Even before last night’s Republican debate, conservatives were pondering what it means that their frontrunner wants to make old people eat cat food. It’s true that there is some kind of bad blood between Texas Governor Rick Perry and Karl Rove, but that doesn’t mean that Rove isn’t correct in his analysis:
Perry’s campaign has not backed away from what Perry wrote in his book “Fed Up” — that Social Security is a “Ponzi scheme,” a “failure,” “something we have been forced to accept for more than 70 years now,” and one of many New Deal programs that have “never died, and like a bad disease, they have spread.”
But Rove pulled no punches today, calling that stance “inadequate.”“They are going to have to find a way to deal with these things,” Rove said.
“They’re toxic in a general election environment and they are also toxic in a Republican primary. And if you say Social Security is a failure and ought to be replaced by a state level program, then people are going to say ‘What do you mean by that?’ and make a judgment based on your answer to it,” he said.
All of that was pre-debate. But Rick Perry didn’t back down during the debate. He reiterated his belief that Social Security is a Ponzi Scheme and said any suggestion that Social Security will exist for young workers is a ‘monstrous lie.’ That led Romney’s campaign to declare that Perry has already lost.
He has lost. No federal candidate has ever won on the Perry program to kill Social Security. Never has. never will.
Yet, declaring Perry’s campaign to be doomed doesn’t make it true. If he were to win on this platform, he’d have a mandate to eviscerate the New Deal, including Social Security. And, right how, he has a big lead in the polls against his opponents, including Romney.
According to Nate Silver, Perry’s lead is based on the impression that he is electable. If that’s the case, his position on Social Security could undermine his frontrunner status. Yet, what’s clear is that the Republican electorate is not happy with Romney, and no one else appears remotely electable.
As for the merits of Perry’s critique of Social Security, so long as there is no lockbox, Social Security is a Ponzi Scheme. We give our money to the government and a bond is created. The bond doesn’t belong to us. The money is spent on general revenues, working as an effective subsidy for rich people because it allows a lower tax rate than would be required if the government didn’t have Social Security funds to spend. Then, when the government looks at the costs of Social Security (repaying all the money they stole from the system) they decide that they need to reduce the benefits or raise the retirement age. That doesn’t mean that the money won’t be there for young workers, but it does mean that they’re not going to get what they’ve been promised. The problem could be fixed quite easily by raising marginal tax rates or by increasing how much income is subject to the FICA tax. But, that would require the Republican Party to go away.
Question: If you wouldn’t invest the excess coming in for SS in government bonds, where would you invest the money?
I don’t mind investing in treasuries, but those treasuries ought to be tied to the investor in some way. I’d rather have the money used for some kind of investment bank. What definitely should not happen is Social Security funds being used to keep income taxes artificially low. Progressives usually argue that there is no Social Security deficit because we honor our bonds. Except we all know that the whole debate over Social Security is really about not honoring our bonds because we spent all the money. Then progressives say it is not SS’s fault because the Trust Fund isn’t running a deficit. Except the feature of SS that allows all its money to be looted is part of the system. Unless you can prevent looting, SS is a Ponzi Scheme.
“Some kind of investment bank.” Like what? I’m not sure what you mean by an investment bank. Giving money to investors? Investing in infrastructure?
About the Ponzi Scheme Debate, Andrew Sullivan had three threads related to it.
Is SS a Ponzi Sceme Part 1
Is SS a Ponzi Sceme Part 2
Is SS a Ponzi Scheme Part 3
Essentially a national bank dedicated to making a conservative return on investment, and with a mandate to focus on certain areas, like aging, disease, etc.
And what happens when we lose on those investments? Look, it’s all fine and good to argue for a higher return than what we get with treasuries, but why risk it when what’s in place has been working and will continue to work?
Herman Cain brought up Chile. This is more ironic than Rick Perry’s global warming Galileo response. Chile privatized it, it’s allowed for nice returns, but it’s left 50% of the population under the bus. So in 2008, what did they do? They re-socialized it.
Basically, I’m just not sure why you think investing the money in stuff other than Treasuries is any different. The only way to keep the money away from the general fund is if there is no surplus built for an aging population, thus the money comes in and instantly goes out, or if you think stuffing it under a mattress is a better option. I know you don’t believe either of these things, so I’m still left thinking, “Huh?”
I’m not really concerned with rate-of-return. The problem isn’t that treasury bonds are a bad investment. The problem is that we aren’t actually building a surplus. We are pretending to build a surplus in order to keep income taxes artificially low, or to pretend that we are running lower deficits.
But there is no way to keep the money from the general fund while investing in treasuries! I don’t see how you can do that when money is fungible. It’s like you want to keep cash in the fund and allow it to build interest (on what I do not know) rather than investing it.
So go back to the lockbox thing, you’d still have to increase taxes or continue running deficits to pay current retirees. You’re still left with the same problem.
I think there are ways you can do that. But the difficulty in doing it is why I want to do something different. A bank that is regulated heavily to assure it only operates on interest and only makes safe targeted loans would at least sequester the money and not take it out of circulation.
I looked at one of those threads (the second one) and it appeared to be a collective effort at completely missing the point, which is the norm when progressives talk about Social Security.
The point is that all the money that has built up in the Trust Fund is nothing but obligation that the government must meet in the future. And the government blanches the second it looks at the size of that obligation.
Here is the Democratic chairman of the Senate Budget Committee, Kent Conrad:
In truth, mandatory spending is 84% but SS, Medicare and Defense alone are only 54%. But the point is that Conrad isn’t going to honor our Social Security obligations because we have to pay for that obligation with new money. Other than the interest we earn on the bonds, the actual money has been spent and must be replenished from somewhere.
Here’s Conrad on that subject:
In other words, they’ve been running a Ponzi scheme on us and we’re going to get screwed. Could we avoid this? Only in theory. Even raising taxes wouldn’t solve the problem if the money only gets spent. Until we get a lockbox, SS is a desperately flawed system.
they have him – ON TAPE- numerous occasions – talking about Social Security as a Ponzi scheme.
the ad writes itself.
you can ‘misspoke’ – ONE TIME.
but, an ad, with the same talk on SS, with different dates?
like I said last night, the DNC cut the ad and kissed it.
Rikyrah,
Please explain to me why the entire liberal bloghesphere seems to be giving verying degrees of credibility to Rick Perry’s statements by 1) agreeing that there is some sort of problem with the SS trust fund; 2) giving him credit for not only appealing to his base (non old crazy people I guess), but also reaching out to the youth vote? I thought such debate was not allowed by liberals or is that just a rule for the President? Lastly, help me interpret folks like Ed Schultz who seem to be blown away with respect for Rick Perry’s true commitment to insanity. As long as you stand by crazy sh*t, your a strong leader? Propose crazy sh*t, and you are strong leader? The presidency has nothing to do with governing; it’s all about standing up for your party’s base’s crazy sh*t?
I don’t understand why folks don’t just say this fucker is out of his damn mind.
EVEN IF I was young, I have older people in my family. and, if you’re stupid enough to think that the responsibility for Grandma and Grandpa won’t fall onto you – you’re delusional, which is why I never understood the entire ‘ oh, we don’t have to really defend MEDICAID’ phenomenon on the left. I’m like, you all need to understand something, the poster child for Medicaid SHOULD NOT be Rosa and her 3 Anchor Babies or Shanequa with her 3 children by 3 different Baby Daddys…
It’s Bob and Suzy Middle Class who have sheltered Mom and Dad’s Assets so that they can get Mom or Dad or Grandpa’s NURSING HOME PAID BY MEDICAID.
Hey, I’m not against us paying for nursing home care – it’s ridiculous, but I’m tired of Rosa and Shanequa being put out there to be BEAT UP, while Bob and Suzy Middle Class’ Azzes are the ones getting the LION’S SHARE of the Medicaid DOLLARS.
The Democrats, as a whole, are just a bunch of pathetic fuckers. When Paul Ryan came up with his kill Medicare and Medicaid scam, they should have hired folks to stand outside of nursing homes on the weekends (VISITING DAYS), and hand out leaflets that said the following:
CAN YOU AFFORD TO PAY FOR MOM/DAD/GRANDMA/GRANDPA’S NURSING HOME BILL?
DO YOU HAVE A ROOM IN YOUR HOUSE FOR MOM/DAD/GRANDMA/GRANDPA?
IF NOT, let me tell you what the Republicans want to do…
and proceed to brush broad strokes about Ryan’s Plan.
not a lot of money to expend, but it would get the point across.
and there is NOTHING wrong with Social Security that lifting the income level to 10 million wouldn’t fix pronto.
just that easy. lift it to 10 million, and it’s good to go.
Social Security becomes a ponzi scheme if you elect Rick Perry; otherwise its a simple and relatively stable pay as you go model similar to those used in most of the developed world. When Perry comes to power and guts SS rather than raise taxes or cut defense spending, current payees get burned in not dissimilar way to the last suckers in a ponzi scheme. So Perry himself is not being dishonest or stupid when he says SS is a ponzi scheme- he intends to make it so.
And I think its crude to say that Perry wants to make old people eat cat food- I’ve never heard the GOP cutting benefits in any way, shape or form of its key constituency: old white people. In any reform scenario, they always come out fine, and for the mean geezers among them, they get the psychic benefit of watching benefits be cut of the younger, browner generations. The reality is Perry (and Ryan) want to make ME (age 32) eat cat food when I’m old, which is fine because me and my generation would never vote for him anyway. And remember, GOP governors in key swing states have taken great strides in the past year to significantly limit the franchise of younger, browner people. So these “social security sucks” gambits aren’t as foolish as they first appear. They may of course, still backfire tremendously, but we underestimate the GOP as dumb at our own peril. Evil, yes. Stupid- probably not.
WHAT?
Oh, I see. So when you said “social security is a Ponzi scheme,” what you really meant is “social security is in no way a Ponzi scheme.” Got it.
So let me get this straight, we have entire decades still to fix a merely political problem, and not a financial one, regarding social security, all with a population that is still robustly growing compared to the rest of the developed world. What a scam! We should clearly raise the retirement age to 70 immediately…
I get so bored by this response.
We’ve been building up a surplus in the SS trust fund since the 80’s.
What is that Trust Fund? It’s a bunch of interest-bearing bonds. It’s debt. And where is the actual money? Other than the interest, the money is gone. Spent.
Progressives argue that we have to honor that debt, but you can readily see that there is no political will to honor all of the debt because it would involve raised taxes considerably.
Thus, SS benefits will be cut in some blend of ways. What won’t happen is that we’ll honor what we promised.
Progressives argue that we have to honor that debt, but you can readily see that there is no political will to honor all of the debt because it would involve raised taxes considerably.
What you are saying there is that our elites will fail us. That they aren’t Chrisitians, despite all claims otherwise. And that most of them are rooting for, and actively trying to make, this country to crumble.
No, what I am saying is that Social Security isn’t working because it isn’t actually building a surplus. It is building a massive obligation that must be repaid by general funds. That is part of the the way the system works and it doesn’t matter if it was intended that way or not because what will happen is that the obligation will get so big that the government will feel politically compelled to slash the obligation. In fact, that’s where we are already. Fix the drainage of funds and you fix the problem.
Fuck the political will of the moment. We could become like Belgium and have no constituted government for the next thirty years running and social security would be fine all that time.
That’s not a ponzi scheme. That’s not an innate flaw of the program itself. It wasn’t designed to fail or to bilk or to defraud.
What you’re talking about is straight up theft for no reason.
As it is designed, it is a giant subsidy for the general budget.
The Wall Street is providing a subsidy for the federal budget as well.
Boo, I continue to think that you are misunderstanding something. You ask, “where is the actual money?” As if it were possible for the government to take $1 trillion a year and hide it away in a vault somewhere. It’s not.
Why? Because there is no such thing in the world as “actual money.” Money is just a way of keeping track of obligations to eventually exchange goods or services. In the case of Social Security, all the government can do is come up with some scheme to tie its hands in the future.
Now, we can argue whether the current social security scheme does this effectively. One could argue that there are better ways to do it. For example, your idea to assign the bonds in the fund to specific individuals, rather than to the fund as a whole, it is a good one, because it would make it politically more difficult for the government to reneg on paying the money for those bonds to those specific individuals when they come due. (On the other hand, this might lead to such inflexibility that the system would not work…I don’t know.)
In any case, it is incorrect to say that Social Security is a Ponzi scheme. A Ponzi scheme is where the payout of the investment can only happen if the fund keeps gaining new investors. In the case of Social Security, it would certainly be easier to payout retirees if the population were growing. However, this is by no means necessary for the fund to work. For example, if the economy grows, then it is easy enough for the government to pay back its SS obligations even if the population is decreasing. (In essence, the “investment” in SS is in the US economy as a whole…or, more specifically, the ability of the government to extract tax revenues from that economy.)
I know you can’t take all that money out of circulation. That’s why I suggested a national bank to handle the funds and keep the money sequestered from the general funds but still in circulation.
Taking money out of circulation doesn’t enter into it. The Fed and the banking system are what put money into circulation and take it out.
So you set up a national bank to handle the funds. Where does it invest the funds? Treasuries? Mortgages? Small business loans? Equities? Warrants? Credit default swaps? Yuan funds? Swiss franc funds?
The easiest way to sequester the funds is to do what is already authorized. Buy Treasuries on the open market at issuance instead of as an intragovernmental transfer. You don’t need a new institution. You don’t need new legislation. The process is already established if little used. If you wanted personal assignment of funds, you could create share accounts of the total fund, with unused shares being added back to the fund. As long as the investment vehicle was still Treasuries, the management of this would not be difficult–a bunch of IT routines similar to what credit unions use for their savings (share) accounts.
If the money is collected and not available for spending, it goes out of circulation. I’m not talking about physical dollar bills and coins. I’m talking about the fact that you can’t just keep the money in a vault. If not t-bills, then something else. I suggest some kind of national bank which does nothing but safe loans, and not any speculation or investment whatsoever.
You’ve got it. Just put an account in the Federal Reserve for the Social Security Trust Fund. Keep track of the amount of the money. Don’t pay interest. Just keep accurate numbers of the money in and out. And manage the circulation issue through normal Fed management practices. That is, the money just adds to the Federal Reserve’s reserves.
There are no loans safer than those to the federal government in politically normal times. That’s the problem right now. When Wall Street talks about the uncertainty that arose with the debt ceiling debate, it’s really “If treasuries are not safe, what is?”
I don’t know. That might work.
The argument about the money being gone applies to all of the $14T debt. That’s what debt is. The money goes out first. The repayment is later.
If Social Security is being embezzled, so is the rest of the $14T debt.
We are talking about flipped bits in accounting programs on some database server somewhere. That’s where the money is.
The Social Security computer says that it has a entitlement liability to TarheelDem in the amount of x (remember those Social Security statements) that will be available on date d. The obligations are assigned to people.
You are positing a criminal Congress.
I’m not really positing a criminal Congress. If the Congress raises the eligibility age for SS, that isn’t a crime. If they change the COLA, that’s not a crime. But that will change how your account looks, won’t it?
Yep. Those are not crimes, and they are open to future Congresses making the plan more generous before the folks affected actually retire.
What you are saying is that Congress will fail in its fiduciary responsibility to people who have contributed to the Social Security Trust Fund. That really means what Wall Street found out during the debt ceiling debate: the good faith and credit of the US government is questionable on political, not financial grounds. It is saying that Congress as a body will be embezzlers.
The question of whether there will be the money in the Social Security Trust Fund to pay the benefits to today’s younger workers when they retire is a red herring. It depends on economic and demographic assumptions that mean that everyone else will be hurting too. The economic growth assumptions are rightly conservative, but the demographic assumptions do not take into account the large number of young people coming into the country as immigrants. And it cannot anticipate any changes in trends one way or another.
The rhetoric about worker-to-beneficiary ratios likely are not true. And changing the economy so that labor can capture a greater share of productivity gains would place more revenue into the trust fund than predicted.
Once again, every time that Perry says that Social Security is a Ponzi scheme, what he is advocating is embezzlement.
The other side of the situation is that passing a phased-in increase in retirement ages now that make the spreadsheets look good does not mean that that structure will remain forever. Especially in light of rampant age discrimination in employment. Flusher times might relax that well ahead of any real bite on seniors.
And you can’t call it a “catfood” plan anymore. Catfood has gotten too expensive.
well, I am saying two things.
Really, the problem is lack of revenue in general. It’s not specific to Social Security, which runs it’s numbers quite well. But, in the design of Social Security, it has become nothing but a way for the government to hide its deficits and keep marginal rates low.
We have to sequester the money somehow, and yet still keep it in circulation.
Item 2 is called embezzlement. That is what “entitlement” means. Politicians cannot renege on it.
The OASDI Trustees Report presents its statement of condition every year.
Trust Fund FAQs explains about the funds.
The Trust Fund buys treasuries as funds come in and sells them as they go out. The incoming funds provide about $1T in purchases of government debt and cash out about $600 billion in treasuries right now. When that reverses, the amount required to finance Social Security payouts.
The current economic projects are that around 2020 outflows will exceed inflows and will stabilize at a yearly deficit of 1% of GDP. Were that the case today, that would amount to a $160B charge that would have to come from repayments from the general fund.
If the economic assumptions that the Trustees have made are correct, we are in more trouble than Social Security.
But the Trustees report is an annual report. As the economy improves (if the economy improves) the numbers will trend to the more cheery.
The government does not hide its deficits in Social Security. The Federal Budget document specifically breaks out the amount of surplus/deficit in all the trust funds. The White House press office and the media however want the total number from the accounts and that includes net the the trust funds.
The consequences ($160B in 2011 dollars a year) are nowhere near catastrophic.
The question is how do you implement a lockbox that prevents reneging on Social Security. You are going to have as much difficulty with an embezzler Congress reneging on a government-sponsored enterprise as with a trust fund (see the USPS).
The problem is not the design of the program. The problem is the Congress. There is no way to insulate any program from an idiotic Congress. Look at what happened to corporate pensions and the Pension Benefit Guaranty Corporation (there’s a GSE approach, supposed to be a lockbox).
Your end point and last two ‘grafs about the lockbox are exactly what I was trying to get across. Great comment.
well, you’re right that what we’re dealing with is a political problem, and it’s a problem that is hard to solve. But what we’re doing right now is clearly not working. Now, if you want to say this is a matter of human nature and it can’t be solved, that’s one argument. But then I’d say we can’t have a demographically stable old-age security program at all, because it will always wind up being looted.
I think we can do better. And if we don’t do better, human nature is going to come into play and the politicians are going to slash Social Security benefits, because they sure as hell ain’t going to raise enough taxes to fully pay for them. That’s what Kent Conrad has been arguing rather explicitly already. He’s saying, “Sure, the system is sound but because we loot the system it is impossibly expensive.” And that’s the truth of the matter. Rather than slash benefits preemptively, as Conrad wants to do, I’d rather work on more effective sequestration.
It’s an easy political problem to solve. Vote the bastards out. See. Solved.
Now we get the real problem. The people who vote don’t know what the bastards are doing. They are being flim-flammed.
Yes, it’s human nature for folks to game a system and for those who don’t want government for philosophical reasons and all sorts of cultural resentment to want to kill Social Security.
But they cannot be honest about what they want to do. Strip away the garbage talk. The problem is in the general fund. And with healthcare costs. And the failure of revenues to come in because the economy is flat — no growth, no shrikage.
There is no technical problem Social Security has paid out more than it took in 11 times in the past.
The key number is 1% of GDP. That is the maximum in the hole that Social Security is going on a compounded basis.
The flim-flam is you take that 1%, multiply it by the number of years into the future and state that total as if nothing is done too stop it–ever. So $160B x 20 years is golly gee whiz $3.2T. In 50 years it’s $8T. Break it down. Look at the details, and this logic is nonsense.
but the problem isn’t this particular set of politicians.
Almost all politicians want to tax as little as possible and to hide taxes as much as possible. If they have to raise revenues, they’d rather run a lottery, legalize Casino gambling, tax cigarettes and booze, etc., than tax people’s income or earnings.
Rich people don’t mind the FICA tax that much because it’s inconsequential compared to their income tax or capital gains tax. So, it’s just a lot easier to fund the government through FICA than through other taxes. It works because it’s regressive. That’s the problem.
Politicians used to be responsible. It is the current crop of politicians of both parties who buy into the Republican 2-Santa Claus strategy. That is from the 1970s. Before then, politicians raised taxes to meet obligations.
Start having politicians who will promise to meet obligations and a public that is adult again and you will see this differently. And nothing makes folks adult like long periods of unemployment and low wages. Even if it takes the disaster of a fascist government to shake them loose of their fantasies.
But Harry Reid can play middle school too. He scheduled votes right before and right after the President’s speech.
If your premises are correct, you’re obsessing on a relatively minor symptom of systemic collapse that will propel the US into banana republic land with breathtaking speed. The problem is cowardly and corrupt politicians doing the bidding of a plutocracy to turn the country into a feudal state. SS, Medicare, unemployment insurance, Medicaid, and all the rest of the safety net will be shredded.
You assume the Reagan/Bush tax disaster cannot and will not be reformed, that the US is foredoomed to destroy itself as a viable democracy. You are buying into the distraction that is the SS “debate” and the larger deficit “debate”. Neither is significant because both problems arise from a dysfunctional revenue regime. If the political will cannot be found to remedy that, looking for fixes to the individual consequences of failure is simply whistling past the graveyard. It makes for good political theater, and can bring home the reality of the revenue betrayal we’ve allowed to happen, but has no real substance.
There is no relevant liberal/left response to the present situation but “radical” (ie, post-Reagan) tax reform. If our system can’t make that happen we’re finished in every possible respect.
I don’t disagree with you. But protecting Social Security requires more than endlessly repeating that it is solvent and therefore not a problem. That will not protect Social Security because it is only technically true. It isn’t true in a way that matters.
By using the term “Ponzi Scheme” Perry is telling the uninformed public that they will be Madoff’d. They can relate to that scare tactic.
So a logical voter would say who’s going to protect my social security, not I’m for the guy who wants to toss what I already have invested.
Perry yells fire but purposefully tells the crowd there are no fire extinguishers or firemen. That may work for the voters who bathe themselves in fear but for the rest of us, we’ll be looking for understanding how fast we can find and install a lockbox.
But putting a lockbox on SS certainly will go hand in hand with disclosure of the dirty secrets of how it has been abused…so does Perry’s cry bring people to the table to listen; the law of unintended consequences?
Meanwhile, some good news regarding the health care law:
The United States Court of Appeals for the Fourth Circuit ruled on Thursday that Virginia’s attorney general does not have legal standing to challenge the 2010 federal health care law and its mandate that Americans obtain insurance. The court, based in Richmond, Va., threw out a lower-court decision invalidating the insurance requirement.
http://www.nytimes.com/2011/09/09/health/policy/09virginia.html?hp
Yglesias: Social Security Is No More A Ponzi Scheme Than Is Anything Else That Relies On Future Economic Growth
Did you read his last sentence?
Here’s a resource/factsheet that ultimately argues for privatization. Yet, his facts are correct. He wants privatization because it sequesters. I want a national bank because it sequesters. But we both agree on the need for sequestration, and for the same reason.
I don’t know that Ponzi scheme is really the best term because that’s a rather specific kind of fraud that doesn’t match up with the problem precisely. But the truth is that if you spend the entire surplus, and you don’t spend it to pay down debt but wind up increasing it, then you might as well have not had a surplus in the first place.
It’s like we all realized in the 1980’s that he had to have a surplus and then we did nothing. Well, actually, we did do something. We taxed more income through FICA than through income taxes (extremely regressive outcome) for twenty-five years and wound up just as broke as we would have been if we’d done nothing.
But the rich got richer and the poor got poorer.
Excuse me if I’m not a fan of this aspect of Social Security. It needs reform.
Except, you didn’t spend the surplus. If you want to take that logic, you spent the entire Social Security Trust Fund. It all went into government debt.
There is no way around legislatively dealing with legislators who collectively are crooks. Our hope is that there are enough remaining honest legislators to at a minimum kick the can down the road until we can vote the crooks out.
No, that’s wrong.
The Trust Fund is substantially bigger than it would have been if we hadn’t raised the FICA tax in the 1980’s. All that surplus is there in the form of interest-bearing bonds. We didn’t spend it.
But that big pile of assets is actually nothing but debt. It’s just a pile of interest-bearing bonds. The bigger it gets, the more broke we become. Now, the government essentially pays interest to itself, and that is actually the only thing that is helpful here, because it has prevented the government from stealing ALL the value out of the Trust Fund. By forcing the Treasury to pay interest on the trust fund bonds, it has assured that some value is retained. Otherwise, we would have just created a surplus to make our obligation even bigger, without it doing anything to offset future costs.
Because of our debt, we’d be better off if we had never created the surplus in the first place. We’d owe less to the Trust Fund anyway.. A lot less.
Well then, the answer is to stop running deficits in the general fund. Because all all treasuries are is debt.
The Social Security Trust Fund in respect to the debt is in the same position as a bank. That general fund debt on Social Security’s books is the same as T-bills on bank books. They are assets. That surplus has offset future costs–enough that the President feels comfortable temporarily cutting the payroll tax.
Yes, but the we who owe to the Trust Fund are the same we who expect to get benefits from the investments in government debt that the Trust Fund made.
If the debt had not been owed to the Trust Fund, it would have been owed to banks, individuals, sovereign governments. The Trust Fund didn’t create the debt; it just loaned funds at interest to cover it.
Here’s that awful family analogy. You tax yourself by putting 10% of your income into savings. The savings sits there and grows enough that you are lucky enough to buy a T-bill, say a short-term one. That pays off interest and so next go round you roll it over plus interest into another T-bill, and so on. When your kids go to college, you cash out one of those T-bills to pay for their education. And as long as they are living at home, they put 10% of their income into the fund. So being thankful kids, when they leave home, they set up a similar plan to pay for your retirement. Again in T-bills. But they also leverage the equity on their house to pay for stuff. And get in financial trouble. So they dig into the fund that they set aside to repay you. What you have here is a failure of intent. There was not legal obligation and possibly no traditional family obligation for them not to use those assets in an emergency. That is not a Ponzi scheme. Suppose that before you retire, they pay it back. They have fulfilled their intent. Suppose you knew nothing about this at all and they surprise you with an annuity with your name on it. You now are the fiduciary responsibility of the company that issued the annuity.
The situation with Social Security is different. There is a legal obligation for the general fund to pay out Social Security benefits as promised regardless of Congressional whim; that’s why it’s called an entitlement. Like the company that issued the annuity, Congress has the fiduciary responsibility to fulfill the contract. But they are Congress; they make the laws that enforce their fiduciary responsibility (which I believe is your point). But they are also the ones who cause the T-bills to be issued. They are the branch of government with the purse; they set tax law and make appropriations. That is where the debt comes from whether there is a government entity available to buy it up or not.
If the annuity company doesn’t pay up, likely it is because it violated its fiduciary responsibility. In some states both the company (and if it is bankrupt) the principals in the company can be liable for that failure. If they used the funds like your kids did when they had financial difficulty, they would be prosecuted for embezzlement. With Congress, the punishment for them violating their fiduciary responsibility is (if we are still a democracy) being voted out of office.
The obligation the Trust Fund faces is the aggregate benefits for each month’s Social Security checks. That depends on the income that the beneficiary received in thee last 10 quarters before they retired and the number of beneficiaries that there are. An estimate of that aggregate sum is determined by actuaries. Because real incomes have generally declined over the last 30 years, the obligations per beneficiary have declined. The need for the surplus was from actuarial estimates of the number of people who would be retiring and the likely number of years that they would be drawing benefits. The surplus was to cover that. That surplus exists and it is huge. But it has started to drop a boomers retire. And the economy has accelerated the number of boomers retiring. And the cuts in public employees have meant that folks who were not going to retire until 65 or 66 are retiring at 62, 63, or 64.
All any debt is is just a pile of interest-paying obligations of some kind. Investors buy debt for the income stream of interest payments.
The problem that buying government debt solves is that it is easily liquidated to cash because of the “good faith and credit of the US government”. If Social Security were in gold bars, they would not be so easily liquidated (except for the current bear market) and thus would require pretty precise timing to preserve their value (the risk cost). Less symbolic and more real assets would be even harder to liquidate. Such as the $913 billion in “illiquid assets” (houses) that Fannie and Freddie are holding. And the government has substantial real assets: thousands of square miles of land, buildings, art, historical objects, dual-use airplanes and boats, vehicles, computers, software, office equipment, kitchen and serving equipment,…. Most of which would be difficult to liquidate at other than fire sale prices.
I guess the point I’m trying to make is very simple.
The Trust Fund has value because the bonds are interest-bearing. But it is actually a bill, much like your electric bill. It is ultimately something that the government owes. And we don’t have the money set aside to pay that bill. So, it doesn’t really matter that Social Security is funded for decades into the future because it is really not. What we have is a mechanism that forces Congress to pay a certain amount to the Trust Fund. Where they come up with that money is anybody’s guess.
It’s like this. Imagine that someone handed you a piece of paper and said you could redeem it later and they would pay your electrical bill.
You figure that you’re covered because you have that piece of paper. But you’re still relying on the good credit of the guy who handed you the paper. And he is totally broke. He’s trillions of dollars in debt. Yes, he can print the money to repay you in theory, but in reality, he’s going to ask to renegotiate your contract. He’ll say that you have to wait an extra year to get your money, or he’ll tell you that you’re only getting 85% of your electrical bill paid. And the reason is because he can’t afford to honor your contract or he’ll blow up the economy or destroy all discretionary spending.
Now, this is only part of the problem. The other problem is that it’s a regressive way of funding the general operating expenses of government. For me, that’s really the fraud that’s going on here.
In a $16T economy, we jolly well do have the money to set aside for $160B a year that won’t be expended for another ten years.
Whaddya mean, we don’t have the money?
What we don’t have is the political will to raise the money.
Here’s another viewpoint:
Paradox of Sustainable Solvency, or Why We Don’t Need to Repay the Social Security Trust Fund
The creation of the Social Security Trust Fund was a scam from its inception. The idea is to use the surplus in a program that is funded by the most regressive tax in order to decrease the shortage in the General Fund, which is funded by the most progressive tax. This way the oligarchy is able to keep the income tax rates lower by concealing the true size of the deficit. The implicit assumption in creating the Trust Fund is that at some point in the future, the surplus will be used to cover the shortage in funding for Social Security when the baby boomers retire. Obviously, the only way to pay back the borrowed funds from Social Security is to raise income tax rates, which will mostly affect the wealthy. It is for this reason that the oligarchy is targeting Social Security. Alan Greenspan knew this when the increase in Social Security taxes was instituted. It was always just another way of screwing the poor and middle class.
thank you. somebody else gets it.
…with a whole bunch of conspiracy theory thrown in.
The Social Security Administration has the legislative history of Social Security online.
It was framed and created as a retirement insurance fund, not a retirement fund proper. Pensions were the responsibility of employers–when workers could get them.
It functioned like an annuity but the employer and employee split the premium, which was scaled to income. And since the government was doing it, it was functionally a tax. It was regressive only because of the income cap, which was a compromise required to get it passed. (See this compromise in the context of the marginal tax rates at the time.)
The scam has been the propaganda campaign that 401(k) companies have been running against Social Security since 401(k) plans replaced employer pensions. Because employers didn’t run up debts with pensions, they stole in real time from them by not allocating enough reserves, in the 1980s the Reagan administration created the Pension Benefit Guarantee Corporation, which in turn has been underfunded by Congress.
Employers also dumped existing pension funds onto the PBGC at a rate not anticipated by the legislation–essentially eliminating private pensions for anyone but the executives. (A similar process was likely to occur with the public option, essentially turning the healthcare reform program into a single-payer program–thus Max Baucus’s unalterable opposition to the public option.)
What I get is that there is a generation of progressive Democrats who believed what the 401(k) companies were selling.
The fact that Perry “right now … has a big lead in the polls against his opponents, including Romney” shows nothing but how totally out of touch GOP activists are with the majority of the country. “If he were to win on this platform, he’d have a mandate to eviscerate the New Deal. including Social Security.” Do you mean win the GOP nomination or do you mean the general? If he were to win the nomination, that would make him the leader of the party and doom the GOP to inevitable extinction as a national party. If you mean the general, well yes, that is logically correct; but then, it is also logically correct to say that if my grandmother had balls, she’d be my grandfather.