I don’t understand what good this lockbox is supposed to be.
To simplify matters, let’s just focus on how we are going to feed all those old people when they retire.
With the exception of spam and other canned goods, most food produced in any given year is consumed in that year otherwise it would go bad.
So, most of the food produced this year will be consumed this year.
The year social security is supposed to go bankrupt is much the same. All the food that is going to be produced in that year is going to be consumed in that year.
So what real good is this “lockbox” – other that a stack of bills to facillitate food redistribution from those still active in the economy to those who are no longer active?
**Essentially, this is just taking money out of the economy now, to put back in later.
Couldn’t the exact same effect be accomplished by simply not printing as much money now, and printing more later?**
Unfortunately I don’t have long now, so I’ll leave the addressing of social security itself for tomorrow. But as a taster about printing money - printing less or more money has no effect on the level of (long-run) output. It merely affects the value assigned to each piece of paper. You won’t achieve any capital creation in that way.
This is probably going to get complicated fast, but…
The lockbox is supposed to mean that, since we have a “unified” budget, meaning that everything, including SS and Medicare, go into the final budget number, the surplus has to be in the part funded by general revenues, not just an artifact of SS’s own large and growing surplus.
So, if SS is running a surplus of let’s say 120b, while the generally reported surplus is 90b, that would mean that the deficit in the general revenue portion is -30b, which is being covered up by the SS surplus. So the idea is that the general revenue part be in surplus all by its lonesome, with no help from SS.
The ultimate idea is to pay off the debt in the expectation of having to run it up again later to pay off the baby boomers (that would be me) when they retire. As if…
Sorry it took so long to respond jmullaney. I was going to respond with pages of pensions theory, but then I realised that this issue is actually quite simple if you ignore the more technical, esoteric aspects. So here it is:
When you pay into social security, this improves the government’s PSBR position, ie the deficit is less than it otherwise would have been, or the surplus is greater. The government therefore don’t have to issue as much debt.
What is more, about three-quarters of the stockmarket is owned by pension schemes and policyholders of Life Assurance companies. This is all capital investment which is driving the economy.
To merely call this “money” is incorrect. The money is being used to create and fund businesses and produce output for society.
You focus on food and ask
but this is to miss the point that we are capable of vastly overproducing food anyway. To focus on how we are to feed people is disingenuous, since quantity of food is not likely to be an issue in our lifetimes.
The issue is that of whether the working population can support the dependent population (in terms of production).
But in the absence of undersupply, if the dependent population has capital with which to invest in the working population, the issue is moot.
Social security (along with private pension schemes) ensure that this capital is present.
I’d like to go further in this explanation but to do so I need to use some economic arguments and it would be arrogant and intimidatory of me to assume that these would be understood (proof by intimidation was always a popular tactic of my more abstract mathematics lecturers so I know how annoying it can be). If you have studied economics then please tell me and I’ll happily continue. If not however, I can direct you to the relevent bit of (simple) theory so that you can investigate for yourself. Find stuff on IS-LM curves (goods and services and money markets equilibrium) and LAS/SAS-MDS curves (long and short run macroeconomic demand and supply) in any good textbook on elementary economics. The Phillips curve will also be instructive.
On a side note for those who are worried about the “problems” associated with an aging population (problems perpetrated almost entirely by a media which has little or no training in the relevant fields and misunderstands the issues), I have this to say: don’t worry.
[ul]
[li]The so-called “dependent” population actually does a lot of unpaid work, such as charity work, child rearing etc. Estimates of the cost to society if this work disappeared are put as many many billions.[/li][li]Funded pension schemes mean that the older generation is not being paid for by the current generation. In many ways it is the other way around.[/ul][/li]
regards,
I understand the above applies to pension funds and IRAs as they are invested in the capital markets, but how does it apply to Social Security since it is a pay as you go program with current tax money being used to pay current recipients. Social Security money is not being invested it is being spent.
Well lemartel, in the UK we also have pay-as-you-go social security. It’s commonly felt that this was a bad move and that funded schemes make more sense. But it answers jmullaney’s post even more so, since this year’s income is used to pay this year’s outgo.
To address your post though, in many ways pay-as-you-go can be considered merely as a different accounting basis (although it isn’t fully funded so you have to make tweaks to allow for debt). See my post in this thread for an explanation on how the government is, in essence, investing in bonds.
