The response of liberal commenters to my post on the fact that social security decreases labor supply and national savings seems to largely be raw incredulity. "That's crazy talk!" about sums it up.
Well, in response to those who asked, I am not only serious, but also well supported. These assertions about the response of elder labor force participation, birth rates, and national savings to pension policy are, in declining order, extremely, very, and fairly robust. All of them are strong enough that none of the slew of economists I recently interviewed on the topic of America's aging economy voiced any doubt about the relationship, direction, or causality.
All of them are strong enough that none of the slew of economists I recently interviewed on the topic of America's aging economy voiced any doubt about the relationship, direction, or causality.
Relationship, direction and causality ....
I notice the imporant one is missing here...statistical significance.
I don't do economics academically, why don't you see if you can get the bloggers at angry bear, calculated risk, crooked timbe, Brad De long or Paul Krugman on here about this and we will have an informed discussion. My hunch is correlation without economic significance.
BTW - what convention was it, association of neoclassical economists? libertarian economists? Yale?
I'm least convinced by the claim that there is a link to fertility. When I look through the Google Scholar links from the previous post I see a lot of (a) theoretical models and (b) evidence from other countries. Demographic transitions happen for lots of reasons, including rising productivity, higher returns to education, entry of women to the workforce, and more available contraception. It seems very hard to successfully identify a possible offsetting effect of social security on reduced demand for kids as retirement provision with all those other things going on.
I am tempted to reverse the title with respect to the claim that social security lowers fertility and that this is a bad thing.
I doubt the positive externalities (increased chance of an Einstein?) of an additional baby born today outweigh the negative ones (reduced natural resources per person, pollution).
Even if we did decide that America's demographic picture was askew, trying to rectify that by increasing elder poverty to scare parents into having more children seems a bit odd.
I'd focus on increasing immigration which seems to be a general good. If you think that's too politically hard, you're probably forgetting the Social Security debacle two years ago.
Tom
As a side note, isn't "relationship, direction and casaulity" redundant?
#1
Relationship, direction and causality ....
I notice the imporant one is missing here...statistical significance.
What discipline do you do academically? She said that those results are robust; this means statistically significant, including tests for things like reverse causality and endogeneity. Unless Megan is outright lying about the literature, there is probably much more statistical evidence in support of those assertions than a "hunch" against them.
And why should any of those claims be linked to neo-classicalism or libertarianism? It seems pretty hard to construct a model, no matter what your priors, which doesn't predict a fall in labor supply when you pay people not to work. The claims outlined in this post are entirely positive; you seem to be attaching some kind of normative voice to them.
In all fairness, social security no longer pays people to not work. It used to be that you lose social security eligibility if you worked past social security age, but that hasn't been true since [I think] 2000.
It does give you a separate source of income based on other people's labor, but that's not the same thing.
-dk
To rephrase it: while SS doesn't "pay you to not work" in so many words, it reduces the opportunity cost of leisure time since, at the margin, you are guaranteed a minimum threshold of consumption and any additional income faces declining marginal returns. Or, under SS, not working does not place you on as low an indifference curve when there is no SS. So, however you'd like to phrase it, any intro micro student can tell you that SS should reduce labor supply, especially when you factor in reducing the marginal wage of everybody who pays in to SS. Again, nothing normative here.
Nonemoreblack,
"The claims outlined in this post are entirely positive; you seem to be attaching some kind of normative voice to them."
Yes. Good point. I run into that a lot with liberals. I really don't see the point in being argumentative and presumptuous when faced with simple positive observations.
It's like saying the ground gets wet when it rains and being accused of praying for a flood.
I was not incredulous at the idea that SS discouraged private savings. I think that is fairly obvious. I found your claims as to why it was so very terrible that it did so to be insupportable.
If the government is defaulting on Social Security, the FDIC will be reneging on deposit insurance, savings bonds will not be honored, the stock market will likely have crashed and so on. Unless the American worker has decided to invest their savings in foreign currency, they'll likely be screwed no matter what they've invested in.
As I said on the other thread: "Decrease the labor supply" -- what is the point of mentioning something as obvious as the fact that pensions encourage people to retire rather than continue working?
And, second, does the US face a shortage of labor? Do we need more 65-and-older seniors working? Why do we want to increase the labor supply? If we need more workers, why don't we allow more legal immigration?
Am I the only one troubled that studies based on government reported numbers are likely victims of GiGo? I don't think any large institution (not subject to competitive pressures) can produce a reliable set of books - not because they are ill intentioned, just that they almost always lack the ability, modern infrastructure, and feedback mechanisms necessary to force correction. Good books are life-and-death to most businesses but just a burden to large institutions.
Governments are not businesses. They don't have the mechanisms that we see everywhere else in our lives that assure death, rebirth and renewal. An election, at best, just changes one set of transient non-professional managers for another. And government is now so big that the notion of a unitary executive is laughable - i.e. an executive that can be responsible for effecting the quality of the work product of any agency. The executive today is largely a caretaker for processes staffed by tenured employees that congressional lifetime members (and their permanent staff) run by defining what is rewarded and not.
If we think that the intelligence community (or FEMA, NASA, SEC, or ...) are broken, what makes us think any of the 1800s processes that collect various statistics bear any reality to the actual NPV of the nation, the "investment surplus" (that we've had since Jamestown) and the status of our various (presumed) debts? "Oh, the Treasury is different." I'm afraid not. And Commerce is worse. Better to survey the CFOs of the Fortune Global 500 than trust a government number. I find I can't even trust the sign of some of the numbers governments report. Imagine a government subject to SOX and its signed 10K. Well, I can dream.
It's great that the invisible hand doesn't know or care about the accuracy of these numbers, it knows without needing them. Granted, a central planner will hurt many needlessly if the numbers are wrong, but then again they always hurt the least of us needlessly no matter what the numbers are. Think how rich the poor would be today if the Federal government had not gotten into the entitlements business but left it to the states and private charity. Likely as startling a change as welfare reform, but times ten, perhaps hundred, given the half-of-century of disincentives.
Think how rich the poor would be today if the Federal government had not gotten into the entitlements business but left it to the states and private charity.
This is an absurd claim, utterly speculative, and, as you complain above about government statistics, you have the sign wrong. Poverty among the elderly shrank from over 60% before Social Security was enacted to about 8% today. Presumably the poverty rate among the general population before SS was enacted was a lot lower than 60%. It's obvious that SS has shifted the distribution of income and that without it, the old would be more likely than the young to be poor. If the free market were going to make everyone universally rich, it had 40,000 years of Homo Sapiens history to accomplish that before government entitlement programs stepped in.
'As a side note, isn't "relationship, direction and casaulity" redundant?'-Posted by Tom G.
No. SS and birth rates could have various relationships. That relationship could go in either direction. Even if a relationship is shown, that does not imply causality.
There is the classic case of the distance between galaxies and one's age. They are both increasing monotonically, but my aging process is not forcing galaxies apart.
In that vane, fertility rates in countries with social security are lower, but I doubt that social security is reducing fertility. If it is, I doubt that researchers have really separated out the effect from the other causes that are much more significant. I find it much more likely that the claim was made, and nobody has sufficient motivation to challenge the research. It would be a lot of work, and only someone who's ox was gored would do it.
The 'boomers' have barely just begun to retire. Millions of Americans will avoid early reirement SS benfits at 62, or full benefits at 67, in order to keep working. The same social forces that transformed one wage earner per household in the prior generation into two wage earners in the 'boomer' generation--just to make end meet-- will work against their generation adopting traditional retirement lifestyles in their mid-sixties.
They are not going to retire until their seventies or later, in droves. Legislation will be demanded to expand the retirement age (the elderly vote; the young do not), freezing teens out of the workplace. One can already see the signs of this huge demographic shift behind every McDonald's counter and at the entrance of every WalMart. The 'boomers' will become famous for not retiring, and for demanding legislation that expands the earning ability of seniors to supplement their SS income.
In the absence of privatized retirement options in their Social Security (which would have greatly expanded their retirement funds), the 'boomers' will stay in the private workplace to earn the expected difference. Who'll retire among the boomers? Government employees, of course.
The liberal economics created the security system, broke it with entitlements, and will now incur greater long-term imbalances by millions of teens being delayed entry into the work force. When will the well-intentioned liberals learn...?
Njorl,
Ah, I misunderstood how she was using direction. In my small world, I use direction for causality (e.g. A is correlated with B, and the direction of causality runs from A to B), but it makes more sense if she meant as you imply sign.
Tom
Wait no I take my rare moment of gracious acceptance of error. :)
You can not have causality without a relationship - the claim of causality subsumes the claim of relationship making "relationship "redundant.
Tom
Poverty among the elderly shrank from over 60% before Social Security was enacted to about 8% today.
I imagine any program would look good when compared to the situation during the great depression.
We are wealthier now than we were during the beginning of the century, even if you look at the roaring 20s. But a 'then vs. now' comparison of poverty rates isn't enough. Society has changed a LOT during the past 70 years.
Also, I can't find anything to back up the "over 60%" statistic. Even very pro-SS sources just say "more than half" of all seniors were in poverty during the great depression.
http://communities.justicetalking.org/blogs/default.aspx?GroupID=25
I assume they'd use the larger number if they had it.
It is almost self-evident that Social Security has decreased national savings.
People are coming around, but my grandparent's generation bought the social security illusion hook,line and sinker.
I read personal finance literature quite a bit and am amazed at how little people think they need to save. They think if they max out their 401K and get an employer match, then they have done all they need to.
Suppose you have 10% of salary into a 401K and your employer generously matches 5%
There's 15% of your income.
Then suppose you pay SS of 6% and your employer contributes another 6%. Totals 12% of income, no?
So you are "saving" 15 + 12% = 27% of income?
Well no, the SS money is spent NOW, and your benefit will be calculated based on something that might be largely unrelated to your income.
Your 401K- you can't touch it; your employer's "match" is often not a sure thing (vesting, portability, paid in stock, etc) Plus, society is net dissaving by giving you a tax break of offsetting your 401k allotment from pretax income.
I advise people to save at least 10% of their income in real money they can get their hands on. Do it every year you can! The SS and 401K alternatives are real money, but the "benefit" is ambiguous at times.
I agree that SS reduces labor supply, but would argue that that is a positive feature. Would you care to argue with me that reducing the supply of
75 year olds or the number of widows with three young kids that have to work is a is a bad feature of SS?
spencer,
By that argument, wouldn't it be better if nobody had to work? Why can't we all sit back and be lotus eaters?
Oh wait, somebody's going to need to work, huh? In that case why isn't it preferable for people to provide for themselves, with exceptions made for the cases where someone is simply unable to?
Which, in all fairness, will include a fair number of 75 year olds. But to the extent that they've led a productive life, they should have produced and saved enough surplus to provide for themselves, don't you think? Or can we all just rely on the kindness of strangers?
"If the free market were going to make everyone universally rich, it had 40,000 years of Homo Sapiens history to accomplish that before government entitlement programs stepped in."
Yes, because the free market has always and everywhere been the dominant form of economic organization.
Really, come on. I am not saying the free market will magically eliminate all social ills, but to insist the free market has had even 1000 years to function, let alone 40,000, is absurd.
Today's capitalist system (as opposed to mercantilism) only took hold after the Renaissance. While institutions like private property, finance, corporations, etc have certainly existed earlier, human history is hardly dominated by 'laissez faire' policy.
I don't do economics academically, why don't you see if you can get the bloggers at angry bear....
PGL and cactus, there's a pair to draw to.
No, using that term 'robust' does not necessarily mean what you say it does. In fact, 'robust' is something of a buzz word these days, often employed by people who do not know what it means when used in a statistical context.
Further, unless Megan knows what the term means, and has done some independent research, she has no idea if the literature is in fact showing 'robust' evidence. I see a great many people - and many of them social science types - who have no idea of what the statistical inference means, the necessity of choosing a good p-value, and who confuse 'statistically significant' with 'significant'. They run an ANOVA procedure, say the results are 'significant' at p=0.05, and happily assume that there is a 95% chance the hypothesis is correct. Ask them if the significance vanishes at p=0.04, and what that means for their model, and you get blank looks.
I've seen them here, right on this blog, so don't try to pretend that this doesn't happen.
Perhaps it's in the use of the terminology, 'paying people not to work', an emotive phrase, and one that is neither clear nor precise. Using phrases like that make me suspect that the people employing them are libertarians/conservatives. Are you in fact one of those types of people?
Further, the phrase as you and others here have used it is literally wrong; no one sends letters out on government stationary asking older or disabled people to please consider not working in exchange for a fraction of their regular salary. No wonder there is incredulity.
brooksfoe asks:
My answer: There is a very strong tendency in humans to incorrectly expect that other people notice the same things, see the same chains of causality, and possess the same understanding of how the world works. I would like to know why natural selection selected for this recurring cognitive flaw in humans because we all have it.
As a result of this flaw I find we really do have to state what seems obvious to us. I write a couple of web logs and it has been a continuing educational experience for me to find out what I have to explicitly state. Sometimes I feel like I'm condescending to readers by taking time to lay out the steps in some causal chain which might seem obvious. But it really helps to do so.
brooksfoe also asks:
Regards immigration:
1) Immigration has little impact on average age of the population.
2) Immigration is swelling the ranks of the poorly educated who pay less in taxes than they receive in benefits. So immigration isn't increasing tax collections faster than it is creating liabilities for the government.
3) Immigrants get old too. Why run a pyramid scheme to try to bail us out in the short run when that just digs the hole that much deeper 20 are more years from now?
That's what we've been doing with Social Security for the last 75 years--why stop now?
Brandon Berg,
The longer the pyramid scheme lasts the harder the crash. I know I'm going to be one of those who pay for it. I am trying to limit the size of my bill.
BTW, I'm not expecting the pyramid scheme to last much longer because in the next 10 years I expect declining world oil production is going to bring on the mother of all economic corrections.
Brooksfoe states:
Poverty among the elderly shrank from over 60% before Social Security was enacted to about 8% today.
I am not sure if I believe your exact numbers, but of course SS reduced poverty among the elderly. The problem is it reduced poverty by borrowing from future generations. This causes a problem because most people are bad planners (especially those who most need SS for retirement), they saw their parents lifestyle on SS when the worker/retiree ratio was much higher and they incorrectly assume that they will be able to live that same lifestyle when they collect SS, only the money won't be there.
Some of the poverty reduction of old folks that happened since Social Security was enacted came as a result of rising living standards.
"If the free market were going to make everyone universally rich..."
I'd like to see you cite someone who's made that argument. Go ahead. I dare you.
Is it possible that you could plainly attend this matter without making it up as you go along?
One of the rationales for enacting SS legislation originally was because it would decrease the labor supply. That was the plan from the beginning. That factoid appears in Amity Shlaes book, "The Forgotten Man," most recently, but I've read it elsewhere as well.
The comment about reducing "poverty by borrowing from future generations" doesn't really make sense. The SS system collects taxes (once called contributions!) from the working and redistributes them to people who are not working and are usually older. It's a wealth transfer entirely in the present.
Until the system crashes, future generations of workers will have some of their wealth transferred to some of the generation who are currently working. But future generations will not be relieving current poverty.
The comments about "boomers' continuing to work because they choose to -- or cannot afford to retire because they didn't save enough are certainly true -- but not for everyone. Government employees generally get a really good deal they can retire for good after 30 years while they are still in their 50's.
I'm mostly concerned that people don't seem to be expecting any supply/demand effects to come from the coming demographic shifts. Whenever people talk about privatizing social security, for example, they always seem to assume that investment returns will be as high for baby boomers as for earlier (smaller) age cohorts. All productive economic activity is a combination capital and labor. We talk about savings as if it exists and has value independent of the behavior of borrowers. You can't eat your retirement savings. The food that you earned in 1990 can't be eaten in 2020 -- it will rot in 30 years. The only way to earn money in 1990 and then spend it in 2020 is if there are productive borrowers of your capital who can produce something and give you your share when it's time for you to consume it.
In a macro economic sense, ALL retirement SAVINGS plans are ponzi schemes. They are all dependent upon the contributions (productive labor) of currently working people to produce something with the retired people's capital that is enough to compensate both the working people and the owners of the capital.
So those of us who are on the tail end of the baby boom (I was born in 1963, husband in 1961) understand that things are going to be different. As my husband points out, younger people simply have no experience of having to have an INTERVIEW to get a job at the Wendy's -- and then getting turned down because there were 15 other teenagers just as qualified who applied for the one job. If you believe in the law of supply and demand, when the ratio of working-age people to consumers goes down, the price of labor is going to have to go up. When the ratio of money in retirement savings to consumers goes up, the return to capital is going to have to go down.
Both of which, of course, will cause "retired" people to return to the work force. It's a simple matter of supply and demand -- because there are so many baby boomers, whatever stage of life the boomers are at is going to be less valuable than it was for the cohorts before and after us.
So far no one in the thread has mentioned the obvious. McArdle, meet Ricardo and Mill; Ricardo, Mill, McArdle.
Try telling these guys that couples with 1-2 children are free riders on couples with 5-6 children. They would not be amused.
Rhetorical question: imagine that we placed a Pigovian tax on polluting candy factories, and distributed the proceeds equally to all citizens. In this thought experiment, are the people who receive the redistributed Pigovian tax free riders? Is the pollution from the candy factory, which generates a tax that is paid to people other than the polluter, a positive externality?
Government workers retiring is a good thing. If they continued to work, they would tie up the economy for another 20 years.
Non-government workers should continue to work, producing goods and services.
Social Security was set up during the Great Depression to remove older workers from the labor force to open up jobs for younger workers. Unfortunately the Great Depression ended before SS kicked in and the older workers started to retire just as WWII started up. Needing to entice older workers back to work what did we get: price breaks on employer based health insurance as a 'benefit' that would be bundled with others to get older folks into the work force.
What the US loses with the retirement of older workers is the most critical thing in the economy: experience. The US has more management and technical skill and savvy roaming golf courses than some other Nations *have* in total. While older workers, with higher pay, have overhead to them, it is proportional to their pay and not proportional to their contribution to skill at managing beauracracies, work flows, projects from tiny to large scale, and the personal knowledge of how to sustain work in a shifting environment.
The current crop of retirees have been through at least two careers to shift with changing technology and business needs. That personal skill of how to handle the ending of a career due to a business either shifting out of a field or getting eaten by a competitor is not easily garnered. Nor is the recovery from it. Just as these folks reach the retirement age they hold economic and business process gold in their heads.
This concept of taking money from younger workers starting careers and handing it to older workers who should have learned the wisdom of investing is one that is a discouragement to the younger workers and, quite frankly, a deep shame to reward those that should have taken their retirement into account beyond 'retirement age'. With retirees now living well past retirement age, the part of their lives that is spent outside the workforce (growing up, schooling and retirement) has changed from 31% pre-OASDI to 45% today and growing. That grows as mean life expectancy increases year on year and *has* been doing so since 1900. When you give a set retirement age and life expectancy increases, you get a delta that increases need to support the retirees year on year. By living longer and drawing more money from the system, there is an impact to what is available for government to do. Add in the 'baby boom' demographic shift and this changes for the worse not for a few years but for decades compounding as that generation lives longer past retirement age and new retirees flow in far faster due to the demographic shift.
Taking care of the poor and poor elderly is one thing.
Taking care of the best paid, most invested class of retirees the Nation has ever seen is something else again. Add into that a citizen hostile bureaucracy for such things as disability payments and the cost overhead of government (which runs at a 35-55% efficiency rate) and you get a system in which the payments to bureaucrats also increases over time by those same ordinal changes in population.
The wisdom of a system to pay ordinary citizens to retire eludes me completely. Taking money from young workers and putting it into an inefficient system that is facing major changes in proportion to government spending so that other aspects of government are given a smaller percent of the pie, plus the ability to now invest across industries via means that were not available to the average citizen prior to the 1970s and we must realize that we are taking away investment money for the future away from those needing to invest it most and giving it to those that need it least. That is demeaning to both the younger worker, who sees active elderly roaming the world on cruises and motor homes, and to those that should know enough to invest in their own future and should have done so for decades. That lost investment opportunity because of guaranteed minimum payment at retirement to be garnered at a set age is ridiculous. And the fun part is that SS is seen as a lie by younger workers who invest not expecting to see one red cent of it when they finally retire. If you don't like government lying about anything, then this is a prime mover for dissatisfaction with the federal government and it is no longer trusted to deliver on grand promises... which is why folks have stopped voting. Their government lies to them and refuses to stop this system of bribes to those who want such payments over those who see no value in government doing the job.
By that argument, wouldn't it be better if nobody had to work? - SG
Yes. Obviously. Are you kidding me?
For Billy Beck, who asks who claimed the free market would have made everyone rich if not for government interference:
Think how rich the poor would be today if the Federal government had not gotten into the entitlements business but left it to the states and private charity. - Ari Tai
Perhaps you could try attending more closely.
For Randall Parker: I understand that one does sometimes need to state the obvious. But frequently, stating the obvious is a way of making things that are utterly banal seem strange or malign. This is the joke in that great recent cartoon, "How to Be a Libertarian": Take any government program. State what it does. Then, add exclamation points. "Social Security ENCOURAGES people to RETIRE rather than STAY IN THE LABOR FORCE!!!" No freakin' duh.
The US is the richest country on earth. We don't need to be a country where people are still working at 80, by necessity rather than choice. We can afford to let old people retire. And if we didn't insist on cutting taxes on the ultrarich to ever-lower levels, the argument that we couldn't afford it would seem truly ludicrous, rather than merely misguided.
I imagine any program would look good when compared to the situation during the great depression.
Or even the 1950s
Yeah, I'm tired of that objection, dontbotherme. Follow this:
The poverty rate in the general population was nowhere near 60% in the Depression; it wasn't above 50% either. Until Social Security, old people were poor at a far higher rate than young people. Today, old people are poor at a slightly lower rate than young people. That is a good thing, because young people can work themselves out of poverty, while old people mostly can't and shouldn't have to; they're old fer crissakes. And for about 40% of the population over 65, Social Security payments are the difference between living in poverty and not.
So that's why most people think Social Security is such a great program that trying to kill it destroyed what was left of the Bush Administration. It's because it keeps America's old people from being poor. Show me a program that will actually guarantee to do same, but with fewer downsides, and I will sign up. And no "Ponzi scheme" crap, please. A simple wealth transfer is not a Ponzi scheme.
Brooksfoe:
"By that argument, wouldn't it be better if nobody had to work? - SG
Yes. Obviously. Are you kidding me?"
I for one am glad I have to work - I don't think it's healthy when people don't have to work...
Brooksfor, have you really thought it through? The idea that it would be better if no one had to work?
Any chance of a link to the controversial post that inspired this follow-up?
This is the joke in that great recent cartoon, "How to Be a Libertarian": Take any government program. State what it does. Then, add exclamation points.
Actually, this is a tactic employed far more commonly by critics of libertarianism than by libertarians themselvs. Libertarianism runs contrary to most people's natural intuitions and biases, so we're especially rhetorically vulnerable to this tactic. Here are a few you might have heard:
-Libertarians want tax breaks for the rich!
-Libertarians want to legalize the sale of human organs!
-Libertarians want to repeal anti-discrimination laws!
-Libertarians want to roll back the New Deal!
-Libertarians want to legalize crack!
-Libertarians want to eliminate public schools!
-Libertarians want to privatize and deregulate the health care system! (Ha! Just kidding! The left likes to pretend we already have a privatized and deregulated health care system!)
brooksfoe,
You can assert that Social Security provides a "guarantee" all you want, but I (and others) don't trust in that guarantee. The current projections say I should expect 75% of what I'm currently being promised without any changes What a guarantee. In order to meet this "guarantee", expected changes are to increase my contribution and/or increase my retirement age. Either of which are a unilateral renegotiation down of my guaranteed income. Again, great guarantee.
There is no meaningful guarantee. There's a best a good-faith promise to try. Perhaps you trust government promises more than I do. Why?
Now sure, it's possible that economic growth will moot the problem, but if we're going to rely on market forces to pull the fat out of the fire, why not just be exposed to them directly and eliminate the middle man? Then we don't have to worry about our retirement being turned into tax cuts for the ultra-rich. Or spent on illegal occupations. Or the Robert Byrd Memorial Rest Stop. Or (most likely) on health care for aging baby boomers.
Why do you want the government to launder your retirement money? We can see the risk they add. And unlike most investments, the increased risk doesn't translate into increased return. What value do they add?
"The US is the richest country on earth."--brooksfoe
"Importantly, while we are starting off in a financial hole we don’t really have a very good picture of how deep it is. Specifically, there are a number of very significant items that are not currently included as liabilities in the federal government’s financial statements; for example, several trillion dollars in non-marketable government securities in so-called “Trust Funds.” In the case of the Social Security and Medicare Trust Funds, the federal government took in taxpayer money, spent it on other items and replaced it with an IOU. Given this fact, why aren’t the amounts attributed to such activities shown as a “liability” of the U.S. Government? At the present time, they are not! Does this make sense, especially when the government continues to tell Social Security and Medicare beneficiaries that they can count on the bonds in these “Trust Funds”? Is the federal government trying to have its cake and eat it too?
The current U.S government liability figures also do not adequately consider veterans’ health care benefit costs provided through the Department of Veteran’s Affairs nor do they include the difference between future promised and funded benefits in connection with the Social Security and Medicare programs. These additional amounts total tens of trillions of dollars in discounted present value terms. Stated differently, they are likely to exceed $100,000 in additional burden for every man, woman and child in America today, and these amounts are growing every day. These items may or may not ultimately be considered to be liabilities from an accounting perspective; however, they do represent significant commitments that ultimately have to be addressed. The burden of paying for these is not a very nice present for a child born today! Personally, I’d prefer a savings bond rather than a bill!
Truth And Transparency:
The Federal Government's Financial Condition And Fiscal Outlook
By David M. Walker, Comptroller General Of The United States
note: this was his take in '003, he's still telling the American people the truth of the matter, only it takes More red ink...
http://www.weedenco.com/welling/archive/gp/v05i17gplogo.asp
http://www.gao.gov/special.pubs/longterm/wakeuptour.html
brooksfoe, 877-RENT-A-CLU is a great gift, you should give it a try: http://clusty.com/
I can see that Ezekiel Bulver and Ad Hominem have posted several times.
"A simple wealth transfer is not a Ponzi scheme."
Perhaps not, by your definition. However, a Ponzi scheme is a simple wealth transfer.
Also, please remember that SS did not begin as a "simple wealth transfer". At inception, it required 40 quarters of participation to receive a full benefit, with the exception of the disability component. However, life expectancy was far shorter at inception, especially for blacks. (Interestingly, life expectancy for black males at the inception of SS was less than 65.)
Medicare, on the other hand, began life as a wealth transfer program, with benefits flowing immediately to retirees who had "contributed" nothing to the system.
A simple wealth transfer is not a Ponzi scheme.
No, but a wealth transfer that depends on a certain ratio of payers to receivers and increasing payouts is.
We don't need to be a country where people are still working at 80, by necessity rather than choice.
But if they could keep nearly 15% of their own money, they could retire on their own.
I don't have a serious problem with the theoretical supplemental income safety net. I do with the universal complete income replacement program that we actually have. And it's people who deny any and all criticism that prevent us from getting something a little more rational in place of the system we have now. "Oh shit! Don't change a thing!! Old people will be working at Wal-Mart and eating cat food!!! No problems with the program exist! You're being alarmists!! It has worked for 70 years, any changes now will wreck it!!!"
There is no meaningful guarantee. There's a best a good-faith promise to try. Perhaps you trust government promises more than I do. Why?
SG, as I posted on the other thread, I completely agree with what you advocate doing with Social Security, which is to make claims on Social Security benefits an asset in the name of the contributor. I lack the expertise to say what the financial mechanism should be, but basically I would envision making each SS contribution into a government bond with an adjustable interest rate tied to the Fed rate (to guarantee against future inflation spikes), and then using the money immediately taken in to continue to pay current obligations. Because the bond would be held in the name of the contributor, the government would be unable to choose not to pay out on the bond without defaulting on its debt; its obligations to Social Security beneficiaries would be the same as its obligations to any other US bond holders, including Chase or the State Bank of China.
So that would take care of the sense of a lack of guarantee, I imagine. Then, of course, the complaints would shift: why can't I use my money to buy higher-paying securities instead of these low-return SS bonds? The answer would be: because your low-rate SS Bonds subsidize higher returns for poorer retirees, which is a form of poverty insurance. But I have a feeling the rich would bitch about that just as much as they do about the current system.
Dick King: ‘In all fairness, social security no longer pays people to not work. It used to be that you lose social security eligibility if you worked past social security age, but that hasn't been true since [I think] 2000.’
There’s more to it, as others have said. Specifically:
Half apply early, as early as age 62 (you may have seen news stories about the first 1946 Boomers signing up for next January), and would lose $1 of Social Security benefits for each $2 earned above a modest amount.
It’s not until ‘full retirement’ age that this loss is phased out (now roughly 66 to 67, depending on birth year).
And *even then*, although you get full benefits, you’re *taxed* on them if your total earnings are over a certain amount.
So, if you decide to take Social Security benefits, there’s a real disincentive to continue working very much, particularly in a high-income job.
Alternatively, it’s an incentive to forgo Social Security altogether until later, at age 70. (On top of all that, the monthly benefits are higher the later you wait to begin them. The govt. has good actuaries.)
And *even then*, although you get full benefits, you’re *taxed* on them if your total earnings are over a certain amount.
Is that any different from the disincentives us young'ns have to work (i.e., income/payroll taxes)?
Anybody who thinks he can afford it should feel free to pay old people not to work. But that's not what you want to do; that's never what you want to do. What you want to do is declare the property of the rich -- sorry, the "ultrarich" -- to belong to the "country," and then declare that "the country" should do it.
DN,
this: "..that's never what you want to do. What you want to do is declare the property of the rich -- sorry, the "ultrarich" -- to belong to the "country," and then declare that "the country" should do it."
and: "You guessed wrong. Like most socialists, you think that everyone is as self-absorbed as you are. You're not generous, so you assume nobody else will be; you're not self-reliant, so you assume nobody else can be."
describes our friend, brooksfoe, to the Letter.
ScentOfViolets :
First, I have never read an econometric paper where ANOVA provided the marginal burden of proof for a contentious point. It is a flawed and generally avoided test. Certainly, people do stupid statistical things, and sometimes even get published despite doing so, but that's something of a straw man argument. And what point are you making about critical p-values that Popper hasn't already?
Second, while it is true that I have no idea if the literature Megan is invoking-without-citing actually involves tests for statistical robustness, I am credulous towards two assumptions: 1) Megan is not outright lying in an extremely public forum and 2) The citations she could likely provide if demands were made would probably show the minimum degree of econometric rigor typically found in peer reviewed publications. This generally entails at least "smell tests" for robustness, like considerations towards influential observations.
Of course, we are speaking in half-truths and speculations about a literature I'm not going to bother trying to find myself. I don't know if Megan was using "robust" in its statistical sense or in that which you malign. I don't know if "social science types" extends to published professional economists. The sum of my argument is simply that based on my experience, statistical rigor in peer-reviewed econometric papers is a pretty safe null hypothesis.
Also, I will admit I was remiss in speaking so vaguely, which mistake I remedied in my second post. I find it somewhat easier to say "pay someone not to work" than "provide a guaranteed minimum net transfer regardless of income or employment." Those may not be observationally equivalent in your eyes, but I think the distinctions are more semantic than analytical.
Based upon what? Admittedly, I don't read a lot of peer-reviewed articles published in the professional professional journals. But what I do read does not lead to such a sanguine view as you have. I don't think anyone is necessarily playing fast and loose, btw, I just happen to have a sense that even a relatively modest familiarity with statistical procedures and statistical inference is lacking.
For example, why is the p-value so often set at 0.05? There should be a discussion of this, why this value was chosen has opposed to a greater or lesser value, but such a discussion seldom appears in any given paper. And Popper notwithstanding what would it mean if the findings were 'statistically significant' at p=0.05, but not at p=0.04? Why isn't the counternull figure given? If people 'already know this stuff', which I take your reference to Popper to mean, then why isn't it discussed, the way it should be?
No, it seems to me that the safer null hypothesis is that most soft science types get one semester as an undergrad in probability and statistics, and then rely upon presumably wiser heads to screen out the more obvious cock-ups.
Here are a few links discussing this problem that have appeared recently:
http://www.overcomingbias.com/2007/11/publication-bia.html
http://www.stat.columbia.edu/%7Egelman/research/published/signif4.pdf
Oh, I don't mean to necessarily single out the social science types as being uniquely ignorant, btw. It's just that other fields have much more rigorous criteria for 'statistical significance', e.g., p=0.0001. At those levels, you really can say it's a pretty safe bet that the null hypothesis is rejected without worrying overmuch about type I and II errors, etc.
brooksfoe, The ratio of workers to retirees keeps declining. Something's got to give.
Wealthy America: We can afford all sorts of things. But if old folks retire sooner then younger folks pay more taxes and get less themselves and the tax effect reduces the total size of the economy. I do not see retirement at age 65 as a right that must be delivered to people older than me at my expense. Nor do I want a smaller economy so that they can retire sooner.
Tax breaks for rich people: Oh, so that's your beef. You don't like banal statements from libertarians that emphasize facts different from the ones you want to focus on.
No, Randall, the point is that when someone says something which is obvious, it tends to be part of a rhetorical strategy. If I say "electricity deregulation will allow prices to rise to the very highest amount consumers are willing to pay," you would say, well, duh. What is the point he is trying to make? This is a way of making something perfectly normal -- something which is, in fact, the very goal of the program you're talking about -- seem vaguely sinister.
I do not see retirement at age 65 as a right that must be delivered to people older than me at my expense.
1. It is not "at your expense". Since 1983, Baby Boomers have paid more in Social Security taxes than their parents were collecting in benefits, in order to build up a trust fund for their own retirements. If you decide not to honor the bargain, you have taken their money, not the other way around. The Social Security system will pay your money back, plus interest, when you retire, unless of course you and people like you succeed in scrapping the system before you retire, in which case you will lose the money you have paid in. This obviously will hurt the poor more than the rich, since it is a regressive tax.
2. Is there ANY age at which you feel Americans ought to be able to retire with a minimal guaranteed income? Or do you think 80-year-olds should have to work if they haven't saved enough, or have been unlucky and had their savings wiped out? Do you think there should be no social safety net at all, or do you object to how high the current one is?
3. "Something" has only got to "give" if the ratio of workers to retirees declines faster than the rate of growth of the economy and the rate of increase in promised benefits. That has happened as the Boomers age, but has been addressed through the Trust Fund, through which Boomers paid extra to reduce the national debt so that the government can better afford to pay them when they retire. As the Boomer bulge moves through the system, the ratio of workers to retirees will stop declining, and the problem will go away.
This is tangential but probably worth noting. Most anyone with a Ph.D. in economics, and thus publishing in professional journals, will have had a year of econometric theory at the graduate level - something at least as technical as the Jeff Wooldridge graduate book and most likely at least one semester of applied econometrics using something like the old Bill Greene book or the new Cameron and Trivedi book. Plus he or she will have been to endless seminars at which points can be gained by finding errors in the econometrics.
I can't speak for other disciplines, and I do not want to argue that economics is perfect in this regard by any means, but I think we can hold our own with "harder" disciplines like epidemiology.
Readers looking for a lively discussion of one aspect of this issue should track down recent papers by Dierdre McCloskey and the various responses thereto.
Jeff (professor of economics blah blah blah)
I was there for that one, as a matter of fact. And it was not about econometrics in general, but on statistics, and how to properly use and interpret them. Anyway, I don't see this education reflected in the few publications I have read from peer-reviewed journals. Do you have any specific examples that would demonstrate this knowledge?
This comment thread makes me wonder about intangible value.I'm retired and have some health issues but am working hard to overcome them. However, I manage three blog posts a week. In some ways I think I am more productive than when I was getting paid for work. I know my blog is worth nothing - just like this comment thread is worth nothing. But is that entirely true? It the greater awareness created by this pretty passionate but still civil discussion of retirement and pension issues of no value? Why does it draw so much volunteer energy? Why does the blogosphere collectively draw so much voluntary energy? Some of that energy may create new awarenesses similar to those created by effective education. We may end up with better public policy because the public takes over public discussion instead of public discussion being dominated by media, educational institutions, and political leaders. In other words the Internet may be entirely changing the rules of how we collectively grow and learn and translate what we learn into public policy.
I’m always amazed that ANYONE really likes SS. Leftists should hate it because its most-common effect is to take money from relatively-poorer young people with children and give it to relatively-richer, childless old farts. Libertarians should hate it because it treats people as a means rather than an end. Conservatives should hate it because it’s a ponzi scheme.
Curmudgeon,
I share your amazement. But you've forgotten about the elderly. They have good reason to like SS; they get a check every month.
And I think leftists just like the idea of government transferring wealth en masse. Who it's transferred to and from is largely secondary.
The birth rate relationship seems self-evident.
A stay-at-home parent accrues no social security.
That cuts the heart out of any moral argument for social security, as far as I'm concerned.
A stay-at-home parent accrues no social security.
Death benefits from the working spouse: the "S" on OASDI.
If Betty and Bob both work -- they accrue more social security than if Betty works and Bob stays home. The math doesn't change no matter how married they are.
Njorl - Re: "If the government is defaulting on Social Security, the FDIC will be reneging on deposit insurance, savings bonds will not be honored, the stock market will likely have crashed and so on. Unless the American worker has decided to invest their savings in foreign currency, they'll likely be screwed no matter what they've invested in."
The government would not need to default on the Social Security bonds in order not to pay them back, because the holder of the bonds is the SSA and the SSA is part of the government. There is no debt from one part owed to another, because their is only on US federal government.
The SSA can be directed by legislation to cancel the debt, or the treasury could pay back the debt and the SSA could be directed by law to transfer that same amount of money to the general treasury fund.
Even if there was an actual default (and that's unlikely because the government can not "pay back" the "loan" to itself, without defaulting), defaulting on these specific bonds does not cause or imply a general default on all the Federal government's obligations.
brooksfoe - "And, second, does the US face a shortage of labor? Do we need more 65-and-older seniors working? Why do we want to increase the labor supply? If we need more workers, why don't we allow more legal immigration?"
Its not an issue of total number of laborers, but rather of laborers compared to those who are directly or indirectly (mostly through government programs) dependent on those laborers. Now allowing more immigration will still improve the ratio, but adding an additional person as a worker, doesn't improve the ratio as much as moving one person from dependent status to worker status.
spencer - Re: "I agree that SS reduces labor supply, but would argue that that is a positive feature. Would you care to argue with me that reducing the supply of 75 year olds or the number of widows with three young kids that have to work is a is a bad feature of SS?"
Reducing the labor supply is a negative feature. Reducing the supply of elderly people who have to work can be a positive feature. The two are very connected but they aren't the same thing. Even when one you can't get one without the other, you can still reasonably talk about the separate effects of each. Reducing the labor supply means less people work, and less gets produced. One can argue that the benefit of the elderly not having to work provides a larger benefit than the cost of reducing the labor supply, but even if you accept that beyond any doubt, it still doesn't mean there isn't a cost, or that it is ridiculous to talk about the cost.
If Betty and Bob both work -- they accrue more social security than if Betty works and Bob stays home. The math doesn't change no matter how married they are.
Yes, they also make more income if they both work. What is the point here? If they can get by on Bob's salary alone, and if the two of them can get by after retirement on his SS alone, why can't Betty get by on his death benefit after he dies? If he dies young and the death benefit doesn't pay for college, why can't she go out and get a job to support herself and the kids?
(And why the hell isn't Bob carrying real life insurance?)
The point is that when kids are cared for, real work is being performed.
In the case of a couple that elects to hire child care, all parties are part of the social security system.
But the couple that elects to get by on one income to care for its children gets less social security in the end (no one has to die here).
For many middle and working class families, paying for child care is of marginal financial value. Yet the rational decision -- to have one parent stay home or work limited hours -- is penalized by the system. In effect, social security multiplies the income of professionals who can afford to both work. The more you make more than your nanny (within limits, of course), the better Social Security works for you.
And I think leftists just like the idea of government transferring wealth en masse. Who it's transferred to and from is largely secondary. - SG
Well, SG, for a while there I thought we were having an actual honest discussion, but apparently you were speaking in bad faith.
brooksfoe,
If people say something obvious as a rhetorical strategy that does not make them sinister. That seems equivalent to saying that rhetorical strategies are sinister, or vaguely sinister.
Really, you don't agree with Megan and so you are finding fault with her style of argument.
Speaking as someone who is not a libertarian I don't always agree with her either. But if she states something obvious I don't have a problem with that.
Oh, and of course deregulation of prices will cause prices to rise to the place where supply and demand equal. If someone wants to claim that who opposes deregulation I'm not going to think them sinister for stating that.
Randall, I didn't say that the person who SAID it was sinister, or that the rhetoric was sinister. I said that the rhetoric was designed to make something banal and obvious (the fact that Social Security lets people retire) seem vaguely sinister (by rephrasing "retire" as "shrink the labor supply").
"Well, SG, for a while there I thought we were having an actual honest discussion, but apparently you were speaking in bad faith." - brooksfoe
I've argued six ways to Sunday about the basic unfairness inherent in Social Security. It transfers money from young and poor to elderly and wealthy. It transfers money from black and (relatively) short-lived to white and long-lived. It harms post-boomers for the benefit of the boomers. It provides less return than the same money rationally invested. It keep the poor from amassing wealth. It a flat loss to those who die young. It's demographically unsound. And so and so forth.
You've failed to address any of those arguments. You've blown by blunt questions like: "Why do you want to need to take your kids' money for your retirement? How is that preferable to just having saved your own money?". To be fair, it's clear that you would much prefer a system where the wealth transfers were from the "ultrarich", but you've argued against having means-tested assistance provided out of the general fund (i.e., the progressive tax base) if that meant that payroll taxes were placed in private accounts.
My good-faith understanding is that you favor wealth transfers, the details are secondary. A system, even a more progressive one, that would result in people retaining more of their own money is unacceptable to you. Assuming you're not just arguing for the sake of arguing, I don't see any other way to read you.
If I am misreading you then I apologize. But in that case, I really don't understand what you're arguing for.
Sigh. This is why a lot of people tend to think of libertarians as being mentally . . . underpowered. You have not made any 'arguments' that I can see; what you have made are flat declarations, unsupported by reasoning or evidence. Hint: if you want to declare something 'unfair', a procedure, an act, a program, you had better be very sure that you have communicated what you mean by unfair to your audience. And you better make sure that they agree on that meaning.
You had also better wake up to the fact that no one has to argue against your positions; you have to persuasively argue for them, back them up with cites, etc. I have zero, let me repeat zero obligations to try to show you why you are wrong.
I've been told by one person explicitly already that libertarians reject these requirements, to which I reply, that it is not only the facts that are against libertarians, but apparently logic itself now has a 'liberal' bias.
ar·gue (ärgy)
v. ar·gued, ar·gu·ing, ar·gues
v.tr.
1. To put forth reasons for or against; debate: "It is time to stop arguing tax-rate reductions and to enact them" Paul Craig Roberts.
2. To attempt to prove by reasoning; maintain or contend: The speaker argued that more immigrants should be admitted to the country.
3. To give evidence of; indicate: "Similarities cannot always be used to argue descent" Isaac Asimov.
4. To persuade or influence (another), as by presenting reasons: argued the clerk into lowering the price.
v.intr.
1. To put forth reasons for or against something: argued for dismissal of the case; argued against an immediate counterattack.
2. To engage in a quarrel; dispute.
http://www.thefreedictionary.com/argue
SOV, there are, I believe, better ways to endeavor stress reduction...
SOV:
First, brooksfoe and I have been going back and forth for many a day over several threads. My statement here is a summary of many threads that included links to such authorities as the SSA trustees. I don't expect you to have read them all, but a little context might save you from coming off like as ass.
Second, rhetoric need not take the form of a proof, and often doesn't. Unless you believe FDR proved that "the only thing we have to fear is fear itself" from first principles.
Third, my assertions that the payroll tax is regressive and you hold no property rights to your SS contribution has been readily conceded by those on all sides of this issue. I need no more prove these assertions than that the sun rose in the east this morning. I notice that you didn't bother to actually challenge those assertions, either.
Fourth, the assertion of mine that you did actually challenge was that SS is unfair. That statement does logically flow from the still unchallenged statments like, "It transfers money from young and poor to elderly and wealthy. It transfers money from black and (relatively) short-lived to white and long-lived. It harms post-boomers for the benefit of the boomers. It provides less return than the same money rationally invested. It keep the poor from amassing wealth. It a flat loss to those who die young. It's demographically unsound."
Finally, as you rightly point out, you're under no obligation to respond to me in any case. I invite you to take advantage of that right. Unlike brooksfoe, who I believe is arguing in good faith, I believe you to be the equivalent of a fecal flinging monkey.
To the contrary, I am pointing out that you are not arguing in good faith, have no intention of doing so, and are unwilling to meet very minimal requirements for basic reasonableness.
Your whole demeanor reeks of it . . .
For example, putting words in my mouth that I never said. For example, insisting that you have a lock on what's 'fair' and 'unfair'.
Iow, I am agreeing with brooksfoe, you twit. That shouldn't be difficult to understand.
If you're not arguing in bad faith, you'll change your demeanor and apologize for any misunderstanding you may be the author of. But I'm guessing that's simply not in the cards.
You've blown by blunt questions like: "Why do you want to need to take your kids' money for your retirement? How is that preferable to just having saved your own money?" - SG
I've blown by this because I anticipate an irritating argument where we get nowhere, but here goes: this is a way of phrasing things that is based on confusion about fungibility. You're not "taking your kids' money for your retirement". You're collecting what you've paid in. You have, in fact, saved your own money. The fact that it's paid in dollars that were recently collected from your kids is as irrelevant as would be the provenance of the particular dollars your bank hands you back when you go to the ATM machine. Again, I think you should consider what it is that distinguishes Social Security benefits from government bonds. The answer is, nothing, except the form of the contract, which is a harder and faster one in the case of the bonds.
I have no objections to people "keeping" more of "their own" money and then supplementing that with a smaller wealth transfer to poorer people, as an alternative to Social Security. But I just don't think the difference is very meaningful. What is the difference between putting your money in a bank account and taking out principal plus a defined interest in 40 years, or paying it into Social Security and taking out the same principal plus defined interest in 40 years? As long as the promise from Social Security is ironclad, none. And the only reason it's not ironclad is because of people like yourself who want to scrap the system. You've made an argument that if the money were in savings accounts it would contribute more to the economy, but I'm really not sure how important that is. It is the part of the argument that seems most coherent to me, but it has nothing to do with talk of "crisis" or "Ponzi scheme"; it's about a disincentive to national savings, as Megan points out. The problem is, though, that it's unbelievably hard to get there from here; it means a huge increase in SS taxes to both pay current benefits and save for the future. So I don't think there's much sense talking as if we could choose between one system and the other; you're talking about adding on an additional system, at tremendous expense. And if the goal of the system is to increase the national savings rate, then that's how you should be presenting it. You should be saying, "We need a national program to increase the savings rate. If it works, it might allow us to better finance the reduce or scrap Social Security without shortchanging any of our workers."
What is the difference between putting your money in a bank account and taking out principal plus a defined interest in 40 years, or paying it into Social Security and taking out the same principal plus defined interest in 40 years?
I haven't been following all of SG's arguments, but for me the point isn't to have the exact same thing just nominally "privatized", but instead what advantages privatization offers. A better question then might be "What is the difference between putting your money in the investments of your choice and taking out principal plus a defined and likely substantially larger amount of interest in 40 years, or paying it into Social Security and taking out the same principal plus less interest in 40 years?"
The answer: potentially thousands of dollars.
The fact that it's paid in dollars that were recently collected from your kids is as irrelevant as would be the provenance of the particular dollars your bank hands you back when you go to the ATM machine.
True in a strict accounting sense, but relevant because it distorts the true costs involved:
Generation 1 pays SS tax to the government, and the government lends that to the General Fund to pay for programs. At some point in the future, Generation 1 requires its SS payout. Where does that money come from? Generation 2, or 3 or 4. Except that if there are more of Generation 1 than Generation 4, there will be a shortfall because that money was spent on other things.
Who will pay? Either (1) Gen 1 will have the rules (retirement age, amount payed out, etc) "adjusted", or (2) Gen 4 will be taxed more.
IMHO, option (1) is the only fair option because option (2) means that Gen 4 is stuck holding the proverbial bag for financing both SS and those gov't programs that Gen 1 voted in but did not finance separately at the time in order to generate enough to pay back Gen 1's SS.
For me, these are the biggest reasons to privatize. Not only do I want the chance to earn more on my "investment," but if there are more of Generation 1 than Generation 4 (my generation, in this case) then that makes option (2) much much more likely because we have fewer voters and can't defend our interests as well.
What am I not considering?
What is the difference between putting your money in a bank account and taking out principal plus a defined interest in 40 years, or paying it into Social Security and taking out the same principal plus defined interest in 40 years?
Well, for starters, if you die with money still in savings account, the money doesn't disappear. Also, if you go to withdraw the money from your savings account and the bank doesn't have it, you can sue the bank. Nor could the bank win the suit by an ex post facto change of the rules. Also, the bank isn't obligated to put those deposits in the single lowest returning investment, and in fact tries to get a higher return (and this capital then spurs economic and productivity growth). Because of this, the return on a savings account is not contingent on having more depositors tomorrow than today (a condition we know to be false). Also, retirement accounts could be used for things prior to retirement, such as buy a house, fund education, or pay for health care. Also, a bank doesn't use the deposit to fund current spending while counting the deposit as an asset, at that point the account becomes properly accounted as a liability. Also, a bank shouldn't continue to accept deposits when it is in the middle of a bank run (banks were shut down during the S&L crisis to stop this).
So in summary, I see many real and substantive differences between a savings program and Social Security. Property rights matter, they have value that the law recognizes and protects. A non-binding (and insufficient) claim on someone else's future income does not approach the same value.
What is the difference between putting your money in a bank account and taking out principal plus a defined interest in 40 years, or paying it into Social Security and taking out the same principal plus defined interest in 40 years?
Could it be that the bank won't go out and spend your money on current consumption for its executives, and then hope that it will be able to find enough future "depositors" to pay you when the time comes?
"The government would not need to default on the Social Security bonds in order not to pay them back, because the holder of the bonds is the SSA and the SSA is part of the government. There is no debt from one part owed to another, because their is only on US federal government."-Tim Fowler
Tim,
I am not saying that the other financial catastrophes would be legally required. I am saying they are political corequisites to default on social security. The number of people who would be denied their benefits would make it poitically necessary to find the money somewhere. The only way that it would not be possible to find the money somewhere is if the other catastrophes were occurring.
Njorl, I agree that the trust fund will be honored on some level; an out-and-out default will not occur. But when paying SS beneficiaries starts to require large transfers out of the general fund, I don't think the current benefit structure will survive unscathed. I think there will be means testing and an increase in the retirement age to minimize the hit to the general fund.
Njorl - The would be no default, but I agree there would be political consequences for not paying out Social Security, or greatly reducing the payout.
But if it became political necessary to find the money elsewhere, than your back to square one. The situation (other than the political fallout) is the pretty much the same as it would be if you had not scaled back benefits, the benefits would simply be restored. The total cost would not be higher than its going to be anyway, so there would be no additional fiscal problems beyond what we are already going to have. So beyond the other financial catastrophes not being required, I'd say there is no real connection between them and the issue of social security payouts. Well there is the one you point out, if the US does really does undergo a total fiscal meltdown than maybe it won't be able to pay any of those things, but I don't think that's in the cards.
I agree eliminating social security payments isn't going to happen absent the total fiscal meltdown, but I also agree with SG that the current benefit structure will probably not service unscathed. There should be no need for actual cuts (even in real terms), in the size of the checks, but they might increase slower than is now planed, and/or the retirement age might have to be raised again (perhaps multiple times, if life expectancy continues to go up)