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Friday, March 04, 2005
Social Security and tne question that shuts them up:
If Social Security is so wonderful, then why is it ILLEGAL for a corporation to structure its pension plan or an investment firm its mutual fund using the same method that Social Security does?
Ummm. For the same reason apples don't have orange peels. They aren't the same thing. At all. SoSec is a government-operated, government-secured, no-risk insurance plan designed to provide a baseline income for retirees and survivor benefits for children whose parents are dead or disabled. Private investments are just that - private, and thus they are intended to include greater risk (and potentially greater reward). And they aren't backed by the full faith and credit of the U.S. government, which still counts for something these days. brad
It's illegal to pay current beneficiaries from the contribution of current participants who will be future beneficiaries unless you're the government.
And the reason for this is that by design they are mathematically unsustainable because in order to maintain a constant payout level to recipients, one must continually recruit new participants.
The corollary to this is that the pool of untapped participants is finite.
Two names for schemes of this nature are pyramid schemes and Ponzi schemes. (I won't discuss Multi-Level-Marketing for the sake of avoiding flamewars.)
Consider the fact that the youth/geezer ratio is increasing (more geezers, fewer youth) and the math gets really bad. [disclaimer: I'm closer to geezerhood than youth]
One of the Social Security essays in Cato's "Beyond Liberty" is online.
One of the reasons we are able to have this debate is because of the ridiculous way that social security taxes are sequestered from other sources of government revenue.
It may be true that revenue being paid in at current rates will not keep up with the benefits paid out over the long term as the baby boom generation moves through retirement and old age. (The real projected date for this to even begin isn't for nearly four decades, however. Greg Anrig, Jr., New Century Foundation)
The real issue is whether or not we, as a society, are interested in providing a financial safety net for people over age 62 (or 65 or 67 or whatever). If the answer is "YES" then we need to make that commitment and pay out the benefits, and pay for it by either raising the income limits on social security taxes or increasing income taxes in some other fashion to fund the program. Or simply borrow the money, since we don't seem to have a problem doing that with any other government programs. It's amazing to me that we can rack up trillion-dollar debt funding everything else, but somehow the program to keep geezers off the soup line has to pay its own way. Please. Of course, if the answer is "no, we aren't interested in providing a secure retirement for people," then the GOP ought to just say that honestly and let people decide if that reflects their own value system, and they can vote accordingly. (Of course, we all know that won't happen, don't we?) Either way, this nonsense about "private accounts" is all just a red herring to distract from the real agenda, which is to dismantle social security. brad
Ummm. For the same reason apples don't have orange peels. They aren't the same thing. At all. SoSec is a government-operated, government-secured, no-risk insurance plan designed to provide a baseline income for retirees and survivor benefits for children whose parents are dead or disabled. Private investments are just that - private, and thus they are intended to include greater risk (and potentially greater reward). And they aren't backed by the full faith and credit of the U.S. government, which still counts for something these days.
ReplyDeletebrad
Thanks for visiting, Brad.
ReplyDeleteHope you keep reading.
The question remains:
It's illegal to pay current beneficiaries from the contribution of current participants who will be future beneficiaries unless you're the government.
And the reason for this is that by design they are mathematically unsustainable because in order to maintain a constant payout level to recipients, one must continually recruit new participants.
The corollary to this is that the pool of untapped participants is finite.
Two names for schemes of this nature are pyramid schemes and Ponzi schemes. (I won't discuss Multi-Level-Marketing for the sake of avoiding flamewars.)
Consider the fact that the youth/geezer ratio is increasing (more geezers, fewer youth) and the math gets really bad. [disclaimer: I'm closer to geezerhood than youth]
One of the Social Security essays in Cato's "Beyond Liberty" is online.
I'll track down the URL and post it later today.
One of the reasons we are able to have this debate is because of the ridiculous way that social security taxes are sequestered from other sources of government revenue.
ReplyDeleteIt may be true that revenue being paid in at current rates will not keep up with the benefits paid out over the long term as the baby boom generation moves through retirement and old age. (The real projected date for this to even begin isn't for nearly four decades, however. Greg Anrig, Jr., New Century Foundation)
The real issue is whether or not we, as a society, are interested in providing a financial safety net for people over age 62 (or 65 or 67 or whatever). If the answer is "YES" then we need to make that commitment and pay out the benefits, and pay for it by either raising the income limits on social security taxes or increasing income taxes in some other fashion to fund the program. Or simply borrow the money, since we don't seem to have a problem doing that with any other government programs. It's amazing to me that we can rack up trillion-dollar debt funding everything else, but somehow the program to keep geezers off the soup line has to pay its own way. Please.
Of course, if the answer is "no, we aren't interested in providing a secure retirement for people," then the GOP ought to just say that honestly and let people decide if that reflects their own value system, and they can vote accordingly.
(Of course, we all know that won't happen, don't we?)
Either way, this nonsense about "private accounts" is all just a red herring to distract from the real agenda, which is to dismantle social security.
brad
Sorry for the delay in response, but sometimes the job and family take priority over blogging.
ReplyDeleteNice link you provided, albeit a bit sparse on details.
Here's a more detailed analysis [PowerPoint presentation] from the Cato Institute that knocked down some of my preconceptions on this issue.
Give it a read and tell me what you think.