Social Security is a Ponzi Scheme

Great Debates
61

Because we, as a society, are not willing to let those opt-outers die. In 50 years there will be a bunch of people that mis-managed their finances and are now destitute. That will eventually require some form of government intervention in yet another layer of bureaucracy.

The easiest solution for everyone is to take a small portion of everyone’s paycheck, and then provide the bare minimum to retirees. I think in the end it would cost a lot more to deal with all of the people that opted out and then failed. Much the same way it costs a fortune to provide emergency health care to those that don’t want to look after themselves.

62

The people who you were previously taxing. The money is still there.

But by retiring they aren’t contributing to S/S any more. And as a person with 45 years of experience they are more valuable to society than the recent grad.

So why don’t we have a system for kids as well? Don’t they deserve a guaranteed income? I guess it might work if we gave parents a huge tax deduction/credit for each kid they have. And then provide public education so they eventually can have a place to drop out of.

Kind of gives the government an incentive to kill 67 year olds, is Sara Palin aware of this? Do we have a death panel in place to deal with it?

63

This just isn’t an accurate way to put it, but we’ve had this discussion so many times on this board that I don’t think stating it again will change anybody’s minds at this point. Suffice it to say that both the solvency of the SSA and the size of the federal debt would be identical (actually SSA a bit worse off) if the trust fund never bought a single piece of US debt.

As has been pointed out by whom? It’s only bad if your primary goal is to maximize your return. If your goal is to ensure a universal minimum benefit then it’s a great plan. Which, fortunately, is exactly the goal of SS.

I’m willing to let you opt out if you are willing to sign a waiver guaranteeing that you waive all rights to government care if you wind up old and broke. Do you really think SS was created for no reason?

64

Under normal times, Social Security doesn’t increase demand though. It moves money from one group of people to spend from another group of people. During a Recession, there’s a problem of workers not spending their money, while retirees continue to do so, so during such times its good for GDP to move money from one group to another (though only slightly, its much better to get a bunch of money by borrowing it and then give it to the same old people).

I think we agree here. Assuming people still want to reitre and we still want to allow them to do so, SS is more or less a wash as the money will have to come from somewhere. We’d be better of economically not letting people retire, but we’ve pretty clearly decided thats not something we want to do.

When there’s adequate demand, though, by definition there’s employment enough to go around to fill that demand. Taking old people out of the labor pool might be good for other reasons (it raises everyone elses wages, it keeps the people most likely to be sick/suffering from dementia from trying to still work as air-traffic controllers and the like and crashing planes into each other), but under normal conditions, it removes workers from the economy and thus lowers GDP.

Your right we would have to pay for their health issues whether they’re retired or not, but paying to make a sick worker healthy again increases GDP since they will go back to work, paying to make a sick retiree healthy just makes it so they can go back to their bingo game.

True, but they’re a good investment. If we had zero children, then in 60 years everyone would be dead or retired and the GDP would be zero. Old people are a terrible investment since they’ll never contribute to GDP again.

65

Car insurance is also a terrible way to make money. Think of all the drivers who have never been in an accident that pay hundreds or even thousands of dollars every year to insurance companies!

But that is also why Social Security should be considered a social insurance program, not a pension system. It’s right there in the name of the tax: Federal Insurance Contributions Act.

66

Actually, the link I offered yesterday has information that is no longer valid. SSA just updated the figures today:

http://money.cnn.com/2011/05/13/news/economy/social_security_medicare_trustees_report/index.htm?hpt=T2
Congress could also eliminate the $106,800 salary cap and that should limit any payroll tax increase for everyone.

67

And when your own retirement investment gets wiped out due to a bad economy, your mismanagement, and/or the administrator’s mismanagement, are you willing to become destitute? Or will you whine to Congress you need help? I’m not saying your idea has no merit. I am saying are you willing to make the decision with no hope of ever going back once you go through the one way door and opt out? I don’t think most Americans have that strength, either before of after the fact.

Our recent economic troubles are quite evident that banks and retirement administrators are more than willing to screw their investors and their (retirement) investments, regardless of who gets hurt.

68

From the other side, I don’t think I have the strength to let someone. In other words, if they make bad choices or just have bad luck and end up destitute, I can’t just turn my back and say “oh well, that was your choice”. I have to try and help.

69

I know some people who had a solid savings plan wiped out by Madoff. I know a company that had their entire retirement funds looted by him. He was not the only corrupt financier in town.
Lots of people have lost their homes in the last few years.unemployment is well over ten percent. What did all these people do wrong?

70

I’m not going to argue with you because I agree with about 95% of what you are saying. But your statements sound to me like knee-jerk reactions to something you perceive as an attack on the SS system. I recognize that their is a movement to demonize the SS system, a movement that started when the system was created. But that is no reason to consider the system to be perfect. Especially in terms of its reliance on the repayment of loans from the rest of the budget. Portraying all arguments in black and white terms is the strategy of the crooks who made a mess of the budget. It’s a simple way to avoid dealing with problems by simply blaming the other side. And in this case, I’m not even on the other side.

71

That’s fine, but you wouldn’t pretend that you aren’t out the money, would you? If I borrowed $20,000 from my retirement savings to buy a car, I am out $20,000. I cannot write myself an IOU saying “Rick’s Car Fund Promises To Pay Back Rick’s RRSP $20,000” and thereby pretend I’m not down twenty grand.

On the contrary, it IS part of the same piggy bank.

Yes, there is a separate revenue stream - but, again, it’s simply naming convention. The relationship between SS collections and payouts is purely a matter of government policy. For many years collections have exceeded payouts for no other reason than that’s the level they set the levels at.

Were you to change the name of the Social Security line item on a person’s paycheck to “Barack’s Discretionary Spending Fund” it wouldn’t make a lick of difference.

[QUOTE=Jas09]
I’m willing to let you opt out if you are willing to sign a waiver guaranteeing that you waive all rights to government care if you wind up old and broke. Do you really think SS was created for no reason?
[/QUOTE]

Actually, this is precisely what you CAN’T do. If you did, Social Security would instantly be a financial disaster.

The entire point to an annuity is the spreading of risk and the avoidance of adverse selection. If you let people opt out of SS, the people who do opt out will be (more or less) the people you don’t WANT to opt out.

72

RickJay is right on point. It would be like me taking my paycheck and allocating 90% of it for “Liquor and Whoring Around” and 10% for living expenses. Then when I can’t pay the electric bill and someone suggests cutting down on the drinking and carousing, I can point to the fact those things are not responsible for my financial difficulties! See, look at the numbers, they are actually paying for themselves and making me money! I have a trust fund set up worth over $50,000 that is dedicated to my lifestyle. Yes, it is filled with IOUs from my living expenses, but hell, why borrow from a bank when I can borrow from myself?

So, no, drinking and carousing is definitely not the problem. If only everything in life was as successful as my boozing account.

73

That is a completely fallacious analogy, because your hypothetical person seems to only have one source of income. Social Security has a dedicated income source. It’s not like we had FICA revenue without SS.

Let me put it this way - if, over the last 80 years, Social Security has not existed and FICA had not existed, would the national debt be larger, smaller, or the same?

[QUOTE=RickJay]
Actually, this is precisely what you CAN’T do. If you did, Social Security would instantly be a financial disaster.

The entire point to an annuity is the spreading of risk and the avoidance of adverse selection. If you let people opt out of SS, the people who do opt out will be (more or less) the people you don’t WANT to opt out.
[/QUOTE]
Yeah, in retrospect I largely agree with this.

74

BS. If people who think they are so awesome with money where good at anything other than stealing it, we wouldn’t be in this huge economic mess in the first place. The same people who now want to end ‘entitlement’ programs and claim some moral superiority based on fiscal responsibility are the same people who (in general terms) caused us to need huge corporate bailouts and screwed us all over with things like Enron and the ‘housing bubble’.

So sure, let them opt out, the country will be just fine without them in my opinion. I just wish when the time came that they needed me, which it will, I had the same lack of empathy they have, to let them suffer. Sadly, I do not.

75

But the main point here is that Social Security is NOT like a Ponzi scheme.

76

That’s completely beside the point. I agree the government sucks with money, but believe me, you missed the point big time.

Social Security is an annuity. An annuity is an insurance program against getting too old.

The basic theory behind annuity insurance is that it ensure you will have some income no matter how old you get. Like all insurance programs, it is therefore a gamble. If I never have a car accident, my paying car insurance was a bad gamble. If I do have a bad car accident and my car’s written off, I will recoup more in the payout than I pay into car insurance in 15-20 years. Annuities are the same thing. If you die at 68, well, Social Security was a pretty bad investment. Or if you die at 99, it was a really, really good bet. (or if you become disabled at 34, it was an awesome bet.)

The problem with insurance programs is the problem of adverse selection. Basically, the problem is that if insurance is voluntary, then the people who buy the insurance are likely to be the people who will NEED the insurance. People with expensive cars and long commutes who drive fast and enjoy road trips will buy more insurance than people who don’t drive much; people with health problems will buy more health insurance than people who have a clean bill of health. Annuities are the same; people who lead healthy lifestyles and expect to live a long time will be more motivated to buy annuities than people who drink and smoke and, like my father, fully expect to be dead by 70.

Insurance programs work better when everyone is involved. That’s why you tend to get better health insurance deals from an employer plan than you do on your own; if you personally approach a health insurance provider, they will rightly be suspicious, since** the very fact you want health insurance is a reason to suspect you have health problems. **But if RandomCorp with 500 employees negotiates, the health insurance provider can assume that 500 people probably have an average health level that’s roughly the same as the population, and offer better rates. Better still, of course, is if the ENTIRE population is involved, which is why Canadians don’t actually spend more more than Americans do on public health insurance even though the coverage is universal; the American system insures the very people who’re likeliest to gobble up the most health care.

If Social Security is optional, people who have no expectation of collecting it, or who don’t expect to collect much of it, will drop out. People who DO expect to collect a lot of it will stay in. So the average cost of a Social Security benificiary will go up, because the people remaining in the program will be likelier to be long term recipients. Perversely, you would be punishing the people who are prudent with both their health and their money. That means the government would either have to jack Social Security contributions up, drop the payments, or go further into debt (or jack up taxes elsewhere.) It would have to become a much larger transfer of wealth from young to old, at least among the participants, which right now is a case of solving a social problem that does not exist; by and large old people are not an economically troubled group in the USA.

77

The other problem, in addition to Adverse Selection, with that is it assumes these people are going to be consistent. I guarantee you most of them won’t. They’ll opt out, then when/if they end up on their ass they’ll come up with some hare-brained theory over why it’s the government’s fault and not theirs and because it’s the government’s fault they should help them out. They’ll probably be joined by a significant portion of people that don’t want their parents on the street (or moving in with THEM), who would probably jump at the chance. Now we’re back to Square One except now with billions in shortfalls from their lack of contribution to the program.

78

That’s my point. This “dedicated income source” is an entry on the accounting ledger. To me or any other taxpayer, it is money out of your pocket and into the government treasury same as sales tax, property tax, income tax, etc. Just because the government arbitrarily assigns one particular tax to fund a particular program does not link the two in a sort of business relationship and determine whether the program is successful or not. Same with local schools and property tax. They could have just as easily linked it to sales tax; it wouldn’t make the schools any more or less solvent, worthwhile, or financially prudent then they are now. The name that is attached to the particular tax does not make it attributable to the success or failure of any particular program, even if that particular tax was passed at the same time as the program was begun.

If tomorrow the government started a new program called “Keeping Roadside Signs Polished” and instituted a 5% payroll tax to fund it, would it be fair to say that the program helps fight the deficit, is self-funded, and that any attempts to get the deficit under control should not TOUCH the road sign polishing program because it is doing just fine; look elsewhere for cuts?

79

No, the fair argument would be to look at the Roadsign Polishing Administration and determine if it’s accomplishing it’s goals, and if those goals are good for America. Attacking it as a cause of the deficit would be misleading, as would supporting it merely because it brought in a surplus.

It’s the same with Social Security. If you think it’s a bad idea, then explain why it’s a bad idea. If you think the funding source is incorrect, then argue for a better one. But claiming that it is bankrupting America is not a valid argument, because it isn’t doing so. Discussing it’s future shortfalls, of course, is perfectly valid. But you can’t wave away the Trust Fund when doing so - that is also misleading.

Notice I have never claimed that Social Security helps the deficit. I said it has no effect on the deficit, because the general fund would have a shortfall with or without it, and the bonds would be sold to cover the shortfall with or without it. The fact that they are sold to the SSA instead of China makes no difference in the budgetary outlook.

80

Social Security is going to pay 80 percent earlier because the economy is bad. With the huge unemployment problem. less money is coming in. That is not a problem of SS making. It is not because the concept is flawed. It is an excellent program, very well run and a demonstration of how well run a government program can be. It is run on 1.5 percent of its income.
The health insurance companies are screaming about Obama care forcing them to pay out 85 percent of their premiums in health care. It is not in effect yet, but insurance companies are jacking up rates to make sure the managers get huge paychecks when it does take effect.
The Repubs said they were going to starve all government programs until they got small enough to flush them down the toilet. They have been quite successful .