On a cash-in-cash-out yearly accounting basis. But the federal gubmint doesn’t keep a balance sheet. The liability side of that continued to explode even during the Clinton years, which is kind of the point of the discussion above.
Why wouldn’t they?
Because some scam artist told them they could do better. Which is what would probably happen to most people.
Why would they listen to a scam artist? Would you listen to a scam artist, and manage your retirement savings accordingly?
I recall Ross Perot’s message: (1) Reducing the debt/deficit is priority #1 and (2) to do it, we have to raise taxes and slash spending at the same time. But he never got more than plurality support for that, and in hindsight it’s hard to see how it would have been a good idea at the time.
It is an occupational qualification of scam artists that they are very talented at getting people to listen to them.
I like half of his idea.
Would you listen to them?
I hope not – but I’ve been gulled before, and he’s never going to introduce himself with,“Hi, I’m a scam artist! Let me tell you about a wonderful investment opportunity!”
Then, if you have doubts or concerns, you should just keep your investments in T-Bills. You will be exactly at the same spot where you are today. Plus, you have ownership over those assets and can do with them as you see fit.
See? Isn’t that great? Why don’t we do that instead?
How would I know if they are or not ?
Because a lot of people won’t. Probably most won’t; they’ll be tempted by a good liar and burned.
And while we’re at it, we can deregulate the mortgage market so there are no rules against lending people more money than they can afford. After all, who would be so stupid?
When a large part of the public gets snookered, and they arrive at retirement without anything, are we going to let them starve? I doubt it, we’ll wind up spending billions or trillions once more to support them, as their retirement funds vanish into the hands of the Madoffs of the future. People told by you guys that they are suckers for buying T-bills will go for high yield investments, because people don’t understand risk very well - clearly including high level finance execs.
So, what do you propose to do with broke seniors?
WTF? Have you been living in a cave for the last few years? Why would anyone listen to a mortgage broker sell them a mortgage they won’t be able to afford? Why would anyone believe Madoff that his investments give a steady return, year after year? But they did, and we’re screwed as a result. Saying that you and I would never get ripped off is an evasion, because not everyone is you and I. Saying that no one would make a disastrous investment goes against the evidence that you can read in your daily paper.
So, again, what do we do about those people who act like human beings and not ideal conservative automatons and get ripped off? Call them gullible, call them greedy, but let’s hear what you’d do about them.
And btw, T-bills are the safest investment on the planet. My father only invests in government bonds - he’s a bit odd about taxes. He’s made money in the past 6 months. Sometimes it pays to be safe.
It’s also arrogant. Anyone can be fooled. Especially someone who thinks he can’t be.
A while ago I posted a diatribe about the typical libertarian hero who is convinced the FDA is a waste of money since he can understand drugs much better, that the SEC is a waste since he can research companies much better, and smell fraud from miles away, etc., etc. IMM is definitely one of these heroes, so though I agree with you, I’m interested in what he thinks about the people not quite as skilled and competent as he thinks himself to be.
When I read this, the subtext I get from it is: I don’t care what a Ponzi scheme or fraud actually is, I’m frustrated and angry at the Social Security system so I’m going to call it fraud regardless of whether it is or not.
I hope that’s not actually what you’re trying to say, and that you’ve got another stab at it you’re willing to post. It’s perfectly fine to be frustrated and angry at Social Security – I don’t like some aspects of it myself. I could really enjoy a thread discussing Social Security, and I’d have more fun if the thread was a reasoned debate about the benefits and drawbacks of the system, but if I can’t have that, I’ll still be happy to talk about what Ponzi schemes and fraud are.
There’s a certain irony to this, because as you said:
Apparently, the “questions” you don’t want asked include: How, exactly, is Social Security a Ponzi scheme when Ponzi schemes require the elements below?
- A fraudulent investment
- Pays returns from subsequent investors rather than profit
Social Security is not fraudulent, not an investment (although the ‘investment’ part may be debatable – I’m willing to clarify in future posts,) and if it’s not an investment (in the financial sense,) then it doesn’t pay returns, nor does it have investors. It does pay benefits and has beneficiaries, somewhat like an insurance policy, even though it does not have the contractual features of an insurance policy. It also has taxpayers.
It’s an intergenerational social welfare program. I pay taxes so that workers who have already retired get a little bit of money, and I hope that either I save up enough retirement funds that I don’t need Social Security or that future generations will be willing to pay taxes so that I don’t wind up on the streets when I retire. If you don’t like it, we can talk about that. If you don’t like it, but only want to make unsubstantiated accusations of fraud, we probably can’t talk about that and the thread shouldn’t have been placed in a debate forum!
If you’re actually interested in discussing the future of Social Security, let’s avoid the myths described in this imperfect, but mostly correct article: http://articles.moneycentral.msn.com/RetirementandWills/CreateaPlan/5mythsAboutSocialSecurity.aspx?page=all
So my serious suggestion for discussion: I recommend that Social Security ensure its solvency through the 21st century and beyond by raising the retirement benefit age to 67 sometime before the year 2025, eliminating the cap on income taxed for Social Security purposes, and increasing Social Security taxes by about 2 percent immediately. AFAIK, this would solve the insolvency problem at least until the 2080s.
I’m sure now that I said that the names ‘Marxist’ or ‘Communist’ or ‘AARP terrorist’ or worse – it’s just what always happens in these debates. So let me get the ad hominems out of the way immediately: Yes, last night I participated in the pagan ritual with Stalin and Marx where we drank the blood of newborn capitalist babies and pissed on the grave of Ayn Rand. There. Now that’s out of the way, can I haz serious discussion? 
I hope this is true. Please assuage my doubts (you are under no obligation to do so, but I would be very happy to have a deeper engagement.)
Here’s how I see things:
- An earning asset is an asset which provides income (cite and cite.) Since bonds pay back not only the principal loaned to the bond issuer, but also interest, the interest is income and therefore a bond is an earning asset. There is risk associated with this earning asset, but “riskless” is nowhere in the definition of an earning asset. (Indeed, see the last point below.)
It seems like you already know this, IdahoMauleMan, so feel free to save me time and electrons anywhere along the way here…
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Social Security is not a program designed to generate wealth or store value. It is a social welfare program that taxes current workers to pay benefits to older (former) workers. It transfers wealth, it does not create wealth.
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Because of the above, there are two ways to privatize social security (or you could do something in between the two ways) – First, you create the private accounts with money people are paying in to the system and you leave current recipients out of luck – they get their benefits cut. Second, you make current taxpayers pay both for their private accounts and pay for current recipients. Neither seems like a good idea to me (and I also don’t think a hybrid of the two is a good idea,) but I would like to hear your thoughts on these choices.
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I don’t think Social Security claims that it will “take [care?] of us” – I think Social Security claims it will pay a small benefit to you. Whether that is a “secure” standard of living or not is somewhat subjective, but I’m not planning on income from Social Security being my primary source of funds during retirement and I don’t think anyone should, if it is financially possible to avoid that.
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I think the major problem here is not the existence of Social Security. I think the major problem is the government borrowing and spending so much money that it threatens the ability to pay back the bonds and their interest. I think we’re in agreement on this, but if you’d like to expand on it, I would be happy to listen.
Thanks for the post.
I think we’re done here. You actually did a nice job restating, or summarizing, some of the key points above. I agree with most of them.
But I look at your words and say ‘Absolutely, wevets. I agree. Therefore it’s a fraud and a Ponzi scheme.’
You look at the same words and say ‘See, IMM? Therefore, it’s not a fraud and not a Ponzi scheme.’
So I don’t know what else to say.
P1 above. Item 1. SS was sold as anything but a welfare scheme. FDR knew it would never fly if it was sold as a welfare scheme. It was sold as an investment plan. I actually went and checked the SS website to see what, if anything, it’s claiming for itself these days. There really isn’t anything.
P1. Item 2. SS pays its returns (current recipients) from current ‘investors’. Not from the dividends of any earning asset, or via some capital draw-down. This could not be any clearer. Are you arguing this point? It’s hard to tell. If you aren’t, then I would sum up my case as the prosecution by quickly and concisely stating ‘See, wevets? By your own words, it’s a Ponzi scheme.’
P3. I completely agree it’s a social welfare program. Let’s start by calling it that. Let’s have a debate about welfare. Let’s debate taxing people to transfer wealth to those in need. We should do that with all entitlement programs.
But 7 out of 8 SS recipients aren’t even means-tested…they just get money. That doesn’t sound like welfare, does it? That sounds like an attempt to mimic an ‘investment scheme’, which is how it was originally set up and sold to the public.
You used the word ‘hope’ in this paragraph. That’s very telling.
Why should you have to ‘hope’ for anything? It’s your money. Why don’t you just want to keep your own money, and take care of yourself at retirement? If we want to discuss giving welfare money to the 1 out of 8 (or whatever the number is) of seniors that will be destitute without SS, fine. But why go about it this way? Why get the government involved as a middleman?
P4. I am using ‘earning’ in the fundamental, bedrock, lowercase-e nature of the word. ‘Earning’ in that wealth is created. If I put 100 units of my capital in, I get 105 real units of wealth later on. Units that can either be in the form of non-inflationary stored value (assets like gold or oil) or the production of wealth (food from farmland, factory goods that consumers value, shares of stock in Google).
Saying that printing 5 more little pieces of green paper with dead presidents on them is an ‘earning’ asset is fine if you want to abide by legalistic accounting definitions that are calibrated in US dollars. But its only ‘earning’ (creating wealth) if those 5 pieces of paper can be transferred for 5% more wealth. If the government decides to inflate its way out of this current whole by making 105 future units worth only 90 current units, you’re hosed. If foreign governments don’t want to take any more of those little pieces of paper for their goods, you’re hosed.
Of course, if you have control over your own retirement decisions, you can choose to bet on the government and buy T-Bills if you want. It’s your choice.
But it’s not, is it? Because that money isn’t really ‘yours’. Those assets aren’t really ‘yours’. Its a forced scheme. Because if your SS tax receipts were really diverted into your own, personal account to buy assets with your name on them wevets, their wouldn’t be any money to pay current recipients. The system would collapse. Ergo, its a Ponzi scheme.
P5. I completely agree. That’s called a Ponzi scheme. Or a Pyramid Scheme. Or a House of Cards. Or whatever you want to call it. You keep looking at the same words I am, and you are calling it something else. So maybe we’re done here.
P6. I like the first one. I agree with you that if we did so, the system would collapse. That’s why it’s a Ponzi scheme.
An evil, treacherous villian called George Bush tried to float the second idea. But thankfully, a couple of the wise posters on this Board saw through that nefarious scheme. Thank God for those SDMB posters. They’re smart as whips.
P7. OK. Fine. So what is it claiming? If it’s claiming nothing, then let’s just roll that 15% deduction into the general tax code and have a debate about welfare. I would welcome that. The government will never do that…at least not for awhile, because it wants to maintain this fiction. Just like the ‘stimulus’ bill was urgently needed to create jobs, jobs, jobs right now.
And all this talk is still avoiding the pertinent question - what do you do with people who become too old to support themselves through work? Don’t they deserve something for 40+ years of effort contributing to society and the economy? Given that inflation grows relatively constantly, hoarding bank notes under your mattress isn’t going to provide enough income to support you in 20 or 30 years so how do you, as an individual, secure that support in advance?
The answer surely is that society can’t afford to take that risk. Apart from anything else, you’d end up with children and grandchildren supporting their parents and grandparents directly (ie. in their home). This doesn’t fit in with the current economical and societal mindset so Society (ie. the Govt) needs to ensure that a system exists which attempts to provide a threshold level of support. If you can think of something else on a national scale that could achieve this then I’m sure we all want to know about it.
At one time or another in their lives, everybody has been had. If you think you’ve never been had, boy, you’ve really been had. Guess what? Most people don’t have the expertise to make shrewd investments with high yield and little risk, nor can most of them reasonably be expected to acquire it.
Partly this is spin.
Democrats tax and spend. Republicans borrow and spend.
It isn’t like we are only going to pass on debt to future generations. They’ll get the stuff future generations bought with it. Some of it will need repair and some they won’t want. Still they’ll get the federal office buildings across the country, the interstate highway system, the national parks, the military equipment, maybe some educated citizens and/or some healthy ones, etc.