November 11, 2004

Politics with Social Security

from - smijer

I don't have the links, but Atrios has done a number of good posts on the consequences of privatizing social security. The upshot of it is that privatizing social security a la' Bush's plan does nothing less than castrate the effectiveness of the program for its intended purpose: providing a small but guaranteed income to seniors who no longer work. The trade off is the same as any "increased risk investment" - it trades the "security" for the chance of increased return. And, as Atrios notes, the institution of private accounts will eventually give way to options for early withdrawal, making these accounts closer and closer to purely optional benefits. In other words, the final picture might look the same if we simply repealed social security (or decreased the benefit), and let people handle their own retirement savings.

Now, there are a group of people who actually want that - they are the ones that dreamed up the current initiative. They are what I call the "tunnel vision capitalists" - those who think that most socialist programs are bad, and should be replaced with a capitalist alternative. Some think this should only apply to (individual) welfare, others social security, public education, and/or police and fire departments. The extreme view is that the military is the only valid socialist program. Without this group, no one would be making moves toward "privatizing" social security.

I think, however, that even this group of "tunnel vision capitalists" feels we have to pay back the benefits that have already accrued to today's seniors and the rest of the working people who have payed into the system already. That means that whatever money is diverted from the payroll tax to private accounts now will have to be replaced to pay the remaining SS benefits already owed. So, $2 trillion dollars has to be found.

I humbly suggest that there should be a huge political cost to be payed if Bush attempts to charge this $2 trillion to the national credit card. Sure, we may not have the clout to hold up the bill until it is payed for. But we can still shout it from the rooftops, that we are tired of saddling our children with the costs of our decisions. If Bush cannot identify $2 trillion dollars in the budget in programs he is willing to cut to pay for it, then he must give up some of his tax cuts. If he uses his muscle to pass it without paying for it, then we should get just as loud and hysterical as the wingnuts under Newt Gingrich's direction got back in 1994.

And in that noise, there needs to be another clear message: that under the privatized social security plan, there will eventually come a time when the bottom drops out of the stock market and a generation of seniors are going to be left with no income (or income reduced by whatever amount was privatized out of the old system). We need to be sure that everybody understands that this is not just a possibility, but an inevitability. Just so they know what their representatives in congress are helping Bush accomplish.

I'm just sayin'.


Posted by smijer at November 11, 2004 11:37 AM

Is it not true that if we do nothing the program will go broke eventually? I have not heard a single politician or financier disagree with this reality. One reason no group of politicians has taken on the task of 'fixing' the social security program is fear. No one wants to be on record as having tampered with it and risk being labeled as one who helped bankrupt the program. Because it is inevitable, everybody has taken a hands off approach. This may be the 'safe' thing politically, but it is not the safe thing for seniors. Most liberals still buy the notion that government can manage a person's money better than the person can manage it for himself or herself and in some cases with some people, this may be true. It is not true for most people. It is never true for those who are conservative, educated, and willing to live within their means. There will always be a welfare role of people of people who live at taxpayer's expense. The key to having a prosperous society is to find a balance where tax codes enable the government to provide for those who cannot work and still leave the worker with enough to live comfortably and set aside money for retirement. IRA's and 401K's have worked remarkably well for a large segment of the population. If Congress, under the leadership of Bush, can come up with a plan whereby those who have already come of age can draw and continue to draw their soc. sec. checks while young workers just entering the marketplace begin a private plan it would be a wonderful thing for all. It will take the wisdom of GOD. I believe that something has to be done or we will find the system unable to care for the massive numbers 30 to 50 years down the road.

univar.jpg Posted by Jan on November 11, 2004 05:37 PM
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Social Security is just one of the many economic issues that I do not understand. Is providing a meager guaranteed income for seniors the only service it provides? Are the elderly the only ones that receive checks drawn from social security? I understand the argument that social security is a ponzi scheme but since it is a ponzi scheme that investors are made to invest in at gunpoint it does have its advantages over the typical ponzi scheme.

I still do not believe that the system can be "fixed". Anytime you are taking out more than you are putting in it is only a matter of time.

My daddy told me that people were screaming that Social Security would be broke before he would see a dime of it back when he was a young man. Currently he and my mother are living off of it so I guess as long as the Federal Reserve has ink and paper we will always have money.

If it is going to take another 30 to 50 years before it collapses the seniors of today have nothing to worry about. They will have been dead a long, long time before it collapses.

From each according to his ability and to each according to his need always leads to a society filled with disabled needy people. It is human nature.

univar.jpg Posted by Buck on November 12, 2004 10:25 AM
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Buck, the purpose of social security is indeed to provide a small but guaranteed minimum income to seniors and certain disabled persons. The idea is that if you screw up and fail to save, or lose your savings due to poor judgement (or just bad luck) in investment, you will still be able to keep a basic minimum standard of living into old age.

As far as S.S. being a Ponzi scheme... I don't think that's a completely accurate characterization. The goal is not to enrich a few at the expense of many. Instead, the goal is to make sure that everyone pays in and everyone gets the benefit at about the same rate, adjusted for inflation. And as long as there is a method to adjust for changing demographics (stacking up surpluses when the proportion of seniors is down, spending them when it is up, for instance)... it should work fairly well.

univar.jpg Posted by smijer on November 12, 2004 12:37 PM
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Anytime there is a discussion about Social Security there are terms like "living comfortably" and "basic minimum standard of living" used. These terms have no definition so it makes a meaningful discussion hard to have.

When I referenced the ponzi scheme argument I was thinking about Ida Mae Fuller, America's first person to receive a Social Security check. I had read where she put $22.00 into the system and wound up taking $22,000 out of it. Now that is a deal that most Americans would love to get.

Originally I believe there were 17 paying in for every 1 that was taking out. Now that ratio is something like 3 paying in to 1 taking out. Failure is inevitable.

I would have to do more research than I am willing to do in order to answer my own question but I would be willing to bet that when the system was set up it was set up so that your odds of living long enough to take any money out of the system were very low. Even today I have read that the average life expectancy of a black male makes it very unlikely that he will be able to draw any out of the system.

The money that we put into social security is not considered "our" money and it never has been.

The Supreme Court made it clear in Helvering v. Davis (1937) and Flemming v. Nestor (1960) that none of us have a legal right to one penny from Social Security. In the 1960 case, Ephram Nestor paid into the system for 19 years before being deported as an undesirable alien. His claim that he had "property rights" to benefits was rejected by the Court. Justice Harlan wrote, "To engraft the Social Security system with a concept of `accrued property rights' would deprive it of the flexibility and boldness in adjustment to ever changing conditions which it demands."

If I could opt out of the system and take those taxes as a payment directly to me to either save or spend and be responsible for my own future I would do that but I understand that the system was not set up that way so I guess we will all just ride the train until it stops.

univar.jpg Posted by Buck on November 12, 2004 08:33 PM
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