4 ms·

To be fair, the statements we get from Social security suffer from the following very serious problems, which actually have the opposite effect of the one you d

To be fair, the statements we get from Social security suffer from the following very serious problems, which actually have the opposite effect of the one you describe: 1) They aren't redeemable for the promised amount if congress lowers benefits, as it has many times already. We all know that benefits will be lowered significantly (or removed) by the time most of us here reach retirement age. Anyone under 40 should consider the money deducted for Social Security flushed permanently. 2) They are not in projected inflation adjusted dollars. The $1500 per month someone read on the piece of paper is actually in 2060 dollars (for example) not 2010 dollars; if shown in 2010 dollars it would be laughably small. These sorts of numerical tricks would never be tolerated if a private firm was perpetrating them.

jbooth 16y ago
"These sorts of numerical tricks would never be tolerated if a private firm was perpetrating them." You wrote that with a straight face?
- grandalf 16y ago
  Yes I did. There is a precise analogy between Social Security and Madoff's fund, the only difference is that Madoff's rope was a bit shorter because he doesn't have the power to force all working Americans to sign up. But, just as Madoff eventually ran out of new investors and due to a market dip was unable to continue to pay out the fake proceeds, demographic trends will make the US Government unable to pay out the proceeds promised to all the people who pay payroll tax every paycheck. Already, the government has cut social security benefits drastically. I'm not talking about harming the rich, these are working class people forced to invest 12.5% of their lifetime earnings into a scheme that has zero guarantees and a history of profligacy. Note: If you look at income + payroll tax, we don't have nearly as progressive a system as you might imagine. That would perhaps be fine if there were actually a safety net being provided.
  - jbooth 16y ago
    Well, if it was a private company, let's posit it's set to go broke in 40 years, it'd be trading up for the next 39 years and 364 days. RE: Your views on SS in general, is that a populist argument for stronger SS and a more progressive income tax?
    - grandalf 16y ago
      If Social Security were a private company it would be considered a pyramid scheme and shut down. Imagine someone published a Fidelity internal memo to Wikileaks stating that all shareholders under age 40 were required to keep investing 12.5% of their salary every month, could not sell, and would receive a negative return upon reaching retirement age. It's so fafetched it's laughable. I don't have a problem with the government requiring a 12.5% retirement fund outlay from workers. It's paternalistic but probably pragmatic. I do think it should be an investment based program rather than a pyramid scheme, and I do think workers should be guaranteed at least the rate of return of a very conservative market investment (such as a precious metal or a certificate of deposit would yield). The original genius behind Social Security was that it was not a welfare program, it was sold as an investment program. However the books were cooked from day 1 because it achieved that only due to very skewed demographics (far more young workers than old workers/retirees), just as Madoff's fund was able to pay out returns only on the basis of having far more new investors than investors expecting returns. So I'm opposed to the regressive nature of the Social Security tax mainly because the program is broken and thus it's only a regressive tax and not an investment program. Obama ran on a campaign promise of turning social security into a welfare program which simply means preventing the program from going bankrupt by deciding that only those who are deemed poor get the funds promised them. Imagine if Madoff had tried to avoid jail by saying that he'd refund the money of all the poor people who invested with him. That's equally laughable. Sadly, turning it into a welfare program is probably the most pragmatic approach, but if we're going to do that we should immediately do away with the payroll tax and allow the scheme to end so that those who don't aspire to be poor can start investing their 12.5% into an actual IRA. It would be fine with me if income tax rates had to rise a bit to cover the cost of Soc Sec as welfare.

jbooth 16y ago

"These sorts of numerical tricks would never be tolerated if a private firm was perpetrating them." You wrote that with a straight face?

grandalf 16y ago
Yes I did. There is a precise analogy between Social Security and Madoff's fund, the only difference is that Madoff's rope was a bit shorter because he doesn't have the power to force all working Americans to sign up. But, just as Madoff eventually ran out of new investors and due to a market dip was unable to continue to pay out the fake proceeds, demographic trends will make the US Government unable to pay out the proceeds promised to all the people who pay payroll tax every paycheck. Already, the government has cut social security benefits drastically. I'm not talking about harming the rich, these are working class people forced to invest 12.5% of their lifetime earnings into a scheme that has zero guarantees and a history of profligacy. Note: If you look at income + payroll tax, we don't have nearly as progressive a system as you might imagine. That would perhaps be fine if there were actually a safety net being provided.
- jbooth 16y ago
  Well, if it was a private company, let's posit it's set to go broke in 40 years, it'd be trading up for the next 39 years and 364 days. RE: Your views on SS in general, is that a populist argument for stronger SS and a more progressive income tax?
  - grandalf 16y ago
    If Social Security were a private company it would be considered a pyramid scheme and shut down. Imagine someone published a Fidelity internal memo to Wikileaks stating that all shareholders under age 40 were required to keep investing 12.5% of their salary every month, could not sell, and would receive a negative return upon reaching retirement age. It's so fafetched it's laughable. I don't have a problem with the government requiring a 12.5% retirement fund outlay from workers. It's paternalistic but probably pragmatic. I do think it should be an investment based program rather than a pyramid scheme, and I do think workers should be guaranteed at least the rate of return of a very conservative market investment (such as a precious metal or a certificate of deposit would yield). The original genius behind Social Security was that it was not a welfare program, it was sold as an investment program. However the books were cooked from day 1 because it achieved that only due to very skewed demographics (far more young workers than old workers/retirees), just as Madoff's fund was able to pay out returns only on the basis of having far more new investors than investors expecting returns. So I'm opposed to the regressive nature of the Social Security tax mainly because the program is broken and thus it's only a regressive tax and not an investment program. Obama ran on a campaign promise of turning social security into a welfare program which simply means preventing the program from going bankrupt by deciding that only those who are deemed poor get the funds promised them. Imagine if Madoff had tried to avoid jail by saying that he'd refund the money of all the poor people who invested with him. That's equally laughable. Sadly, turning it into a welfare program is probably the most pragmatic approach, but if we're going to do that we should immediately do away with the payroll tax and allow the scheme to end so that those who don't aspire to be poor can start investing their 12.5% into an actual IRA. It would be fine with me if income tax rates had to rise a bit to cover the cost of Soc Sec as welfare.