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FixMyIgnorance
08-04-2011, 07:12 AM
Can anyone give me an example using actual numbers why this is so? Is it a Ponzi scheme? How come it's unsustainable if it's self-financed? Why was the government allowed to borrow from the SS fund to begin with -- doesn't that defeat the purpose?

Ravenman
08-04-2011, 07:49 AM
It is not unsustainable, so long as there are modest changes to the system. Those changes might involve things like increasing the payroll tax, eliminating the cap on income above which wealthier people don't have to pay the payroll tax, limiting the growth of benefits, making tweaks to eligibility rules, or any of the above. Plus, anyone who tells you Social Security is a Ponzi scheme should be thoroughly disregarded. It is just factually untrue, and it is really nothing more than an empty, political talking point that craters under the slightest examination.

The government doesn't really "borrow" from the Social Security Trust Fund... but it does get a short-term benefit. Social Security has basically had a surplus for as long as it has been around: people are paying in more money than people are being paid out. The law requires that these surpluses be kept in the safest investment around: special government treasury bonds that aren't sold to the public.

The Social Security Trust Fund is made up of these bonds; it is not a pile of cash somewhere. But, when Social Security taxes are used to buy the bonds that the government issues, the non-Social Security side of the ledger gets the money from the Social Security taxes. Those funds go to the General Fund, like just about any other revenue, and get spent.

If and when it comes time that Social Security starts running deficits, the trust fund will start cashing in those bonds, and the government will have to take money out of the General Fund to pay for benefits.

That's the 15 second version of how Social Security works. It's not that complicated.

FixMyIgnorance
08-04-2011, 08:04 AM
I'm sorry, I don't quite understand.

So the public pays money into the fund, and it gets used to pay benefits today. Is this right?

Any surplus that exists gets exchanged for government bonds, which are like safe IOU's, right? The money itself gets spent.

So how do we ensure the IOUs are properly paid back?

xenophon41
08-04-2011, 08:10 AM
So how do we ensure the IOUs are properly paid back?
Keep the General Fund solvent. This may involve having an appropriate tax structure and making sensible budget choices, so it's generally considered more feasible to tweak SS through payroll taxes and other means, so as to not have to cash in those bonds.

FixMyIgnorance
08-04-2011, 08:13 AM
Wait, is the payroll tax different from SS tax? Is the amount I am paying in SS called "SS" tax or payroll tax, etc?

I suppose I am confused as to why I hear different things from different people. SS is a huge chunk of our spending, but I always get confused as to why some people say it technically doesn't add anything to our deficit because it's self-financed. But how can this be so if it's tied to the general fund when it's running surpluses?

If I am only investing the surplus in bonds, then how can I possibly run a deficit? What would make it so the benefit payouts would need to be greater than what was paid in (resulting in a deficit), when benefits are calculated by how much you've earned over your lifetime and how much you've paid in? Is it simply cost of benefits or something else?

xenophon41
08-04-2011, 08:27 AM
Social Security is funded by a "FICA" withholding (after the Federal Insurance Contributions Act) applied to wages paid, which is why it's called a "payroll" tax rather than an "income" tax. In prior years both employee and employer paid 6.2%, but for 2011 the employee side is reduced to 4.2%.

Jas09
08-04-2011, 08:40 AM
If I am only investing the surplus in bonds, then how can I possibly run a deficit? What would make it so the benefit payouts would need to be greater than what was paid in (resulting in a deficit), when benefits are calculated by how much you've earned over your lifetime and how much you've paid in? Is it simply cost of benefits or something else?Social Security will run a yearly deficit when the income received through payroll taxes isn't enough to pay active benefits. This can happen because SS benefits are indexed to inflation, and get a Cost-Of-Living Adjustment (COLA) each year. During the initial years of this, the bonds in the SS Trust Fund will be sold to offset the difference. I think this has actually already started happening due to the payroll tax cut xenophone mentioned. Once the SS Trust Fund has expired, then benefits will have to be cut or taxes increased to keep paying (or borrowing from the General Fund).

Long-term, I believe SS can pay 75% of benefits indefinitely with no changes to current law. This number has probably changed due to the economic downturn.

Anyways, the short answer is that SS is probably the most stable part of the federal budget. Medicare and everything funded by the general fund (defense, discretionary, government agencies) are where the big long-term problems are (Medicare and Medicaid in particular).

John Mace
08-04-2011, 08:57 AM
Keep in mind that Social Security was set up at a time when people didn't live as long and when there were many more people paying into it, relative to people receiving benefits, than today. It really makes no sense to keep the age at which you can get benefits the same as it was 60 years ago. Social Security can be sustainable, but it needs to change a bit as the population changes.

It was set up so that it didn't look like a "welfare for old people" program, but since that is basically what it is, we might as well fund it that way-- ie, eliminate the cap on the payroll tax and means test the recipients. I personally don't like that idea, but we might as well face reality and just change the system to what it is that people actually want.

Great Antibob
08-04-2011, 09:03 AM
So how do we ensure the IOUs are properly paid back?

The same way we ensure that a $1 bill is worth $1. It's backed by our faith in the US government, or at least in its currency.

In fact, this is one of the reasons the debt ceiling issue was a big deal.

Great Antibob
08-04-2011, 09:07 AM
Keep in mind that Social Security was set up at a time when people didn't live as long and when there were many more people paying into it, relative to people receiving benefits, than today.

Well, life expectancy hasn't actually increased all that much at the lower end of the income distribution. The bigger increases in life expectancy are correlated with higher incomes. It's not really a clear thing that we should be cutting benefits to those people who aren't living that much longer yet need the SS the most.

As for means testing, there's not much need in this case. Eliminating the cap alone pretty much takes care of SS for at least a century. And probably indefinitely. Also, it's just adding more bureaucratic overhead for a system that doesn't need it.

FixMyIgnorance
08-04-2011, 09:08 AM
Isn't "full faith and credit" dangerous though? I mean it basically assumes "we will always be good for it and pay our obligations." It's like if someone loses their job and claims that they'll still be able to make their payments in the future as long as we keep giving him resources to do so.

What if we *can't* make those obligations under our full faith and credit? Have we already hit that point?

FixMyIgnorance
08-04-2011, 09:12 AM
Is there any real reason to make cuts to SS? Or is it just for political points?

Simplicio
08-04-2011, 09:12 AM
Keep in mind that Social Security was set up at a time when people didn't live as long and when there were many more people paying into it, relative to people receiving benefits, than today. It really makes no sense to keep the age at which you can get benefits the same as it was 60 years ago.

The age has gone up, and is continuing to rise. Its not the same as it was 60 years ago.

Also, the primary reason the program is becoming more expensive is not because people are living longer. Most of the increase in lifespan between now and the 50's has been due to decreses in infant and child mortality. Dead children don't affect the SS outlook, since they neither contribute or receive benefits from the program (other then survivor benefits, which are a pretty small part of SS).

The primary reason SS is becoming more expensive is because declining birthrates mean we have fewer workers per retiree. The ratio is changing not because we're producing more old people due to longer life expectancies, but because we're producing less young people due to declining birthrates.

FixMyIgnorance
08-04-2011, 09:15 AM
But isn't that the problem with a Ponzi scheme? Fewer new investors to fund the old? That's where that logic comes from, anyway.

If it weren't a Ponzi scheme, then why should it matter that the newcomers are dropping off via birthrate?

Omg a Black Conservative
08-04-2011, 09:19 AM
Too few workers paying into the system versus people relying on the system. It's really that simple.

Simplicio
08-04-2011, 09:24 AM
But isn't that the problem with a Ponzi scheme? Fewer new investors to fund the old? That's where that logic comes from, anyway.

If it weren't a Ponzi scheme, then why should it matter that the newcomers are dropping off via birthrate?

There's not really "fewer and fewer" investors, though, unless you think we're just going to stop having babies altogeather and stop letting in immigrants and just all die off. Presumably the birthrate will (or already has) level off, and we'll be left with a stable worker to retiree ratio. That ration will be less then it was, so either workers will have to pay more or retirees will have to receive less (or, as will almost certainly be the case, a combination of both).

Plus, while we have fewer workering age people per retiree, they're a lot more productive then they used to be, and a lot more of them actually work (due to woman entering the workforce) so the situation isn't so grim as it appears at first glance. If workers pay the same percentage as they do now, we can still support SS at 75% of its old level indefinately, despite the ratio having gone from 1:20 to 1:4 over the last eight decades.

Jas09
08-04-2011, 09:25 AM
It's a generational wealth-transfer scheme. Due to demographics shifts (in particular the Baby Boom), we will, for a time, have more people receiving benefits than paying in. This was not the case for much of the program's existence.

Once the Baby Boom generation passes the program will be on better demographic footing (there might be a smaller period of shortfall due to the Echo Boom).

FixMyIgnorance
08-04-2011, 09:27 AM
My point here is that if I am paying money all my life to get benefits later, would I be better off just paying the benefits on my own without paying into SS, for example?

If we're looking at SS as insurance, the whole point of insurance is that we pool risk by contributing premium in the event that one/some experience loss, and thusly are covered.

But in the event of SS, everyone's cashing out from the pool -- those that live long enough to do so, anyway, and even out of the ones that die, they can pass benefits on.

So what is really the point of SS? If it's just a system where the incomers are paying for the elderly, how is this not a Ponzi scheme? Talking about worker/retiree ratios isn't much different from talking about new investor/old investor ratio.

(I don't believe that it is to the tune of maybe 75%, but I'm playing Devil's Advocate here so I am fully convinced)

Omg a Black Conservative
08-04-2011, 09:44 AM
The worker to retiree ratio has gone from 40:1 to about 3:1, and will be 2:1 in the near future.

Jas09
08-04-2011, 09:58 AM
My point here is that if I am paying money all my life to get benefits later, would I be better off just paying the benefits on my own without paying into SS, for example?Perhaps you would. Perhaps you wouldn't. Perhaps your personal investments tanked. Perhaps you didn't save enough. Perhaps you got swindled, or kept your cash under a mattress and the value was destroyed by inflation.
If we're looking at SS as insurance, the whole point of insurance is that we pool risk by contributing premium in the event that one/some experience loss, and thusly are covered.We provide everybody that lives to retirement insurance against losing their retirement savings, if you want to look at it that way.
But in the event of SS, everyone's cashing out from the pool -- those that live long enough to do so, anyway, and even out of the ones that die, they can pass benefits on.Right, everyone cashes out their benefit if they live to receive it. That's the point. It's a set minimum guaranteed amount of retirement pension if you work your whole life, regardless of what your personal investments might do. It's also a bit of a hedge against living way longer than typical - a situation where your personal retirement investments could run out.
So what is really the point of SS? If it's just a system where the incomers are paying for the elderly, how is this not a Ponzi scheme? Talking about worker/retiree ratios isn't much different from talking about new investor/old investor ratio.The point of Social Security is to provide old-age retirement insurance. At least, that's the point you seem to be talking about. It also provides disability insurance and other things as well.

A Ponzi scheme requires increasingly more new investors in order to pay for the existing ones. SS only requires that the long-term contributions match the long-term benefits. As I pointed out, this is basically the case already, and with minor adjustments to the COLA would be the case indefinitely.

Grumman
08-04-2011, 10:00 AM
It is not unsustainable, so long as there are modest changes to the system. Those changes might involve things like increasing the payroll tax, eliminating the cap on income above which wealthier people don't have to pay the payroll tax, limiting the growth of benefits, making tweaks to eligibility rules, or any of the above.
Doublethink aside, what this really means is that yes, it's unsustainable. The cost-to-benefit ratio currently provided cannot be sustained without causing the collapse of Social Security. At some point, you're going to have to modify it so that it is sustainable.

Simplicio
08-04-2011, 10:02 AM
My point here is that if I am paying money all my life to get benefits later, would I be better off just paying the benefits on my own without paying into SS, for example?

I thought your point was asking why it was unsustainable.

But in the event of SS, everyone's cashing out from the pool -- those that live long enough to do so, anyway, and even out of the ones that die, they can pass benefits on.

Not all cashing out is created equal, though. Someone that dies at 70 gets less then they paid in, someone that dies at 100 gets much more.

So what is really the point of SS? If it's just a system where the incomers are paying for the elderly, how is this not a Ponzi scheme? Talking about worker/retiree ratios isn't much different from talking about new investor/old investor ratio.

As answered above, a Ponzi scheme requires ever greater numbers of investors to fund ever greater payouts to the early members. There is no old-investor/new-investor ratio for which its stable, the ratio will keep changing till it reaches a point where it collapses. This isn't true of SS, which just requires that the benefits/cost ratio be adjusted to changing demographic trends. A fixed ratio of workers to retirees can be sustained indefinitely.

SS has been a going concern for 80 years. Its a little silly to argue its intrinsically unsustainable. How many decades does it have to last until you'll agree that maybe its actually pretty stable? I mean, we'll be closing in on a century pretty soon.

(I don't believe that it is to the tune of maybe 75%, but I'm playing Devil's Advocate here so I am fully convinced)

The nice thing about SS is that its pretty easy to make pretty accurate predictions for, since the main driver of its costs/benifit ratios are demographic and social trends that change very slowly. Granted a plague or medical innovation that double life expectancy might shake things up, but barring that, you can probably believe teh SS administrations projections to within a few percentage points, anyways.

Jas09
08-04-2011, 10:03 AM
Doublethink aside, what this really means is that yes, it's unsustainable. The cost-to-benefit ratio currently provided cannot be sustained without causing the collapse of Social Security. At some point, you're going to have to modify it so that it is sustainable.This is true. What people push back against is the notion that this implies we have to blow it up and start over, or that it is inherently unsustainable.

There is nothing inherently unsustainable about retirement and disability insurance.

It is rather different than something like Medicare, for example, where unless health-care expenditure growth is slowed it will literally eat up our entire federal budget. Even worst-case SS projections don't have that kind of impact.

This confusion is compounded by the fact that some commentators like to group SS and Medicare together and imply that the huge problems in one mean that we need to privatize the other.

puddleglum
08-04-2011, 10:05 AM
The age has gone up, and is continuing to rise. Its not the same as it was 60 years ago.

Also, the primary reason the program is becoming more expensive is not because people are living longer. Most of the increase in lifespan between now and the 50's has been due to decreses in infant and child mortality. Dead children don't affect the SS outlook, since they neither contribute or receive benefits from the program (other then survivor benefits, which are a pretty small part of SS).

The primary reason SS is becoming more expensive is because declining birthrates mean we have fewer workers per retiree. The ratio is changing not because we're producing more old people due to longer life expectancies, but because we're producing less young people due to declining birthrates.

This is not true, while most of the change in life expectancy is from improvements in child mortality, in 1940 when SS started to pay out benefits life expectancy at at age 65 was 77.7, now it is almost 83. These five + extra years of life expectancy are an increase of 44%. If the retirement age increased as much it would be at 71 and SS would be fully funded forever.
SS is like a ponzi scheme in that it takes money from late investors and gives it to early investors to simulate a return on investment. It also needs more people constantly investing to stay solvent.
It is unlike a Ponzi scheme in that it can control how much people take out and how much goes in and is not voluntary.

Grumman
08-04-2011, 10:06 AM
As answered above, a Ponzi scheme requires ever greater numbers of investors to fund ever greater payouts to the early members. There is no old-investor/new-investor ratio for which its stable, the ratio will keep changing till it reaches a point where it collapses.
That is also true here. It's just that it's a very slow Ponzi scheme (only paying out to investors after 30 years or more of investment), and that's why it's only slowly reaching that inevitable point of collapse.

Simplicio
08-04-2011, 10:10 AM
That is also true here. It's just that it's a very slow Ponzi scheme (only paying out to investors after 30 years or more of investment), and that's why it's only slowly reaching that inevitable point of collapse.

No it isn't. See my last few posts. A Ponzi scheme requires ever greater numbers of investors. SS doesn't. If the ratio of workers to retirees stays the same, it will be sustainable indefinately.

Jas09
08-04-2011, 10:11 AM
That is also true here. It's just that it's a very slow Ponzi scheme (only paying out to investors after 30 years or more of investment), and that's why it's only slowly reaching that inevitable point of collapse.Explain how? It's not like beneficiaries live forever. The total number goes up, but so does the population of payers. There is only a mismatch during periods where the number of retirees goes up faster than the number of payrolled employees.

Kevbo
08-04-2011, 10:22 AM
If the retirement age increased as much it would be at 71 and SS would be fully funded forever.

You don't need to increase retirement age by 100% of the increase in life expectancy. You only need to increase it by 50% at most. Workers then contribute, say 2.5 years longer, and benefit for 2.5 years less, making up for a 5 year increase in lifespan. It is actually less than 50%, because workers near retirement typically are at the upper end of the pay scale, so their contributions are well above the average.

Shodan
08-04-2011, 10:27 AM
My point here is that if I am paying money all my life to get benefits later, would I be better off just paying the benefits on my own without paying into SS, for example?Yes. On average, if you had invested the same amount of money as you were taxed on Social Security, you would get a better return on investment.
I'm sorry, I don't quite understand.

So the public pays money into the fund, and it gets used to pay benefits today. Is this right?

Any surplus that exists gets exchanged for government bonds, which are like safe IOU's, right? The money itself gets spent.

So how do we ensure the IOUs are properly paid back?It works like this.
I take $20 out of my wallet and spend it.
I put a piece of paper in my wallet saying that I will put $21 back into my wallet next payday.
Next payday, I put $21 back into my wallet.That piece of paper is the Social Security trust fund. It isn't money, it is a promise to get the money from somewhere else and put it back.

The government takes money from the public as Social Security tax. It spends some of the money on Social Security benefits, and the rest on everything else. It also makes a promise to take more money from the public later to pay the Social Security benefits later.

How do we insure the IOUs are paid back? There isn't any doubt that the government can tax the public. It just gets assumed that the taxpayer will have the money to be taxed away to pay the IOUs plus interest.

It's not (http://news.heartland.org/newspaper-article/2005/06/01/analysis-social-security-and-medicare-are-unsustainable) sustainable (http://www.breitbart.com/article.php?id=080325191211.f5erep3w&show_article=1) - most agree (http://mercatus.org/publication/social-security-cash-flow-deficit) on that.

Regards,
Shodan

Jas09
08-04-2011, 10:32 AM
Yes. On average, if you had invested the same amount of money as you were taxed on Social Security, you would get a better return on investment.And if you happened to be one of the 50% that was below average?

Jas09
08-04-2011, 10:34 AM
The rest of Shodan's post is the usual sophistry. You can buy it if you want, I don't have the heart to address it again. The upshot is this - the SS Trust Fund investing its surplus in US Bonds in no way increased the national debt.

Simplicio
08-04-2011, 10:46 AM
This is not true, while most of the change in life expectancy is from improvements in child mortality, in 1940 when SS started to pay out benefits life expectancy at at age 65 was 77.7, now it is almost 83. These five + extra years of life expectancy are an increase of 44%. If the retirement age increased as much it would be at 71 and SS would be fully funded forever.

No. We've bumped up the retirement age to 67, so the total growth in life expectancy at retirement age has only grown three years, 16%. The ratio of workers to retirees has increased by much more then that. The last graph on this page is a good demonstration (http://www.ssa.gov/policy/docs/ssb/v70n3/v70n3p111.html), as it compares the outlook assuming a constant life expectency vs a growing life expectency. Its easy to see that the two assumptions are almost identical, growing life expectancy doesn't matter, shrinking fertility does.

black rabbit
08-04-2011, 10:49 AM
Yes. On average, if you had invested the same amount of money as you were taxed on Social Security, you would get a better return on investment.
It works like this.
I take $20 out of my wallet and spend it.
I put a piece of paper in my wallet saying that I will put $21 back into my wallet next payday.
Next payday, I put $21 back into my wallet.That piece of paper is the Social Security trust fund. It isn't money, it is a promise to get the money from somewhere else and put it back.

The government takes money from the public as Social Security tax. It spends some of the money on Social Security benefits, and the rest on everything else. It also makes a promise to take more money from the public later to pay the Social Security benefits later.

How do we insure the IOUs are paid back?

Question: are corporate bonds or equities "money" in a way the Social Security trust fund is not?

Jas09
08-04-2011, 10:53 AM
Very nice cite, Simplicio. Chart 2 shows the 75% covered benefits I alluded to. Here is the report's conclusion (such as it is) re: sustainability:

The concept of sustainability for the Social Security program has come to have two separate meanings. The first considers only the simple question of whether currently scheduled dedicated tax revenue is sufficient to adequately finance currently scheduled benefits in the law, without any modification to the law. The second considers whether the current structure of the program, with a defined benefit reflecting career-average earnings levels and a flat payroll tax up to a specified earnings level, is viable for the future.

The first, simpler concept of financial sustainability under current law is relatively easy to evaluate. As illustrated by the projections under the trustees' intermediate assumptions, modifications of benefits or tax revenue in the future will almost certainly be needed to avoid trust fund exhaustion. In the relatively near term, by 2020, the specific needs of the DI Trust Fund must be addressed. By 2037, the overall projected shortfall of scheduled financing must also be addressed. As indicated in the 2009 Trustees Report, the 75-year shortfall projected under intermediate assumptions for the OASDI program could be met with benefit reductions equivalent in value to a 13 percent immediate reduction in all benefits, an increase in revenue equivalent to an immediate increase in the combined (employee and employer) payroll tax rate from 12.4 percent to 14.4 percent, or a combination of these two approaches.

The second concept, the sustainability of the current structure of benefits and financing of the OASDI program, is not an issue directly addressed in the trustees report. This consideration is more political in nature, in that it depends on the wants and desires of the American people, as reflected by the actions of their elected representatives in the Congress. It is clear that modifications of the program benefit and tax levels can be made within the current program structure to restore sound financial status. But it is up to each generation to come to a consensus on the tax levels it is willing to pay and the benefit levels it wants to receive. Even the form of benefits and mode of financing, historically defined as monthly benefits financed generally on a PAYGO basis, are open to consideration by the American people and future Congresses.

Dick Dastardly
08-04-2011, 10:55 AM
Can anyone give me an example using actual numbers why this is so? Is it a Ponzi scheme? How come it's unsustainable if it's self-financed? Why was the government allowed to borrow from the SS fund to begin with -- doesn't that defeat the purpose?

SS is just fine. Over the next couple of decades it'll need one percent more of GDP than it currently gets and then it'll be fine for the next seventy five years (and due to demographics a lot longer than that.)

http://baselinescenario.files.wordpress.com/2010/02/figure1-4.gif

That's the best graph I can find at short notice. One percent is easily doable over the next twenty years with a combination of mild tax increases and benefit cuts. To put it in perspective Bush the Lesser increased the military/homeland security/intel budgets by almost twice this amount in five years and nobody said a word, life went on.

And no, it isn't a Ponzi scheme. It's a big insurance programme. If social security is a Ponzi scheme then so is every insurance company in the country.

Government was allowed to borrow from SS because after the 1981 Reagan Tax Cut we had a huge collapse in revenue and Ronnie and his crew, peace be upon them and unlike the fuckwits running the GOP today, realised they needed to increase revenues to cover the shortfall. And so we had the Reagan Tax Increases, where Ronnie raised taxes eleven times over the next seven years. These taxes were raised mainly on low/middle income people to finance income tax cuts going mainly to the wealthy (sound familiar?) and one of them was the Greenspan commission raising payroll taxes well over and above what was needed and putting the surplus in a trust fund, which allowed Ronnie to borrow from the fund and thus part fund his 1981 tax cut with increased taxes on people paying for their retirement.

Dick Dastardly
08-04-2011, 10:58 AM
Very nice cite, Simplicio. Chart 2 shows the 75% covered benefits I alluded to. Here is the report's conclusion (such as it is) re: sustainability:

And it should be noted that because SS is indexed to wages instead of prices and wages go up faster than prices, 75% of benefits in 2040whenever will be worth far more than 100% of bebefits are today.

FixMyIgnorance
08-04-2011, 11:18 AM
Okay, if someone can answer this I think it will clear up my confusion:

In a standard insurance structure, a bunch of people pay a tiny bit for protection. Then, in the event of disaster, they are fully covered because the sum of all those premium inflows help fund the coverage. So I can opt out of insurance and either experience a state of maximum wealth or maximum destruction/cost, or I can pay a bit more and ensure a particular level of wealth/cost. In other words, I decrease risk.

Insurance works because, in short, the people who experience no loss are funding those that do. But everyone gets protection -- it's just that we expect, based on probability, that not EVERYONE will get hit with the same systematic risk.

So, in SS, everyone's cashing out, but at different points. Are we contributing funds to SS based on the AVERAGE life expectancy? In other words, are we paying for a system that assumes death at a certain age, where some will die before (and thus be paying "more" than they'd ideally want to beforehand) and some will die after (reaping maximal benefit from the system)?

In other words, is this an accurate way to model it?

Shodan
08-04-2011, 11:50 AM
Question: are corporate bonds or equities "money" in a way the Social Security trust fund is not?No.

To forestall where I expect you're going, I will propose a deal. If you send me $100 today, I will repay you $110 next year, if you send me $200 next year. Does that promise to repay you from money you will send me next year constitute an asset in a way the Social Security trust fund is not?
The rest of Shodan's post is the usual sophistry. No, actually it is entirely accurate and correct in every detail. The upshot is this - the SS Trust Fund investing its surplus in US Bonds in no way increased the national debt.Again, no - the upshot is that the SS Trust Fund is a debt that must be repaid by the taxpayer. It is not an asset.

It is exactly what I said it is - a commitment by the US government to extract money from the taxpayer in the future, because the money extracted in the past that did not go to SS benefits was spent on something else.

Regards,
Shodan

Jas09
08-04-2011, 12:07 PM
What would the federal debt be if the SS Trust Fund had never purchased any US Government Debt, but rather held any surplus as cash?

Jas09
08-04-2011, 12:11 PM
In other words, is this an accurate way to model it?Yes, in my opinion that is an accurate way to model it. You are, in this model, buying insurance against not having enough money for retirement. The fact that most people will, in a sense, receive a benefit, doesn't really change the actuarial calculations.

One of the proposed "fixes" is to means-test the benefit. If you happen to have sufficient funds for your retirement you don't get as high of a payout. This obviously makes the insurance itself less valuable for those who are likely to have high post-retirement incomes.

Hentor the Barbarian
08-04-2011, 12:12 PM
No.

To forestall where I expect you're going, I will propose a deal. If you send me $100 today, I will repay you $110 next year, if you send me $200 next year. Does that promise to repay you from money you will send me next year constitute an asset in a way the Social Security trust fund is not?
No, actually it is entirely accurate and correct in every detail. Again, no - the upshot is that the SS Trust Fund is a debt that must be repaid by the taxpayer. It is not an asset.

It is exactly what I said it is - a commitment by the US government to extract money from the taxpayer in the future, because the money extracted in the past that did not go to SS benefits was spent on something else.

Regards,
ShodanAt least you are consistent in your beliefs that the US could and perhaps should default on its debts. This is why, however, that your promise to pay a debt in the future is not the same as a treasury bill. Full faith and credit from shodan along with two bucks will get you a cup of coffee.

UltraVires
08-04-2011, 12:14 PM
So, in SS, everyone's cashing out, but at different points. Are we contributing funds to SS based on the AVERAGE life expectancy? In other words, are we paying for a system that assumes death at a certain age, where some will die before (and thus be paying "more" than they'd ideally want to beforehand) and some will die after (reaping maximal benefit from the system)?

In other words, is this an accurate way to model it?

Pretty much. My Dad died when he was 58. So 40 years worth of paying into Social Security left my family with zilch (except for the $255 death benefit my mom received).

Had he invested that money in a private IRA, my Mom would be able to use that money for her retirement. Instead, it is socialized into the system. People like my Dad who die in their late 50s are the cash cow for the system. People who live to be 105 are drains on the system. But it is structured so that (roughly) it takes in enough to pay for the retirees.

Omg a Black Conservative
08-04-2011, 12:14 PM
If the ratio of workers to retirees stays the same, it will be sustainable indefinately.

The ratio of workers to retirees is decreasing, meaning SS can't be sustained indefinitely.

Jas09
08-04-2011, 12:18 PM
The ratio of workers to retirees is decreasing, meaning SS can't be sustained indefinitely.Do you believe this trend will continue forever? Why?

Hentor the Barbarian
08-04-2011, 12:19 PM
IPretty much. My Dad died when he was 58. So 40 years worth of paying into Social Security left my family with zilch (except for the $255 death benefit my mom received).

Had he invested that money in a private IRA, my Mom would be able to use that money for her retirement. Instead, it is socialized into the system. People like my Dad who die in their late 50s are the cash cow for the system. People who live to be 105 are drains on the system. But it is structured so that (roughly) it takes in enough to pay for the retirees.
I thought survivor benefits for widows/widowers and dependent children were much more extensive than that. The SSA website suggests as much as well.

Omg a Black Conservative
08-04-2011, 12:21 PM
Do you believe this trend will continue forever? Why?

It's a near 50 year trend and will continue, conceivably, for the next 40 - 50 years, at least.

Voyager
08-04-2011, 12:22 PM
Okay, if someone can answer this I think it will clear up my confusion:

In a standard insurance structure, a bunch of people pay a tiny bit for protection. Then, in the event of disaster, they are fully covered because the sum of all those premium inflows help fund the coverage. So I can opt out of insurance and either experience a state of maximum wealth or maximum destruction/cost, or I can pay a bit more and ensure a particular level of wealth/cost. In other words, I decrease risk.

Insurance works because, in short, the people who experience no loss are funding those that do. But everyone gets protection -- it's just that we expect, based on probability, that not EVERYONE will get hit with the same systematic risk.

So, in SS, everyone's cashing out, but at different points. Are we contributing funds to SS based on the AVERAGE life expectancy? In other words, are we paying for a system that assumes death at a certain age, where some will die before (and thus be paying "more" than they'd ideally want to beforehand) and some will die after (reaping maximal benefit from the system)?

In other words, is this an accurate way to model it?

I think that this is a good summary, though the computation of expected payouts is a lot more sophisticated than just average life expectancy (as measured from a given age.) If you get an SS statement, you'll see that they give you monthly benefits if you retire at 62, 64, 66, 68, or 70 (and you can interpolate the rest.) They go up the longer you wait, which is based on the shorter amount of time you collect and the chance you will die before collecting. People dying before they collect contribute to the systems, as do undocumented workers who pay but who never will get anything back.

Some other points - the best way to ensure we always pay our debts it to throw Tea Party Congressmorons into a dungeons somewhere and lose the key.

You'll hear that the trust fund is now running a deficit. This is a feature, not a bug. As a Baby Boomer, I've paid in a long time. If the trust fund is still running a surplus when me and my cohort are collecting benefits, the taxes are way too high. When we kick it, payouts go down. We are running a deficit early because of high unemployment, not demographics.

Since the tax is set based on projections of demographics and the state of the economy, modifications always should be expected. Calling it unsustainable because of the modifications is no more reasonable than saying that we can't reach the moon because we have to make course corrections on the way.

UltraVires
08-04-2011, 12:22 PM
Full faith and credit from shodan along with two bucks will get you a cup of coffee.

I believe that this misses the point that the fact that there is a surplus in the Social Security Trust Fund held by treasuries is meaningless. Sure, full faith and credit and all of that, but in order to pay, the government has to do everything they would do if there were no trust fund.

Scenario #1: No SS Trust Fund. When there is a shortfall in SS revenues, in order to pay benefits, the government will have to raise taxes, borrow more money, or cut spending elsewhere.

Scenario #2: Current SS Trust Fund. When there is a shortfall in SS revenues, the SS Trust Fund will have to sell treasury bonds in its portfolio to pay benefits. In order to pay for these bonds, the government will have to raise taxes, borrow more money, or cut spending elsewhere.

What is functionally different between these scenarios that makes the SS Trust Fund anything more than a masturbatory fantasy on a balance sheet?

UltraVires
08-04-2011, 12:24 PM
I
I thought survivor benefits for widows/widowers and dependent children were much more extensive than that. The SSA website suggests as much as well.

But she works as well. She did the calculation it wouldn't make any meaningful difference to claim survivor benefits. In fact, I believe that she would have had to retire early and actually collect lesser benefits. It's been a few years, but it ended up that my Dad's contribution was zip.

Jas09
08-04-2011, 12:25 PM
It's a near 50 year trend and will continue, conceivably, for the next 40 - 50 years, at least.What was the ratio in 1975 (3.2)? 1980 (3.2)? 2008 (3.2)?

Why is that a trend?

http://www.ssa.gov/history/ratios.html

Jas09
08-04-2011, 12:26 PM
What is functionally different between these scenarios that makes the SS Trust Fund anything more than a masturbatory fantasy on a balance sheet?I will ask you the same question I asked Shodan: What would the federal debt be if the SS Trust Fund had never bought any US debt, but rather held any surplus as cash?

Voyager
08-04-2011, 12:28 PM
The ratio of workers to retirees is decreasing, meaning SS can't be sustained indefinitely.

Fortunately, they figured that out when they saw the birth rates for my generation, which is why we've been running a surplus for so long. Have a cite about how long this is expected to continue? You can't just use birth rate - I think maybe two or three people in my wing of the building were born in the US. Some I know have moved back to India, helping us by adding the coffers while never collecting benefits.
If it continues forever, our population should decline - not a bad thing, but not expected in the US. If China had SS they'd be screwed.

UltraVires
08-04-2011, 12:34 PM
I will ask you the same question I asked Shodan: What would the federal debt be if the SS Trust Fund had never bought any US debt, but rather held any surplus as cash?

It would be exactly the same.

Jas09
08-04-2011, 12:43 PM
It would be exactly the same.Thank you. So how does the method of how the SS Trust Fund was invested make any difference in its sustainability?

Bonds would be coming due, to be funded by taxpayers, either way. By your own acknowledgment, they would be coming due in the same amount. How does it matter whether we are paying China or SS beneficiaries (except in the small sense that at least taxpayers are paying Americans interest rather than Chinese) when we pay off those debts?

The fact that Social Security surpluses were invested in US Bonds (bonds that would have been sold anyways) doesn't mean that they don't "count" towards the programs solvency.

I think you know this, but there are certainly others that don't, and continue to buy the meme that because the surpluses were invested in US Bonds they were "spent" and "don't count".

In the end I wish the SS Trust Fund had been kept entirely separate, so we wouldn't have been using it to mask our deficit problem. But that boat sailed a long, long time ago. And I refuse to let that accounting change be used a cudgel to force privatization or massive benefit cuts.

Ravenman
08-04-2011, 12:52 PM
Doublethink aside, what this really means is that yes, it's unsustainable. The cost-to-benefit ratio currently provided cannot be sustained without causing the collapse of Social Security. At some point, you're going to have to modify it so that it is sustainable.Tomato, tomato.

Social Security was also called unsustainable in the 1980s. Policies were changed, and it became sustainable for multiple decades. If you want to go around labeling things "unsustainable" that can be fixed with fairly small changes, knock yourself out -- but I think I properly qualified my original statement.

gonzomax
08-04-2011, 01:05 PM
Social Security is funded from pay checks. It can not hit the treasury for short falls. If nothing is changed, in 30 years it will be able to pay off 80 percent. As long as money is being collected from checks, it can not go broke.
All we have to tweak it and it will be fine.
The huge fund that is in the SS fund was deliberately planned to solve the baby boomers. It is set to expire when the boomers die off.
One way to fix it is to cut down the unemployment problem. But like McConnel said, the Repubs will do whatever it takes to defeat Obama. That includes preventing Obama from doing anything meaningful about jobs.

Chessic Sense
08-04-2011, 01:19 PM
other then survivor benefits

That ration will be less then it was...they're a lot more productive then they used to be

Not all cashing out is created equal, though. Someone that dies at 70 gets less then they paid in, someone that dies at 100 gets much more.

The ratio of workers to retirees has increased by much more then that.

"THAN"!!

Grumman
08-04-2011, 02:15 PM
Policies were changed, and it became sustainable for multiple decades.
You keep using that word. I do not think it means what you think it means.

Seriously, are you doing this on purpose? You keep on saying Social Security is sustainable, and then describing the reasons why it's not. For a system that spans generations, not collapsing for "multiple decades" isn't good enough.

UltraVires
08-04-2011, 02:26 PM
The fact that Social Security surpluses were invested in US Bonds (bonds that would have been sold anyways) doesn't mean that they don't "count" towards the programs solvency.

I think you know this, but there are certainly others that don't, and continue to buy the meme that because the surpluses were invested in US Bonds they were "spent" and "don't count".


But the funds have been spent and they don't count. They don't count because a debt which you owe to yourself is not an asset. They don't count anymore than you raiding your 401k and filling it with Jas09 bonds. Even if you are the greatest credit risk in the world, you still spent the money and can't now claim that your 401k is fully funded with assets.

Again, go back to my prior post. They way that benefits will be paid out will be the same whether we assume a trust fund filled with assets or not. Under your theory of the trust fund, mine, or Shodan's, the way that benefits will be paid is identical.

The trust fund has been spent. The government is one entity. You can't parcel your wealth into separate accounts arbitrarily, borrow from one to pay the other and pretend that the first account is doing great.

Jas09
08-04-2011, 02:31 PM
But the funds have been spent and they don't count. They don't count because a debt which you owe to yourself is not an asset. They don't count anymore than you raiding your 401k and filling it with Jas09 bonds. Even if you are the greatest credit risk in the world, you still spent the money and can't now claim that your 401k is fully funded with assets.

Again, go back to my prior post. They way that benefits will be paid out will be the same whether we assume a trust fund filled with assets or not. Under your theory of the trust fund, mine, or Shodan's, the way that benefits will be paid is identical.

The trust fund has been spent. The government is one entity. You can't parcel your wealth into separate accounts arbitrarily, borrow from one to pay the other and pretend that the first account is doing great.See, now your back on the crazy train.

The trust fund has not been spent. General fund obligations have been spent. They were funded by borrowing from the SS Trust Fund.... ah, screw it, there are plenty of threads covering this, and I promised myself I wouldn't do it again.

amarone
08-04-2011, 02:35 PM
And if you happened to be one of the 50% that was below average?
You probably also did better than SS. He was not saying that only those that did at least average would do better than SS, because "average" refers to the average investment return, not the SS level of return.

Bosstone
08-04-2011, 02:57 PM
What was the ratio in 1975 (3.2)? 1980 (3.2)? 2008 (3.2)?

Why is that a trend?

http://www.ssa.gov/history/ratios.htmlThe chart does show the ratio's shrunk from 3.3 to 2.9 in the last couple of years, and I expect it will continue to shrink for the next couple decades as the Baby Boomers hit retirement age and start cashing in SS, but after that I don't see that it wouldn't stabilize again.

But really, if it's worked with 3 workers per beneficiary for the last 35 years, it looks fairly robust to me.

Jas09
08-04-2011, 03:34 PM
The chart does show the ratio's shrunk from 3.3 to 2.9 in the last couple of years, and I expect it will continue to shrink for the next couple decades as the Baby Boomers hit retirement age and start cashing in SS, but after that I don't see that it wouldn't stabilize again.

But really, if it's worked with 3 workers per beneficiary for the last 35 years, it looks fairly robust to me.Yeah, it'll likely get down near 2 during the "worst" of the crunch. But as long as immigration and birth rates can maintain that then I don't think there is overwhelming demographic instability.

IdahoMauleMan
08-04-2011, 03:36 PM
The chart does show the ratio's shrunk from 3.3 to 2.9 in the last couple of years, and I expect it will continue to shrink for the next couple decades as the Baby Boomers hit retirement age and start cashing in SS, but after that I don't see that it wouldn't stabilize again.

But really, if it's worked with 3 workers per beneficiary for the last 35 years, it looks fairly robust to me.

It's only robust if the payments into the system going forward can keep up with the expected promises going forward. It may have "worked" for the last 35 years, but that's only because the inflows were sufficient to meet the payments. There actually was a surplus, which as other posters have noted was spent on other things.

Here's a chart off the SSA website. It shows the surpluses as a gap between "Income" and "Outgo"

http://www.ssa.gov/oact/progdata/assets.html

What this chart *doesn't* show, of course, is the forecasted lines for each - say, stretching out 10 or 20 years. The "Outgo" line is going to start sloping up at a steeper rate than the "Income" line, precisely because the 3-to-1 ratio has been where is has been for the past few decades - as well as longer life expectancy. This can be calculated fairly accurately using actuarial tables and current rates of payout. They have already been promised to a future generation of retirees. I suppose you could change the nature of the promises but that will be a long and messy political process. And by the way....you've already taken the worker's money as part of the payroll tax. I suspect they want it back.

The notion that the surpluses have been invested in some sort of "asset" is complete nonsense, as eloquently described by Shodan and others above. I hope you don't subscribe to that notion.

Jas09
08-04-2011, 03:41 PM
You probably also did better than SS. He was not saying that only those that did at least average would do better than SS, because "average" refers to the average investment return, not the SS level of return.I think you're reading more into my response that I intended. I was merely pointing out that using average return is misleading when discussing an insurance program. The average person doesn't have their house burn down, or get any return from term life insurance.

The point remains that SS exists to provide insurance against inadequate income during retirement. Whether that is due to poor personal planning, bad investment outcomes, or simply living too long.

Jas09
08-04-2011, 03:43 PM
What this chart *doesn't* show, of course, is the forecasted lines for each - say, stretching out 10 or 20 years.That forecast is included in the cites up-thread. The shortfall, after depleting the SS Trust Fund, is around 20% indefinitely. It's not like this is actuarial rocket science - we can predict these sorts of things quite well.
The notion that the surpluses have been invested in some sort of "asset" is complete nonsense, as eloquently described by Shodan and others above. I hope you don't subscribe to that notion.This is false, as has been documented countless times before. It is a much an asset as if the surpluses had been invested in Chinese bonds.

Bosstone
08-04-2011, 03:48 PM
It's only robust if the payments into the system going forward can keep up with the expected promises going forward. It may have "worked" for the last 35 years, but that's only because the inflows were sufficient to meet the payments.I like those scare quotes. It didn't really work, even though it did?

IdahoMauleMan
08-04-2011, 04:38 PM
That forecast is included in the cites up-thread. The shortfall, after depleting the SS Trust Fund, is around 20% indefinitely. It's not like this is actuarial rocket science - we can predict these sorts of things quite well.
This is false, as has been documented countless times before. It is a much an asset as if the surpluses had been invested in Chinese bonds.

No, it is not equivalent to Chinese bonds at all. In fact, it could not be more un-equivalent to owning a Chinese bond.

Owning a Chinese bond is a claim on *someone elses* asset base or income stream. Specifically, the Chinese. The bond is ultimately determined by the creditworthiness, or solvency, of the Chinese. The Chinese may default, or pay, or not pay. Evaluating all of those factors determines the value of the bond.

US gov't bonds in the SS "trust fund" are a claim on *our own* asset base or income stream. As a few posters have noted above, it's like moving $20 from your right pocket to your left pocket, and putting an $20 IOU in the right pocket, payable by the left pocket. It is nonsense.

IdahoMauleMan
08-04-2011, 04:40 PM
I like those scare quotes. It didn't really work, even though it did?

"Working" has a current-time period effect, and a future effect.

I can go out and get 5 credit cards, max them all out immediately, take a vacation, buy a home I can't afford, and eat well for 6 months.

I can say that my use of the credit cards has therefore "worked". It has "worked" for that 6 month time period.

But I have created future obligations, with interest, that I must now repay. So it will most definitely not "work" for the future time period. And I can say that overall, my use of the 5 credit cards did not "work".

If you need any more help explaining this, please let me know.

amarone
08-04-2011, 04:43 PM
As a few posters have noted above, it's like moving $20 from your right pocket to your left pocket, and putting an $20 IOU in the right pocket, payable by the left pocket.
True as far as it goes, but you missed out an important step - you need to give your left pocket the power to tax the American people and corporations to get the $20 (plus interest) back.

IdahoMauleMan
08-04-2011, 04:48 PM
True as far as it goes, but you missed out an important step - you need to give your left pocket the power to tax the American people and corporations to get the $20 (plus interest) back.

Agreed.

Jas09
08-04-2011, 04:50 PM
US gov't bonds in the SS "trust fund" are a claim on *our own* asset base or income stream. As a few posters have noted above, it's like moving $20 from your right pocket to your left pocket, and putting an $20 IOU in the right pocket, payable by the left pocket. It is nonsense.Except, of course, that if you hadn't moved the $20 from your right (SS Trust Fund) to your left (General Fund), you would have instead borrowed $20 from the public (as publicly-held debt). You still have the same IOU outstanding, all that changes is who's name is on it.

The driving force behind the existence of the debt is general fund shortfalls. All the SS Trust Fund does is change who we owe that money to.

Do you at least agree with jtgain that the size of the Federal Debt is exactly the same as it would have been had the SS Trust Fund never existed? That is the first step towards enlightenment.

Great Antibob
08-04-2011, 04:52 PM
As a few posters have noted above, it's like moving $20 from your right pocket to your left pocket, and putting an $20 IOU in the right pocket, payable by the left pocket. It is nonsense.

How is this nonsense?

I do this sort of thing all the time. I keep several financial accounts (checking, savings, CDs, brokerage, etc). It may not make sense to other people, but I keep a reserve of $x in each. There are occasions when I have to dip below $x for a given account and transfer it to a separate account. On a later date, I pledge to myself to replace it.

For all intents and purposes, I don't have to do any of that. It's all more or less my pool of money to use as I wish, but there's nothing nonsensical about an accounting scheme that keeps separate pools of money, maintains balances, and keeps track of transfers between them.

Even a home equity line of credit can be considered the same type of thing.

Jas09
08-04-2011, 04:56 PM
Good point Antibob. And if you had one fund that was consistently borrowing from another one, you certainly wouldn't blame the over-performing fund for ruining your overall financial condition. You would, rightly, blame the one that was having to do the borrowing, and modify it to return it to surplus.

UltraVires
08-04-2011, 05:01 PM
Good point Antibob. And if you had one fund that was consistently borrowing from another one, you certainly wouldn't blame the over-performing fund for ruining your overall financial condition. You would, rightly, blame the one that was having to do the borrowing, and modify it to return it to surplus.

But you wouldn't say that your over-performing fund that you borrowed against had assets in it because you promised to pay the funds back. That's all I am saying.

Great Antibob
08-04-2011, 05:09 PM
But you wouldn't say that your over-performing fund that you borrowed against had assets in it because you promised to pay the funds back. That's all I am saying.

Sure, but that's because we're pushing the analogy too far. You can't directly compare a business' or an individual's balance sheet with a government's. A government with its own sovereign currency can actually 100% guarantee to pay the funds back. The problem is how to do it without dissolving faith in the currency itself and in a way that doesn't wreck its economy.

Jas09
08-04-2011, 05:11 PM
But you wouldn't say that your over-performing fund that you borrowed against had assets in it because you promised to pay the funds back. That's all I am saying.That would depend on why your under-performing fund was under-performing. If it had the power to tax the largest economy in the world then yeah, I would call it an asset (amarone's point).

Using the deficit of the general fund to wipe out the good public planning with respect to SS is misleading, especially when it is used to make the shortfall look longer (and more imminent) than it truly is.

Fix the problem, don't use the problem to attack something you politically dislike.

UltraVires
08-04-2011, 05:23 PM
Okay, so I don't have the tax power of the government*, but I did promise to pay myself back. And I have always paid my bills on time. Would you say that the 401k has assets in it, just maybe not AAA rated ones?

I'll tell you what. I'm going to raid my daughter's college fund next week and put an IOU in it. When my wife finds out, she will be upset because she's not as financially saavy as you guys. Would you tell her that my daughter's college fund is fully intact, yet with possibly riskier investments than before?**

*And again, since we are resorting to the tax power, there is no functional difference between having this "trust fund" and having nothing. We raise taxes to pay off bonds or to pay benefits.
It's the same.

** But, hey, who knows. The Dow dropped 513 points today. Maybe I am a better investment than the mutual funds that she is in? Better just tell her that the college fund has assets in it.

black rabbit
08-04-2011, 05:34 PM
No.

To forestall where I expect you're going, I will propose a deal. If you send me $100 today, I will repay you $110 next year, if you send me $200 next year. Does that promise to repay you from money you will send me next year constitute an asset in a way the Social Security trust fund is not?


Your scenario doesn't make any sense. Why would the purchase of $110 par Shodan Bond be contingent on my future purchase of a $200 Shodan Bond?


Again, no - the upshot is that the SS Trust Fund is a debt that must be repaid by the taxpayer. It is not an asset.


Of course it's an asset, in the same way that any security is an asset.

When the market cratered today, where do you think most of the investors put their money?

Hint: it wasn't gold and it wasn't Shodan Bonds. It was US Government securities.

Shodan
08-04-2011, 05:52 PM
Your scenario doesn't make any sense. Why would the purchase of $110 par Shodan Bond be contingent on my future purchase of a $200 Shodan Bond?Because that's how you can be sure you will paid back. It's backed by the full faith and credit of Shodan, who you may quite sure will be after you to cough up the $200.
Except, of course, that if you hadn't moved the $20 from your right (SS Trust Fund) to your left (General Fund), you would have instead borrowed $20 from the public (as publicly-held debt). It doesn't make any difference. The public are the ones who have to pay back what you borrowed from them.

Regards,
Shodan

Jas09
08-04-2011, 05:56 PM
I'll tell you what. I'm going to raid my daughter's college fund next week and put an IOU in it. When my wife finds out, she will be upset because she's not as financially saavy as you guys. Would you tell her that my daughter's college fund is fully intact, yet with possibly riskier investments than before?I would ask what you are raiding it for. If it is something that you would be legally obligated to borrow to pay for, then I would argue it would make no difference, and in fact is probably financially better for you to raid the college fund.

Then I would tell you to get your other finances straight so that you didn't have to borrow anymore, either from daughter's college fund or from someone else.

What I wouldn't do is say "Sorry, I had to borrow by law, so I borrowed from your college fund and now rather than clean up my financial situation and pay you back you're just no longer going to college".

UltraVires
08-04-2011, 06:02 PM
Your scenario doesn't make any sense. Why would the purchase of $110 par Shodan Bond be contingent on my future purchase of a $200 Shodan Bond?



We just saw an example of this with the debt crisis. The U.S. Government was about to default on payment of its existing treasury bonds unless it could go out and issue.....more treasury bonds.

UltraVires
08-04-2011, 06:06 PM
I would ask what you are raiding it for. If it is something that you would be legally obligated to borrow to pay for, then I would argue it would make no difference, and in fact is probably financially better for you to raid the college fund.

Then I would tell you to get your other finances straight so that you didn't have to borrow anymore, either from daughter's college fund or from someone else.

What I wouldn't do is say "Sorry, I had to borrow by law, so I borrowed from your college fund and now rather than clean up my financial situation and pay you back you're just no longer going to college".

I agreed with all of this.

But no matter what the reason I raided the fund, whether for food or for cocaine, wouldn't you still agree that the fund is depleted, my promise to pay it back notwithstanding?

black rabbit
08-04-2011, 06:08 PM
Because that's how you can be sure you will paid back. It's backed by the full faith and credit of Shodan, who you may quite sure will be after you to cough up the $200.
It doesn't make any difference. The public are the ones who have to pay back what you borrowed from them.

Regards,
Shodan

So what's the face value of that $200 Shodan Bond? Assuming it's somewhere above $200, and the full faith and credit of Shodan is as good as the Invisible Hand seems to think that of the United States is, why wouldn't I? I'm still coming out (nominally) ahead, for close to zero risk.

black rabbit
08-04-2011, 06:14 PM
We just saw an example of this with the debt crisis. The U.S. Government was about to default on payment of its existing treasury bonds unless it could go out and issue.....more treasury bonds.

A) The Recent Unpleasantness was a completely manufactured crisis caused by a Republican desire to score political points.

B) So what? Even for quite possibly the worst week for the FF&COTUS in history, the yield on a 10 year T-note is still down by FIFTY BASIS POINTS. All the smart guys on Wall Street seem to think that government debt is still one of the safest investments around, so why shouldn't the Social Security Administration?

Jas09
08-04-2011, 06:17 PM
I agreed with all of this.

But no matter what the reason I raided the fund, whether for food or for cocaine, wouldn't you still agree that the fund is depleted, my promise to pay it back notwithstanding?I would say that the IOU is a moral obligation to raise enough money to repay it, and in the case of the US, also a legal obligation. So, no, I guess I don't think "depleted" is the right word in this case.

In your analogy it means you need to sell your big house or whatever assets you might have, increase your personal revenue (night job?), and make your daughter whole. In the case of the US Govt it means increasing revenue, cutting spending, and addressing the Medicare time-bomb.

I'm not saying that Social Security doesn't have issues. Even counting the Trust Fund it will no longer be able to pay full benefits around the middle of this century. Doing something to address that is a good idea. But just throwing out the Trust Fund and saying Social Security is broke right now is breaking a promise we made back in the 80s when this whole Trust-Fund raiding began.

I also find a high correlation between people making this claim (the Trust Fund is empty) and those attempting to eliminate or privatize the program, so I'm sure that colors my reading of the situation.

amarone
08-04-2011, 06:24 PM
But no matter what the reason I raided the fund, whether for food or for cocaine, wouldn't you still agree that the fund is depleted, my promise to pay it back notwithstanding?
I would agree that the fund is depleted by the risk that you would not pay the IOU. For SS, the risk is minuscule because of the credit rating of the US Government. If your IOU was backed by a contract committing you to repay, enforceable in a court of law (and bankruptcy court), then that is an asset. It is not as secure as the government bond, but there is a level of security.

Jas09
08-04-2011, 06:28 PM
That's an even better answer than mine, amarone. It is "depleted" by the whatever risk there is that the government will not repay. That risk is both financial (some sort of US default) and political (the law is changed to somehow "write off" these bonds).

One could go even farther, though, and say that that risk is being compensated for by the interest being payed on the bond - that's pretty much the definition of bond interest, no?

amarone
08-04-2011, 06:34 PM
That's an even better answer than mine, amarone. It is "depleted" by the whatever risk there is that the government will not repay. That risk is both financial (some sort of US default) and political (the law is changed to somehow "write off" these bonds).

One could go even farther, though, and say that that risk is being compensated for by the interest being payed on the bond - that's pretty much the definition of bond interest, no?
Correct. And that is why a 10-year US Treasury pays you only about 2.7% whereas the troubled European countries are paying much more, to reflect the increased risk.

UltraVires
08-04-2011, 06:50 PM
That's an even better answer than mine, amarone. It is "depleted" by the whatever risk there is that the government will not repay. That risk is both financial (some sort of US default) and political (the law is changed to somehow "write off" these bonds).

One could go even farther, though, and say that that risk is being compensated for by the interest being payed on the bond - that's pretty much the definition of bond interest, no?

Disagree. Let's assume that there is a 100% chance I will repay. Functionally, what is different from me: Raising my income, cutting my spending, or borrowing more money to either:

1) Repay the IOUs to her college fund
or
2) Pay to send her to college?

Nothing, correct? This is identical to social security in this country. There is no bank of assets to draw from. Any funds used to pay for social security will come from the general treasury no matter what name you decide to give to what you call the Social Security Trust Fund.

I can't believe that you guys won't concede this simple point. Let's take it as a given that social security is a worthy program and should be fully funded. You still have to concede that the so-called surplus in the so-called trust fund is gone. There is no surplus or trust fund. It is an entry on an accounting ledger. A sleight of hand.

black rabbit
08-04-2011, 07:03 PM
It is an entry on an accounting ledger. A sleight of hand.

In other words, "The WHOLE ECONOMY is nothing but LIES maaaan. LIES!!!" </crazy hippie eyes>

waterj2
08-04-2011, 08:06 PM
I can't believe that you guys won't concede this simple point. Let's take it as a given that social security is a worthy program and should be fully funded. You still have to concede that the so-called surplus in the so-called trust fund is gone. There is no surplus or trust fund. It is an entry on an accounting ledger. A sleight of hand.Well, my savings account isn't it's own pile of cash in a vault. The bank went and did other things with the money. It's an entry in an accounting ledger. But I still think of it as my money. I don't consider it gone.

(Well, I would if it were a non-zero amount of money.)

IdahoMauleMan
08-04-2011, 08:33 PM
Except, of course, that if you hadn't moved the $20 from your right (SS Trust Fund) to your left (General Fund), you would have instead borrowed $20 from the public (as publicly-held debt). You still have the same IOU outstanding, all that changes is who's name is on it.

The driving force behind the existence of the debt is general fund shortfalls. All the SS Trust Fund does is change who we owe that money to.

Do you at least agree with jtgain that the size of the Federal Debt is exactly the same as it would have been had the SS Trust Fund never existed? That is the first step towards enlightenment.

No, the first step towards enlightment is realizing that the Federal Debt is only part of the liability side of the federal balance sheet. The biggest part doesn't even exist on any federal document, anywhere.

While the oft-stated value of the Federal Debt is $14 trillion and change, the true value of the liability side of the federal balance sheet is $100+ trillion or more. There is no document anywhere where the feds identify and fess up to this number. But private companies have to do it all the time, otherwise they go to jail for accounting fraud.

Your definition of the Federal Debt is the cumulative total of the obligations that are valued and backed by the goverment in the traded market. The gubmint sold a T-bill today that promises to pay an investor $100 in 2 years. Go and add $100 to the Federal Debt.

But the gubmint also made a promise today to pay Granny $15,000 per year starting right now, for as long as she is alive. There is a value to that liability that can be calculated using standard actuarial tables. Let's say the value of that liability is $200,000. The gubmint needs to come up with that 200 large, somewhere, because it has made a promise to pay Granny back. Private companies need to record this 200 large on the liability side of their balance sheet, because somewhere along the line they will need to come up with the means to pay for it.

That 200 grand doesn't appear anywhere on the Federal books. It doesn't show up in the "Federal Debt" number, to which you refer to above. The government budget is a cash-in-cash-out accounting system, to which they and only they allow themselves to operate. They put CFOs in jail for reporting numbers this way.

IdahoMauleMan
08-04-2011, 08:35 PM
Well, my savings account isn't it's own pile of cash in a vault. The bank went and did other things with the money. It's an entry in an accounting ledger. But I still think of it as my money. I don't consider it gone.

(Well, I would if it were a non-zero amount of money.)

Because you are assigning a very low risk - perhaps zero - of them paying you back. It's your call.

That's fine. You've made a choice about what to do with your money, valued the risk accordingly, and acted accordingly. That's the wonderful thing about liberty and the freedom of choice. You get to do what you want with your money, and live with the consequences.

But we don't really get that choice with Social Security, do we?

amarone
08-04-2011, 09:34 PM
I can't believe that you guys won't concede this simple point. Let's take it as a given that social security is a worthy program and should be fully funded. You still have to concede that the so-called surplus in the so-called trust fund is gone. There is no surplus or trust fund. It is an entry on an accounting ledger. A sleight of hand.
I don't know if I count as one of "you guys", but I agree that the money itself is gone. It has been borrowed through a special type of government bond and all that is left is a commitment from the government that it will be repaid. Just like with any other government bond. Just like the six-figure sum I have invested in government bonds. I don't lose any sleep over that.

I don't see why it is "sleight of hand" though. Looking solely at the SSA, it is fine - it is owed money by an entity which is paying for the privilege of borrowing it. The entity happens to be the government. Looking at the US government as a whole, it is not financially significantly better off through having borrowed from the SSA. It is able to borrow from the SSA rather than an external creditor, but by law has to pay a market interest rate. It uses the SSA fund to minimize the amount it has to borrow from elsewhere, but it does not reduce its future commitments to repay in any way.

waterj2
08-04-2011, 10:14 PM
Because you are assigning a very low risk - perhaps zero - of them paying you back. It's your call.

That's fine. You've made a choice about what to do with your money, valued the risk accordingly, and acted accordingly. That's the wonderful thing about liberty and the freedom of choice. You get to do what you want with your money, and live with the consequences.

But we don't really get that choice with Social Security, do we?You seem to be answering a different point than I was making. But you're right, I don't get that choice with Social Security. Which I consider a good thing. Really, that's basically the point of Social Security. They take my money and make sure I don't die completely destitute. Which is probably what would happen if I were left to make these choices myself. And given the decrease in old people dying in poverty since we started Social Security, I'd say that I've got plenty of company in that regard.

jshore
08-04-2011, 10:24 PM
What is functionally different between these scenarios that makes the SS Trust Fund anything more than a masturbatory fantasy on a balance sheet?

What is functionally different is where the blame lies (and hence what the solution ought to entail). Those who feel that it is social security that is the problem once it starts running a deficit are being silly. It is as if I had a rich uncle who was lending me money and then my uncle informs me that his financial situation is such that he can no longer able to lend me money indefinitely into the future and in fact several years from now I will have to start paying it back. Do you think I would be justified in blaming my uncle and saying that he should get his financial house in order so that I don't ever have to pay him back?

So, rather than saying something like we should possibly tax, say, the wealthy more so that the rest of the government doesn't have to keep borrowing from social security, the Grand Deceivers (TM) want you to believe that the problem is with the S.S. system...and thus essentially use the regressive social security tax to fund the rest of government and make sure that the wealthy don't suffer in ordinately, because apparently the modern Republican Party believes that inequality isn't increasing fast enough (http://www.cbpp.org/cms/?fa=view&id=3220).

amarone
08-04-2011, 10:33 PM
the Grand Deceivers (TM) want you to believe that the problem is with the S.S. system...and thus essentially use the regressive social security tax to fund the rest of government .
Can you back up that claim? I have never heard anyone suggest that SS taxes should be used to fund anything other than SS benefits.

fumster
08-04-2011, 11:47 PM
What I think is funny is that conservatives assume we will pay China back what we borrowed from them and screw over our own seniors by not paying them back; I think it's projection.

fumster
08-04-2011, 11:50 PM
Can you back up that claim? I have never heard anyone suggest that SS taxes should be used to fund anything other than SS benefits.Well that is exactly what happens if we don't honor the loans from the SS trust fund. Of course if we do assume that we have a 100% legal and moral duty to honor them then the whole idea that SS has added to the deficit makes no sense.

IdahoMauleMan
08-05-2011, 06:05 AM
You seem to be answering a different point than I was making. But you're right, I don't get that choice with Social Security. Which I consider a good thing. Really, that's basically the point of Social Security. They take my money and make sure I don't die completely destitute. Which is probably what would happen if I were left to make these choices myself. And given the decrease in old people dying in poverty since we started Social Security, I'd say that I've got plenty of company in that regard.

So you are incapable of making choices for yourself, and willingly sign over your resources and decision-making authority to someone else.

And want me to do the same.

Got it. Thanks.

IdahoMauleMan
08-05-2011, 06:09 AM
What I think is funny is that conservatives assume we will pay China back what we borrowed from them and screw over our own seniors by not paying them back; I think it's projection.

To misquote Sam Stone....."sorry, I'm having trouble hearing you because of the giant straw man in the way."

Oh yes, evil intent and the desire to screw people over abounds. That's the reason behind it all.

How about this? How about not taking the senior's wages via the payroll tax over their 40-year working lifetime to begin with, so you don't need to pay them back. At all. Then you don't have to worry about those messy choices between seniors and the Chinese. Actually you won't need to worry about either - since we are borrowing from the Chinese to pay the seniors.

That sounds like a much simpler, easier and cleaner way to solve the problem. Don't you think?

Hentor the Barbarian
08-05-2011, 06:16 AM
That sounds like a much simpler, easier and cleaner way to solve the problem. Don't you think?Sure! It also has the advantage of having been tried in the past here, and currently in many places around the world.

The only downside is that you have to turn off your conscience to the complaints of the impoverished elderly. Other than that, it's a perfect solution!

IdahoMauleMan
08-05-2011, 06:33 AM
Sure! It also has the advantage of having been tried in the past here, and currently in many places around the world.

The only downside is that you have to turn off your conscience to the complaints of the impoverished elderly. Other than that, it's a perfect solution!

"Turning off my conscience to the complaints of the impoverished elderly?"

Are you positing that SS benefits are go only to the impoverished? If so, please state so. Then we can debate that point, which you will assuredly lose. They are not a means-tested benefit that go to the impoverished. They go to everybody. That's how FDR sold it, because he knew a new welfare program would never fly.

So that was Giant Straw Man #2. They are coming fast and furious now, I see.

amarone
08-05-2011, 06:33 AM
Well that is exactly what happens if we don't honor the loans from the SS trust fund.But I still have not heard anyone suggest that.

Of course if we do assume that we have a 100% legal and moral duty to honor them then the whole idea that SS has added to the deficit makes no sense.
I agree with that, but are people making that claim? I don't see anyone having done so in this thread.

It will add to the deficit if SS starts being paid out of the general fund once SS is depleted, but I haven't heard any proposals to do that.

BigT
08-05-2011, 06:43 AM
So you are incapable of making choices for yourself, and willingly sign over your resources and decision-making authority to someone else.

And want me to do the same.

Got it. Thanks.

You're free to do whatever you want with your own money. The money the government charges you for living in this country at the cost we've all agreed on? It isn't yours.

IdahoMauleMan
08-05-2011, 07:16 AM
You're free to do whatever you want with your own money. The money the government charges you for living in this country at the cost we've all agreed on? It isn't yours.

The government charges me for living in this country? What? And that has something to do with a SS Ponzi scheme?

Good Lord. The prosecution rests its case. Again.

Hentor the Barbarian
08-05-2011, 08:12 AM
"Turning off my conscience to the complaints of the impoverished elderly?"

Are you positing that SS benefits are go only to the impoverished? If so, please state so. Then we can debate that point, which you will assuredly lose. They are not a means-tested benefit that go to the impoverished. They go to everybody. That's how FDR sold it, because he knew a new welfare program would never fly.

So that was Giant Straw Man #2. They are coming fast and furious now, I see.Of course, since I didn't make any such claim, I'm in no position to lose your fantasy debate. It seems to me that what is occurring fast and furious is your misrepresentation of claims.

Of course SS does not go only to the impoverished; that is not the point. What SS is intended to avoid, however, is the suffering associated with poverty when people can no longer work. Consciences are hardly pricked by an absence of suffering, and massive federal programs are likewise never inspired by the absence of a problem

Like many conservatives, you appear ignorant of reality, and would rather propose economic policies based on a fantasy land where many people would not suffer when they could no longer work late in life. If some were to experience such hardship, it would only be those who deserved it due to making clearly erroneous decisions.

This fantasy world seems to be one in which any investor experiences gains over the course of their lives, 50% of the people fall into the top 2% of income earners, and salary correlates perfectly with merit and merit with positive individual qualities.

Here, by the way, is exactly how FDR sold social security to Americans:

The third factor relates to security against the hazards and vicissitudes of life. Fear and worry based on unknown danger contribute to social unrest and economic demoralization. If, as our Constitution tells us, our Federal Government was established among other things, "to promote the general welfare," it is our plain duty to provide for that security upon which welfare depends.

Next winter we may well undertake the great task of furthering the security of the citizen and his family through social insurance.

This is not an untried experiment. Lessons of experience are available from States, from industries and from many Nations of the civilized world. The various types of social insurance are interrelated; and I think it is difficult to attempt to solve them piecemeal. Hence, I am looking for a sound means which I can recommend to provide at once security against several of the great disturbing factors in life--especially those which relate to unemployment and old age. I believe there should be a maximum of cooperation between States and the Federal Government. I believe that the funds necessary to provide this insurance should be raised by contribution rather than by an increase in general taxation. Above all, I am convinced that social insurance should be national in scope, although the several States should meet at least a large portion of the cost of management, leaving to the Federal Government the responsibility of investing, maintaining and safeguarding the funds constituting the necessary insurance reserves. I have commenced to make, with the greatest of care, the necessary actuarial and other studies for the formulation of plans for the consideration of the 74th Congress.

FixMyIgnorance
08-05-2011, 09:15 AM
What about this: Could we say SS is like a Ponzi scheme where some investors die and therefore need not be repaid? Could SS be sustainable even if everyone retired at the same age and died at the same age?

Great Antibob
08-05-2011, 09:39 AM
What about this: Could we say SS is like a Ponzi scheme where some investors die and therefore need not be repaid? Could SS be sustainable even if everyone retired at the same age and died at the same age?

It would actually be more sustainable.

If we could accurately predict when people die, we could more easily adjust the retirement age and benefits for SS to keep it solvent indefinitely. Of course, if we knew when people would die and set retirement accordingly, SS would be less necessary.

FixMyIgnorance
08-05-2011, 09:44 AM
I mean can we just argue that it's basically the same as money from myself paying for myself down the line?

Jas09
08-05-2011, 10:09 AM
I mean can we just argue that it's basically the same as money from myself paying for myself down the line?Well, that's what any retirement investment is, no? I withhold from my paycheck, or don't spend money today, with the idea that I'll spend it in retirement instead. So yeah, your statement is true as far as it goes.

To amarone's question. I haven't heard anyone claim we shouldn't repay the SS Trust fund bonds. What I have heard people say is that because that money is gone, SS is fundamentally broken and benefits should be cut to levels that make it sustainable without considering the money in the trust fund. That is, they want immediate benefit cuts as soon as revenues fall below payments, even though there are plenty of assets in the trust fund to pay full benefits until 2040ish, and even though the entire purpose of the surplus and trust fund in the first place was to help handle the baby boom demographics.

That is the deception, and the entire purpose of even having the argument.

UltraVires
08-05-2011, 10:26 AM
even though there are plenty of assets in the trust fund ......

*screams like little girl.

Didn't we just establish that the trust fund was raided and that there are no more assets there. Just promises to repay?

I would agree with you if you said, "Hey, we agreed to set aside a bunch of money to pay for social security, but just because we pissed it all away doesn't mean we shouldn't honor our committment."

These statements of these assets are extremely misleading. It changes the debate and misleads people into making it seem like we have a pile of money out there ready to tap into.

And upthread a poster mentioned how a savings account is lent to other people. Yes, other people. A debt that someone else owes you is an asset to you. A debt that you owe to yourself is not an asset unless you artificially parcel yourself into different accounting groups and play games with the numbers.

Why is this simple, simple point not a given? Will anyone email my wife and tell her that my daughter's college fund is still filled with assets after I cash it out and put in my IOU?

gonzomax
08-05-2011, 10:28 AM
"Turning off my conscience to the complaints of the impoverished elderly?"

Are you positing that SS benefits are go only to the impoverished? If so, please state so. Then we can debate that point, which you will assuredly lose. They are not a means-tested benefit that go to the impoverished. They go to everybody. That's how FDR sold it, because he knew a new welfare program would never fly.

So that was Giant Straw Man #2. They are coming fast and furious now, I see.

Over 1/3rd of SS recipients have it as their only income. Many others have small pensions too . Yes, it is a safety net for millions of older people.
It also is a support for kids whose breadwinner dies. It provides for those who are unable to work for health or mental reasons.
It is great and important program. It is run on a fraction of what private systems gobble up.

UltraVires
08-05-2011, 10:41 AM
Think of it this way. It takes two people to enter a contract. Not one.

If I promise to pay myself back in the future, it isn't an enforceable deal. I can, at any time, simply release myself from the obligation to repay. The promise is illusory.

Now, that's not to say that the U.S. won't pay SS benefits. They will. They will pay because of public policy and not because of some obligation to the trust fund.

shiftless
08-05-2011, 11:02 AM
*screams like little girl.

Didn't we just establish that the trust fund was raided and that there are no more assets there. Just promises to repay?


Every dollar you and I have is "Just promises to repay." The money we have in the bank? That isn't piles of greenbacks in a vault, it is IOUs from all the people the money was loaned to.

I don't understand the distinction that people try to make about the SS trust fund. I loan money to the Government all the time via saving bonds, retirement accounts that invest in bonds, overpayment of taxes and who knows what else. SS also loans money to the government. Is there some reason to believe that Uncle Sam will refuse to pay back some loans and not others? Is the US going to default on my income tax refund or refuse to pay my savings bonds?

If you really, really believe that the US will default on the monetary promises thay have made then you have a lot more to worry about then whether you will get a SS check. In that scenario ALL of our money will be worthless or nearly so.

black rabbit
08-05-2011, 11:03 AM
Didn't we just establish that the trust fund was raided and that there are no more assets there. Just promises to repay?


We established no such thing. Do you even know what an "asset" is?

gonzomax
08-05-2011, 11:20 AM
http://www.nasi.org/learn/socialsecurity/who-gets
4 million Social Security recipients are children whose breadwinner died . Six million are wives and children of deceased breadwinners. Ten million are disabled people who can not work.
The SS fund is not broke. It is protected by the full faith of the US treasury. If it failed, Social Security would be a minor problem. Our currency would fail. There are over 3 trillion dollars in bonds in the fund.

Ravenman
08-05-2011, 11:28 AM
If I promise to pay myself back in the future, it isn't an enforceable deal. I can, at any time, simply release myself from the obligation to repay. The promise is illusory.

Now, that's not to say that the U.S. won't pay SS benefits. They will. They will pay because of public policy and not because of some obligation to the trust fund.Have you heard of the 14th Amendment?

Lobohan
08-05-2011, 11:31 AM
The takeaway I'm getting from this thread is that some people have a mental block that precludes them from understanding how SS works. It's really kind of weird.

Great Antibob
08-05-2011, 11:52 AM
Every dollar you and I have is "Just promises to repay." The money we have in the bank? That isn't piles of greenbacks in a vault, it is IOUs from all the people the money was loaned to.

Maybe this is the problem people have with it? That they (perhaps subconsciously) believe in some mystical "money" that has its own, independent intrinsic value? It seems not entirely unrelated to gold-buggery.

shiftless
08-05-2011, 11:52 AM
The takeaway I'm getting from this thread is that some people have a mental block that precludes them from understanding how SS works. It's really kind of weird.

To be fair, there is something a little confusing about a large entity like the US collecting money with its left hand and then loaning that money to its right hand. Our leaders play a lot of accounting tricks too. More than once I have seen charts that lumped SS funds in with general revenue, because the SS surplus covers up some of the the general overspending and the huge payouts that SS makes help to make other spending look smaller.

"You think my $100 million pork project is a waste of money? Look, behind you, Social Security is over a third of the budget!!"

rock party
08-05-2011, 12:44 PM
Remember too that people with earnings over the cap (100,000) have paid less into the system.
Someone earning say 300,000 per year pays 1/3 the percentage of their salary into SS than someone earning less than 100,000. Of course their benifits are capped too so it all evens out

Except that it doesn't.

Those high earners have benefited from lower taxes overall due to the raiding of the trust fund.
Since that excess went into the "general fund" for all these years, tax rates have been adjusted (LOWERED) accordingly. Now that the IOU's are comming due, we're being told it's time to rethink the whole system.

It's actually the high wage earners who should make up the difference since they're the ones who
benefitted from raiding the trust fund by paying lower taxes with the surplus. Of course they want to abolish the system now that the "bill" is due, scream socialism, and try and get your average joe to
head to wall street to invest in derivatives.

IdahoMauleMan
08-05-2011, 01:38 PM
Maybe this is the problem people have with it? That they (perhaps subconsciously) believe in some mystical "money" that has its own, independent intrinsic value? It seems not entirely unrelated to gold-buggery.

You are incorrect, then correct.

I don't know who the "they" is in the post you refer to, but certainly any medium-of-exchange in which debt is denominated has it's own currency risk, which must be evaluated in the course of any investment decision.

That's why some investors prefer to hedge against these risks by holding baskets of different currencies, or commodities, or income-generating entities that produce income in different currencies.

I don't know what you mean by "gold-buggery"....it's hard to tell if you actually understand what you're talking about, or have drawn a completely wrong conclusion, or are throwing out silly ad-hominem name calling in an effort to be cute. Maybe all three.

IdahoMauleMan
08-05-2011, 01:39 PM
The takeaway I'm getting from this thread is that some people have a mental block that precludes them from understanding how SS works. It's really kind of weird.

Please educate us.

Ravenman
08-05-2011, 02:52 PM
To be fair, there is something a little confusing about a large entity like the US collecting money with its left hand and then loaning that money to its right hand. Our leaders play a lot of accounting tricks too. More than once I have seen charts that lumped SS funds in with general revenue, because the SS surplus covers up some of the the general overspending and the huge payouts that SS makes help to make other spending look smaller. In almost every government document that describes the overall deficit or surplus in the budget, one will find both the "on-budget" or "off-budget" numbers. If you want to include Social Security surpluses, look at one column. If you don't, look at the other. It isn't "covering something up" if all the data is right in front of you.

Voyager
08-05-2011, 03:43 PM
So you are incapable of making choices for yourself, and willingly sign over your resources and decision-making authority to someone else.

And want me to do the same.

Got it. Thanks.

Gather around folks and let's examine this big turd that IMM just deposited. This is a textbook example. See what he is saying here - he is saying that you either agree with him or admit that you are too stupid to handle your own money. He's done the same thing with drug regulation - he says that since he is convinced that he can research the safety and efficacy of drugs (with no evidence that he can) you should too, and saying we need the FDA is admitting your intellectual weakness.

However, while most of us forced into this corner will say that we can do it, it is pretty clear that there are lots of Americans who can't make good investment decisions, either from psychological factors like loss aversion or just through lack of math ability. SS is for everyone, not just for MBAs and PhDs.
And we have a great counter-example. Why regulate mortgages? You wouldn't take out a mortgage you couldn't afford, would you? Well, millions did exactly that, and IMM and his ilk now blame them.
If he got his way, when millions of the elderly have no money, he would no doubt blame them, and I somehow doubt that he'd support tax increases to keep them from starving. SS is forced retirement savings. In the libertarian paradise it wouldn't be necessary since everyone would know to save for retirement, but in the real world a lot of the money would be spent. If you are unemployed, your SS remains untouched. Would any personal savings plan stay untouched if the alternative was immediate homelessness?

FixMyIgnorance
08-06-2011, 07:08 AM
Is it a problem that people are living longer?

Shodan
08-06-2011, 09:00 AM
To make the discussion clearer, every time someone mentions that the SS trust fund contains "assets", simply substitute "the promise of future tax increases".

SS is not pay-as-you-go. Therefore one of the problems is that, back when the system was founded, there were more working people paying in than there were beneficiaries taking money out. Nowadays I believe the ratio is something like 3 people paying to every one taking out, and that is projected to drop to a 2:1 ratio.

Regards,
Shodan

IdahoMauleMan
08-06-2011, 09:19 AM
To make the discussion clearer, every time someone mentions that the SS trust fund contains "assets", simply substitute "the promise of future tax increases".

SS is not pay-as-you-go. Therefore one of the problems is that, back when the system was founded, there were more working people paying in than there were beneficiaries taking money out. Nowadays I believe the ratio is something like 3 people paying to every one taking out, and that is projected to drop to a 2:1 ratio.

Regards,
Shodan

I think you meant to say SS *IS* pay-as-you-go.

gonzomax
08-06-2011, 10:50 AM
http://www.moneynews.com/StreetTalk/Economist-Dean-Baker-Social/2011/07/05/id/402556
Social Security is not broke. It indeed does have a Trust Fund. Rightys just continuously make shit up.

Shodan
08-06-2011, 12:33 PM
I think you meant to say SS *IS* pay-as-you-go.
You're correct, of course. My apologies.

Regards,
Shodan

jshore
08-06-2011, 05:32 PM
Can you back up that claim? I have never heard anyone suggest that SS taxes should be used to fund anything other than SS benefits.

I don't think I can answer that any better than Jas9 has here (http://boards.straightdope.com/sdmb/showpost.php?p=14104629&postcount=112). It is fundamentally dishonest to talk about the fact that social security will have outlays exceeding revenues by 2018 (or whatever) without making it very clear that this is not a problem with social security because it has a trust fund...i.e., it is owed money by the federal treasury. So, the 2018 number has nothing to do with any fix that might or might not be needed to social security to keep it solvent into the indefinite future.

The fix is needed to the rest of the budget...and to imply that it is social security's problem is, like I said, fundamentally dishonest. And, one motivation for such dishonesty may indeed be a desire to fix the budget woes on the backs of the workers who fund social security rather than on the backs of the wealthy who could and should pay quite a bit more through income tax increases. They are the ones who have made out so handsomely over the past ~40 years, on top of the fact that they weren't so bad off to begin with...So, they are the ones who obviously should be contributing the most to solving the revenue shortfalls that we are facing in the future.

amarone
08-06-2011, 05:51 PM
I don't think I can answer that any better than Jas9 has here (http://boards.straightdope.com/sdmb/showpost.php?p=14104629&postcount=112). I missed that response (when in a hurry I skim the thread to see if anyone has quoted any of my posts). I agree with it.

It is fundamentally dishonest to talk about the fact that social security will have outlays exceeding revenues by 2018 (or whatever) without making it very clear that this is not a problem with social security because it has a trust fund...i.e., it is owed money by the federal treasury. So, the 2018 number has nothing to do with any fix that might or might not be needed to social security to keep it solvent into the indefinite future. Well, it is the beginning of a problem with Social Security because outflows are now exceeding inflows. The government will have to pay back the trust fund (and I have no doubt that they will) but will reach a point where the whole fund has been paid back and now inflows do not provide enough to pay the benefits, so something has to change.

The fix is needed to the rest of the budget
If the thing being "fixed" is the deficit, I agree. SS does not affect the deficit. If the looming inflow/outflow imbalance is not resolved, AND the government then decides to make up the shortfall from the general fund, then SS would affect the deficit. I don't even know whether it would be legal to do that.

...and to imply that it is social security's problem is, like I said, fundamentally dishonest. I agree. I hope you were not viewing me as being one such person.

And, one motivation for such dishonesty may indeed be a desire to fix the budget woes on the backs of the workers who fund social security rather than on the backs of the wealthy who could and should pay quite a bit more through income tax increases. They are the ones who have made out so handsomely over the past ~40 years, on top of the fact that they weren't so bad off to begin with...So, they are the ones who obviously should be contributing the most to solving the revenue shortfalls that we are facing in the future.
Here we may depart views. I think that many people can (or should be able to) afford to pay more taxes, not just the top 2% (or whatever). Let all the Bush tax cuts expire. Apart from the fact that the middle class can also afford higher taxes (and I am in that group), just taxing high earners is insufficient to fix the problem.

gonzomax
08-06-2011, 07:21 PM
It was Alan Greenspan the Libertarian who was charged with fixing SS to take care of the boomers. He came up with the fund that would kick in when boomers started and then expire when the last ones kicked off. It was designed to be used . It is being used. That was the plan.
People who say we are hitting the fund and it is wrong ,do not understand. It is solvent for 30 years. I suppose we could tweak it and keep it at full force for many more decades. That would be the wise thing to do, but as this post shows, some people are too dumb to merit having it.

jshore
08-07-2011, 08:34 PM
Here we may depart views. I think that many people can (or should be able to) afford to pay more taxes, not just the top 2% (or whatever). Let all the Bush tax cuts expire. Apart from the fact that the middle class can also afford higher taxes (and I am in that group), just taxing high earners is insufficient to fix the problem.

I don't necessarily disagree with you, especially as part of an eventual solution...although I think the case is much more of a no-brainer for the case of the top 2% than it is for the middle class, and particularly so when the middle class is hurting so much and when the economy is in the dumps.