Skip to comments.Time to face reality on Social Insecurity
Posted on 12/17/2004 1:52:53 AM PST by billybudd
I was looking at this post from Mark Cuban on Social Security privitization and was suprised by its belligerent tone and ignorant argumentation. He makes a couple of points:
1. The nasty brokers will screw people over with bad investment products and high commissions.
2. People expect the government to bail them out, so they will take on high risks and lose their money.
The big problem with Mark's arguments here is that he compares Social Security with private accounts as if they are the same thing. Social Security is not your personal account. You have no rights to the money you have paid in - the Supreme Court has already ruled on this. The taxes you pay in go to the general fund, where Congress can spend them however they wish. It is absurd to compare rates of return or such nonsense between government-run and private Social Security accounts. The system is a sham, an illusion - it simply doesn't exist.
So what is reality? The reality is that after almost a century of living this dream in which everyone can have their wants without paying for them, the United States of America will finally wake up. The system will go bankrupt. It will be a cash drain on general funds, instead of a cash cow. Everybody knows this. Due to government failure, each person has to save for his own retirement now, along with paying taxes for a "benefit" that doesn't exist. Nobody who is young today expects the government to bail them out when they're old, as Mark claims. The only thing Bush's plan will do is help this process by giving people their money back so they can save it, instead of letting the pigs in Congress grab-and-spend it as they have for ... well, forever.
A lot of mumbo jumbo is being thrown around in the Social Security debate, so let's clear up the choices facing us here:
1. Don't pay out the benefits. This includes raising the retirement age or whatever scheme ultimately doesn't give people what they paid into the system.
2. Pay out the benefits, at the expense of the productive elements of society, and therefore, the economy itself.
Either choice by itself would cause an immense, possibly catastrophic, shock to our economy and society. The only reasonable choice is some mix of the two. This entails a lot of unpleasant pain that we don't want to feel; the hangover from our socialist experiment. It is imperative that we start early, so we spread this pain out over a long timeframe and reduce the probability of a lethal shock to the system. This is the essence of the plan to start privatizing Social Security.
The plan is not perfect. People should have complete control over their accounts, not be subject to certain government-approved investments. In this case, I agree with Mark that there is a potential for institutions to scam people, but only as a result of government restrictions on investment choices - and hence competition. Whatever argument the opponents of reform bring up, ultimately it boils down to the fact that the private accounts can't be worse than the status quo. We have to endure the pain that results from past generations' folly. It is amazing that smart people like Mark Cuban still don't realize this.
Answer: Nothing. Any money he'd have to pay out of pocket is money that he already owes. Giving up the stream of future credit wouldn't "cost" anything because that's money that was never his. To be sure, he'd suddenly have to pay a lot of money out-of-pocket, but repaying debt sooner rather than later would save money since every $1 he pays now will offset more than $1 that he would otherwise have to pay later.
Fundamentally, Social Security is a means by which current retirees "borrow" money from current workers with the "promise" that future workers will pay it back. Much like someone who uses credit cards to pay off other credit cards. Since every $1 of "revenue" SS takes in represents over $1 it will have to pay out (if it's going to pay out as it has 'promised') it is fundamentally impossible for SS to ever become solvent unless it starts even more massively cheating people.
Yes, but it isn't without cost; I didn't mean to suggest that it was. But if the person is never going to pay their debt, what difference does it make to them whether it's $10,000, or $10,500, or $11,000, etc.? If the person isn't considering the debt as "real", the amount doesn't matter.
To be more like Social Security, let's extend your analogy. Instead of saving the $10,000, you spend it immediately on a plasma screen TV. Then you have debt that you have to pay out of your paycheck. You keep borrowing and paying off the debt, and for a while you can pull this off. Now assume that your paycheck is steadily decreasing so that one day, it is less than your credit card payments. This means you are now running a persistent deficit, with accumulating interest. This is the Social Security system. It's time to cut up the credit cards.
What paycheck? The only money the government is getting for Social Security is money for which it's issuing vague promises of repayment. Borrowing in other words. Of course, if I borrow money from someone with the promise that some non-consenting third party will pay it back that's considered fraud, but somehow when the government does that it's okay.
The paycheck in this case represents government tax revenues. Eventually, the paycheck (tax revenues) will not be enough to cover the credit card payments (benefits paid to retirees).
Yes, but when the government takes the money in FICA taxes it tells people that they'll get something back for it. It is thus either "borrowing" the money (if it intends to keep its promise) or taking it under false pretenses (if it does not).