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.
I thought your point was asking why it was unsustainable.
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.
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.
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.
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.
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.
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.
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.
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.
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.
[ul][li]I take $20 out of my wallet and spend it.[/li][li]I put a piece of paper in my wallet saying that I will put $21 back into my wallet next payday.[/li][li]Next payday, I put $21 back into my wallet.[/ul]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. [/li]
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 sustainable - most agree on that.
Regards,
Shodan
And if you happened to be one of the 50% that was below average?
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.
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, 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.
Question: are corporate bonds or equities “money” in a way the Social Security trust fund is not?
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:
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.)
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.
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.
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?
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,
Shodan
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?
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.