was made and ratified were to form a more perfect Union, establish Justice, insure domestic Tranquility...promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity
It's uncontroversial to see how this could be interpreted to include social programs like SS.
Posted by: David | Nov 17, 2007 1:13:42 PM
Yes, you said SS was designed in 1935 to fail, and I said that, since it hasn't yet, either they did a bad job of designing it to fail, or you're wrong and it wasn't designed to fail.
Alright, folks, I'm off to a wedding (not my own), so I'm signing off. Could someone who's against SS help Mesa Econoguy out, though? He seems to be floundering around trying to stitch together some kind of argument, yet none of it is of very high quality or even makes any sense. I kinda feel bad for the guy.
Posted by: David | Nov 17, 2007 1:18:39 PM
Prescribed, correct. Thank you.
And the “law-making” process is a political process, and until you go through it, you have no basis in action or cause.
Again, you’re arguing for collectivism, which is fundamentally a political argument, one not backed up by historical fact.
Posted by: Mesa Econoguy | Nov 17, 2007 1:19:48 PM
Paging Mr. Kettle….
Never let fact get in the way of liberal crusading.
Posted by: Mesa Econoguy | Nov 17, 2007 1:22:10 PM
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.
The SS actuaries themselves don't believe that.
Posted by: Patrick R. Sullivan | Nov 17, 2007 1:23:09 PM
Thank you Patrick, I was getting to that.
In financial parlance, the “risk-free rate” is commonly assumed to be Treasury rates, currently 4.15 – 4.52% (10-30 yr spread, 11/16)
http://www.treasury.gov/offices/domestic-finance/
debt-management/interest-rate/yield.shtml
Heritage estimates “Social Security's inflation-adjusted rate of return is only 1.23 percent for an average household of two 30-year-old earners with children in which each parent made just under $26,000 in 1996”
http://www.heritage.org/Research/
SocialSecurity/CDA98-01.cfm
Morons.
Also, I presume David is paying for part of that wedding.
Posted by: Mesa Econoguy | Nov 17, 2007 1:35:37 PM
More here about how very modest that modest rate of return is.
I've sort of lost track of where David is going with the insurance argument (and I suspect that makes two of us), but the central fallacy is that calling SS "insurance" somehow immunizes it from scrutiny as an investment. But any justification for calling it that comes from its resemblance to an annuity-- and an annuity certainly can be judged as an investment.
Posted by: Paul Zrimsek | Nov 17, 2007 2:28:16 PM
Sorry to get so heated about this, but David’s “reasoning” (which made no sense) should be repugnant and offensive to any free-thinking individuals.
And he is unfortunately not alone in his delusion.
Is it me, or was he basically arguing “Because Social Security was designed in 1935 and it hasn’t failed (yet) it must be good”? He also seemed to insinuate because something exists in policy, it is therefore legal.
Is that not the lamest defense of public policy you’ve ever heard?
Posted by: Mesa Econoguy | Nov 17, 2007 4:24:15 PM
The really aggravating thing is that even if Socialist Security is “stable,” it is still confiscation. The government is stealing not only the principal value of your FICA wages, they’re forcing you to forfeit future potential return.
I’m just throwing these out there off the top of my head, but the historical annual rate of return on the DJIA is about 9%, the S&P 500 is around 11%, and the COMP is higher, I believe.
But that doesn’t matter to people like David. He’s fine & dandy with his 1.23%, and we all need to adjust our expectations to fit his. Pathetic. And offensive.
Posted by: Mesa Econoguy | Nov 17, 2007 4:56:01 PM
If I were a highly risk-averse person, the inadvertant effect of Krugman and other SS apologists would be to make me wish I could put my contributions into TIPS instead. There's no vast right-wing conspiracy to undermine TIPS, and no left-wing economists assuring us that the Treasury can always pay off TIPS at 75% of par if paying their holders full value ever gets too burdensome.
Posted by: Paul Zrimsek | Nov 17, 2007 5:31:18 PM
Food for thought:
----------
"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"
----------
(a) Law can not compel performance, (b) law can not create an obligation, and (c) taxes on sales or use are excise taxes.
An excise tax is legal (c). A compulsory income tax can not exist, see (a) and (b) above.
Posted by: vidyohs | Nov 17, 2007 5:39:07 PM
Boy you guys badly need the clarity that I shall now deliver, becuase some of you are mostly right but half of you are more than half wrong. (And David & other David, would it kill you to use a middle initial or something?) Allow me to explain:
- The General Account Series (GAS) securities making up the social security trust fund and the 17 other gov't funds are not real bonds, because a bond can only exist when you lend someone ELSE money. A bond is one person's asset and another person's debt; a GAS security is both debt and asset for the same entity, the Fed gov't. The fact that the debt-asset personalities cancel each other out on the same entity's balance sheet ALMOST gives literal credence to John Dewey's statement that the trust fund has no meaning (and I often say the same thing).
- But GAS securities do have one meaning: They represent pre-authorized future borrowing.
- Future "dipping into" the trust fund does indeed mean we will convert GAS securities into regular Treasury bonds at the time, which will be auctioned off in order to bring in actual cash for benefits. Therefore, in the future, real Treasury bonds will replace GAS securities one-for-one, as "intragovernmental debt" is replaced dollar-for-dollar with "public debt".
-- So yes this means that when the surplus turns to deficit, the obligations will have to be met by brand new fresh borrowing ... exactly as if there never were a "trust fund". The only difference from if there had never been a trust fund, is that the future borrowing is already approved by Congress: it is already accounted for the current legal debt ceiling.
-- Note that this is all true, even if by some miracle the government is running a massive budget surplus in the future. To the extent trust fund securities are "redeemed", that will prevent those budget surplus dollars directed towards the redemption from being used instead to retire public debt. So, same net effect as just reclassifying and selling the GAS securities as Treasury bonds.
- So ultimately, yes the most economically real view of the trust fund is that it has no financial meaning, other than mechanically smoothing the way for a certain amount of borrowing in the future. And we are back to exactly where we'd be if there were not trust fund at all: starting in about 10 years, the currently-promised social security benefits can't be met fully, unless we 1) raise taxes 2) fund them with unlikely surpluses from the regular budget 3) cut benefits as necessary or 4) borrow more money.
Posted by: KevinF | Nov 17, 2007 7:38:16 PM
Now all that said above, I have to say the current system is 1) total crap 2) but it CANNOT go insolvent and 3) it CANNOT go bankrupt.
There is no insolvency. If you could magically decree what your liabilities are each month (in spite of any prior agreements), then you would never go bankrupt, would you? You would simply decree your liabilities to be as low as you need them to be to stay solvent.
Well guess what. The federal government owes the money, but the federal government has that power to decree its social security liabilities. I received a "Social Security Statement" last December telling me what I'll get paid in retirement. It's total rubbish. I'll get paid whatever the government wants to pay me in 30 years, and I have no recourse if that estimate proves to be wildly inaccurate.
So whatever does happen in terms of lowered expectations or economy-crippling taxation, there will be no "insolvency" of social security. SS might be eliminated altogether, but it won't go bankrupt.
If I could I would re-frame this whole argument. It won't go insolvent. But what kind of bar is that? Should we be satisfied that social security is a horrible, unproductive waste of money but at least it won't go insolvent?
The question is how does social security compare with prudent, private alternatives? How is it as a retirement plan? As disability insurance? And as life insurance? Because social security is all of those.
The answer to all three is "Total crap. Better than absolutely nothing; but MUCH worse than private alternatives". The opportunity cost is high.
Posted by: KevinF | Nov 17, 2007 7:57:27 PM
KevinF,
I'd say you made a "purty durn" presentation. Covered all the bases, twists, and turns.
Pity that the truth makes it all irrelevant and further a pity that so few know the truth and are willing to act on the truth and teach it to others so that we can get to everyone with that truth.
The truth? The Social Security program is purely voluntary and if you write the SS adminstration and ask to be shown the exact law that requires you to apply for and obtain a SSN, they will tell you that there is no law. Obviously to a man of intelligence the truth then is that if you aren't required to apply and obtain, then you can not participate.
Voluntary, top to bottom.
What they have to done to give it the appearance of compulsory law is use the rouge thug willingness of the IRS to terrify and harass employers to use their jobs as the carrot on the stick to tempt people into following the dictates of "No SSN, no job here." Like I was told when I was 14, "You have to have an SSN to work here." So, being young, dumb, and full of c..., I got one...there weren't that many jobs and I wanted things my parents couldn't buy for me. So, as I was, virtually all of us are entrapped into their web of lies.
There is the truth for you folks, deny it, argue it, feel sick to your stomach at your ignorance as I did, it doesn't change the truth. But, I would suggest for your sake and the sake of your children, research it yourself. Don't ask a "tax professional", he isn't going to tell you even if he knew. Look at the laws themself, Google the US CODE and you will find it at Cornel University website. Write the SS administration on your own behalf. Let your children learn the truth and invest for themself outside the Ponzi scheme of SS.
Posted by: vidyohs | Nov 17, 2007 9:42:12 PM
Simple solution: push out the age when benefits begin. People today are healthier and more productive later in life. I'm 29- there is no reason why benefits can't be pushed back a few years later for my generation. Like a previous poster said- we already write off the benefit in our heads as it is and compensate through other forms of savings.
Posted by: Hudson | Nov 17, 2007 10:10:52 PM
Perhaps this article might help clear up some issues on S.S.:
http://www.truthout.org/docs_05/010305F.shtml
Yet it sounds clear from vidyohs and Mesa they should advocate some sort of suicide pill or some sort of Japanese shaming to get rid of parasites and indolents from society.
Posted by: Gil | Nov 17, 2007 10:23:47 PM
KevinF, I think we pretty much agree on SS. I never made the argument that it would be insolvent, simply that in reality there is no trust fund; it is simply an accounting trick.
Posted by: Libertarian David | Nov 18, 2007 12:28:25 AM
Mesa Econoguy from 1:23:09 PM, why do you presume I'd pay for my friend's wedding? That makes no sense.
KevinF from 7:38:16 PM: this means that when the surplus turns to deficit, the obligations will have to be met by brand new fresh borrowing ... exactly as if there never were a "trust fund". The only difference from if there had never been a trust fund, is that the future borrowing is already approved by Congress: it is already accounted for the current legal debt ceiling.
You just contradicted yourself. Can you see where?
Mesa Econoguy from 1:35:37 PM: I've sort of lost track of where David is going with the insurance argument
Social Security is an insurance program, not an investment. What about that is hard to understand?
You also wrote, Is it me, or was he basically arguing “Because Social Security was designed in 1935 and it hasn’t failed (yet) it must be good”?
No, that is not what I was arguing. I was arguing that if SS was designed in 1935 to fail (which is what you said), then it should have failed long ago. Given that it hasn't failed yet, one must conclude that it wasn't designed to fail. What about this is hard to understand?
vidyohs, are you saying an employer legally can hire a worker without submitting an I-9 eligibility to work form on their behalf?
Posted by: David | Nov 18, 2007 12:37:29 AM
Is Social Security purely an insurance program? Insurance seems to protect against the risk of events we more expect to not occur than to occur.
The program is at least partially an insurance program, to the extent that it provides benefits for disability, unemployment, death of a spouse, etc. But I think many people also consider it a "retirement plan" as KevinF says. The risk that you will choose not to work after age 65 doesn't seem like the sort of thing insurance covers.
Is it also a wealth redistribution program? Is there a goal of transferring wealth among generations, other groups of people?
I wonder if there's been any consideration for splitting the current program into components that are more recognizable as insurance versus retirement plan versus wealth transfer. Then we could really assess whether each component is worth its cost. I.e. we call a spade a spade and say "this is how much we're giving to the gov't in order to have a program that insures against being unable to work and other risks, this is how much we're giving to transfer wealth from young to old," etc.
Posted by: Student | Nov 18, 2007 1:43:25 AM
KevinF,
Thank you for taking the time to explain - in better terms than I did - how the social security trust fund is meaningless. I admit I forgot that it is pre-approved borrowing. So in a very limited sense it does have meaning, though not at all the meaning that social security defenders claim.
Posted by: John Dewey | Nov 18, 2007 4:48:11 AM
How can Krugman charge conservatives with producing arguments from ideology and keep a straight face? The rare times I read his articles or quotes from them I quite literally assume he is wrong and that I have learned nothing.
Posted by: ben | Nov 18, 2007 6:47:08 AM
Student, SS retirement benefits cover the unexpected-but-possible event that a worker will not have other sources of retirement income.
John Dewey, you just echoed KevinF's contradiction, when he wrote that the trust fund doesn't have meaning...except when it has meaning. Huh? In fact, the "meaning" to which you refer, which is more accurately characterized as a pre-approved claim on future tax expenditures (not restricted simply to "borrowing"), is EXACTLY the meaning Security Security defenders claim the trust fund has. It's a straw-man argument to say that we don't.
Ben, why do you have to assume Krugman is wrong? Isn't reasoning about it a more reliable way of determining that?
Posted by: David | Nov 18, 2007 8:19:23 AM
Any program or organization can be made “solvent” when backed by the power to tax and print money. This is in fact what will occur with SS, and is the crux of any economic argument that it is so.
My statements were made assuming things remain the same (fatal economist assumption). I only skirted the issue that taxes will have to rise to ensure continuance. Thank you for clarifying that. I also lumped SS with Medicare & Medicaid, which is how much of the entitlement literature treats it.
Of course, as taxes rise to pay for things like SS, there will come a point at which those taxes will cripple the economy, at which point not only will SS fail, so will basically everything else.
Bush had a golden opportunity to at least get minimal reform, and he completely punted.
This program needs to go away.
Posted by: Mesa Econoguy | Nov 18, 2007 9:40:49 AM
What is the virtue in lumping SS in with Medicare and Medicaid?
Posted by: David | Nov 18, 2007 9:49:42 AM
David, I didn't want to write a book here, but I think I took pains to explain the "contradiction" (yes this is weird stuff, almost like quantum physics sometimes, which is why it would be unlawful for some corporation to pull these shenanigans in a pension fund). Further problems with these vaporous non-securities in the gov't trust funds:
- If the SS fund held real assets like bonds or stocks, they'd be counted as assets, not debt. Upon redemption the asset is consumed and proceeds spent -- and there is no resulting debt. If social security "personal accounts" were privatized, that spending would not even be on the government's budget.
But as it is, with GAS securities being both asset and debt for Uncle Sam, when they are redeemed, the asset side is consumed BUT THE DEBT REMAINS (this is the crucial difference from real assets and sound financial approaches), and the proceeds count as "government spending". So our status quo results in enormous government debt NOW and in the future, and enormous spending obligations in the FUTURE, greatly complicating every discussion of fiscal policy, taxes, etc.
- Further, the trust fund debt (including all the similar funds, SS being by far largest) feeds on itself as we suffer the miracle of compound interest. If you have a US Bond, the government pays you interest in CASH. But how does the Govt pay interest on a GAS bond when it is not allowed to pay actual cash? It issues more bonds instead, which beget more bonds...!
So we are already at the point where some $200 billion dollars of MORE DEBT is issued each year just as interest on the Govt's own trust funds (5% on 4 trillion dollars) -- that's not counting the $190 billion of more debt issued that reflects the social security surplus. This is why government debt keeps increasing rapidly, no matter how small the unified deficit, and even a few years ago where there were unified surpluses.
That additional debt will make the trust funds debt total this year go from 4.0 trillion to 4.4 trillion, resulting in ever higher amounts of new debt paid as interest -- it's snowballing -- compound interest.
We are already at the point where it would be impossible to have a year of REDUCING government debt, no matter if a president and congress managed to be thrifty -- you simply couldn't run a big enough "on-budget" surplus to offset all that new debt.
My point is that our status quo approach manages to do a very poor job of serving the people compared with alternatives (that's my opinion), while massively burdening the government with debt and future obligations. It's a true lose-lose situation, and it didn't have to be this way.
Posted by: KevinF | Nov 18, 2007 12:01:23 PM
David, I don't know who are you are, but I applaud your patience and logic (with a lack of negativity). Public forums like this are wonderful for an exchange of ideas. I am frankly astounded at the continuous tone of hostility and rudeness exhibited by "mesa econguy". You sir, are among many in a camp who seem to forget that you enjoy many public goods every day (public roads, national defense, clean water, even the basis for the very vehicle you use to demean people (DARPANET)).
While private industry certainly allows us to enjoy many innovations and a wonderful standard of living, it is also by no means perfect (I can start by listing the number of financial schemes that have bilked numerous investors of billions of dollars by your fellow "investment professionals", Mr. Econguy).
Behind all of this are people - folks who try to eke out a living from "socialist security". They probably didn't start their life expecting it to end this way, but it provides a safety net for some very hard working, needy people. Is there inefficiency? YES. Does it work perfectly? NO. Mr. Econguy, I challenge you to talk to people who count on this safety net every month and explain your philosophical opposition. Maybe you can drive there on an interstate highway.
Posted by: jarelhst | Nov 18, 2007 12:01:50 PM
*laugh* Thanks, Jarelhst. My "patience" stems from my wife being away this weekend. While other husbands might use the opportunity for illicit romance, I use it to sneak into an abstruse economics debate.
KevinF, the existence of the trust fund means that future politicians, if they are to obey the law, MUST auction the SS bonds to fund SS benefits. In the event that future government is running a surplus, or if they will raise taxes, or if they will make concessions elsewhere (e.g., national defense), then the government could do a buyback of the bonds and avoid additional borrowing. Future politicians will decide whichever is the more prudent policy, given future conditions.
The ABSENCE of a trust fund would mean that future politicians simply could cut SS benefits.
The "meaning" of the trust fund lies in the difference between these two sets of circumstances.
Regards,
David
Posted by: David | Nov 18, 2007 12:13:59 PM
The PRESENCE of a trust fund also means that future politicians simply could cut SS benefits. If they couldn't, even Krugman (remember Krugman? There's a comment thread about Krugman) would know better than to waste so many column inches complaining about a vast right-wing conspiracy to cut benefits.
It's just a matter of changing the law, whether the Trust Fund is there or not.
Posted by: Paul Zrimsek | Nov 18, 2007 1:09:40 PM
Paul, I didn't say the presence of the trust fund means that future politicians couldn't cut benefits. Of course they will be able to. They could do it for idealogical reasons, or to stretch the trust fund out for longer. However, they'll have less of a need to cut benefits, since the trust fund essentially gives SS a pre-existing claim on government expenditures, which claim is enshrined into law.
Of course I remember that this thread is about the Paul Krugman NYT opinion piece. I read it. Did you? Did you notice that in it he doesn't talk about any "vast right-wing conspiracy?" Doesn't even mention it. Did you know that he doesn't even mention cutting benefits, either.
Posted by: David | Nov 18, 2007 2:27:48 PM
"vidyohs, are you saying an employer legally can hire a worker without submitting an I-9 eligibility to work form on their behalf?
Posted by: David | Nov 18, 2007 12:37:29 AM"
David,
Check the actual law, I told you where they can be found.
http://uscode.house.gov/search/criteria.shtml
http://www4.law.cornell.edu/uscode/
There you go, two sources to research the U.S.Code.
I can only tell you that if you don't look for yourself you aren't ever going to know the truth in a way that you can belive it
I say to you again in the hopes you stop and actually think about it, "Law can not compel performance nor can it create an obligation." Those two things can only occur as the result of a contract or agreement, and trust me my friend the corporate UNITED STATES OF AMERICA is real and it operates under the UCC far more than it does under the USC.
UCC - Uniform Commercial Code
USC - United States Code
I can only tell you again that professional tax preparers, virtually all accountants, and certainly the majority of congressmen are as ignorant of the actual law as you are.
What the American DOES NOT know about his government is mind boggling.
I was one of them once.
Posted by: vidyohs | Nov 18, 2007 7:08:23 PM
Posted by: jarelhst | Nov 18, 2007 12:01:50 PM
Sir,
I want to apologize in advance for the directness of my post, just incase you are ultra sensitive.
I have clean water and to my sure and certain knowledge that water came as a result of an agreement between myself and a welldigging service. The water was tested in a private lab. No, zero, zip, nada, government involvement at all.
Prior to the late 1950s all the roads in the US were state, county, and city. We did just fine without Federal government involvement. As a matter of fact our industry and markets had the mobility and vigor to grow and provide the necessities to win a major world war (WWII) using roads that had zero, zip, nada federal government involvement.
National defense? When was the last time our military had to defend the U.S.A.? Or, are you buying the line that the Spanish American war, WWI, WWII, the Korean conflict, Vietnam, Granada, Panama, Iraq, Somalia, Bosnia, and Iraq again were actions taken in the national defense? National interest, ok; but, national defense.....well probably not.
I can name two schemes/scams that bilk everyone and make any wallstreet investor look like a piker....administration of the Social Security and of course the IRS and the income tax.
Would you rather an imperfect private firm from which you can choose to walk away, or a government that does not allow you to walk away (see Ruby Ridge)? Or, how about a government simply run amok (see Branch Davidian compound, Waco, Texas 1993)?
When is your first time of hearing about a private firm killing people because they chose not to deal with them? (see Ruby Ridge).
Finally, your last. jarelhst, anyone who reaches age 65 and who has not provided for themselves without any consideration for SS is a fool and a fool that probably passed up countless opportunities to work hard, save, invest, and build their own security.
Any one who argues for SS in the way it was introduced, and even more so in the way it is administered today and thinks of themselves as anything less than a full blown raging dead from the neck up socialist is living in a fools world.
SS was never for you, it was for the government. When it was introduced the expected life span was about 48 years to 50, but the payoff was what? 65? Oh yeah the government fully expected by far and away the majority of people to die long long long before they were eligible for any gifts in return.
Science screwed 'em by providing the people with ever increasing life spans. LOL. No socialist (FDR included) can force himself to think beyond yesterday, their world is static."Well hell guys, they are dying at age 50 now, lets make the payoff age 65 and we will never have to pay 95% of them", no way they can expand their minds to imagine a future that is not exactly like yesterday.
Oh, well, none are so blind as those who will not see.
Fear, simple fear, is what keeps the vast majority from ever even looking for the truth. Like Winston Churchill said, "Most who stumble over the truth, pick themself up, dust off, and hurry on as if nothing happened." They don't want to see.
Here is the "Civil Servants Creed" that I penned in 1980.
"Don't think, thinking is dangerous, if you think you might come to a conclusion, if you come to a conclusion you must choose to act on that or not to act, acting is risky it might make a superior angry, Not acting is safer, don't come to conclusions, don't think."
People who subscribe to that creed fill the cubicals and work spaces of government from sea to shinging sea, yet we are terrified to insist on change.
Ok, so its a rant, but a damn well justified one when I see so much time and effort spent on arguing total irrelevancies.
SS - voluntary. End of story.
Posted by: vidyohs | Nov 18, 2007 7:46:02 PM
Don! This made me laugh. But I'm laughing AT you and not with you. See my post at EconoSpeak to see why. BTW - are you happy with yourself for having to snoop to misrepresenting what Krugman said to attack him. This was not only a cheap shot but also - just STUPID.
Posted by: pgl | Nov 18, 2007 9:47:49 PM
That just goes to show how evil and devious we right-wing conspiratorsconservative ideologues whose ultimate goal is to undermine the program really are: we're scheming to undermine the program without cutting anyone's benefits! BWAhahaha!
Don! If I call you names here on your blog and promise to call you more names on a post I can't be bothered to link to, will you notice me?
Posted by: Paul Zrimsek | Nov 19, 2007 7:43:11 AM
David: " the trust fund essentially gives SS a pre-existing claim on government expenditures, which claim is enshrined into law."
i really don't think you understand how this works, David. A T-Bill traded in teh marketplace is a claim on future government funds. The owner of such a T-Bill is entitled to a future benefit.
No person is entitled to a future benefit from a GSA security. Those who pay FICA taxes are told they will receive future benefits, but those benefits are not guaranteed by law. Congress can - and has - reduced benefits for retirees. Congress can eliminate them altogether for anyone it wishes to. IMO, Congress will do exactly that in the future - elimninate social security benefits for wealthy retirees.
There is no set schedule for retiring the "assets" held in the trust fund. Congress can stretch out the "retirement" for as long as it wishes.
Because the social security trust fund securities are not guaranteed for any person, and because there is no set retirement schedule, those securities have no meaning. The securities are simply an accounting gimmick that socialists can use to mislead taxpayers into believing they will receive all their promised bebefits in retirement.
Posted by: John Dewey | Nov 19, 2007 9:16:56 AM
Vidyohs, I can read the law. What I was asking for was your interpretation of it, which I got in spades.
Paul wrote conservative ideologues whose ultimate goal is to undermine the program really are: we're scheming to undermine the program without cutting anyone's benefits
What does this mean?
John Dewey, Typepad favors terseness, the enemy of clarity. What I wrote was that the trust fund gives SS a pre-existing claim on government expenditures. I assumed people would understand that I meant it gives the Social Security administration this claim, not that it gives Social Security enrollees and retirees this claim. If a future government stretches out the retirement of the fund, and in so doing has to cut benefits, they will have to explain to the voters why they are doing this. And in this, they won't have the excuse that SS doesn't have the means to raise sufficient revenue to support full benefits. They will have the means, because they'll have assets they could auction to raise the capital.
If future politicians try to do this, an ugly fight will ensue, and if there's any justice in the world they'll be tossed out of office.
Posted by: David | Nov 19, 2007 10:14:55 AM
David: "If a future government stretches out the retirement of the fund"
There is nothing to stretch out, David. There is currently no schedule for retiring the GAS securities.
David: "and in so doing has to cut benefits"
They've already cut benefits. Full retirement ages have been pushed back. Social seccurity benefits are now subject to taxation for many if not most retirees.
David: "They will have the means, because they'll have assets they could auction to raise the capital."
Those government bonds are non-negotiable.
The Office of Management and Budget explained the worthlessness of trust fund "assets" seven years ago:
"These [Trust Fund] balances are available to finance future benefit payments and other Trust Fund expenditures – but only in a bookkeeping sense.... They do not consist of real economic assets that can be drawn down in the future to fund benefits. Instead, they are claims on the Treasury that, when redeemed, will have to be financed by raising taxes, borrowing from the public, or reducing benefits or other expenditures. The existence of large Trust Fund balances, therefore, does not, by itself, have any impact on the Government’s ability to pay benefits. (from FY 2000 Budget, Analytical Perspectives, p. 337) "
Federal Budget, Fiscal Year 2000
It's a bookkeeping game, David. The money has been spent. Future taxpayers, through their elected officials, have the right to repay whatever amount of that money over whatever time period they wish.
You and Paul Krugman can continue to argue that the federal government will not renege on its promises. The truth is that the federal government already has and will do so again in the future.
Posted by: Jo