Skip to comments.A Simple Program, A Complex Problem
Posted on 10/15/2004 10:41:46 AM PDT by missyme
WASHINGTON - It was back in the 1930's when the Social Security Act was born. It offered financial hope for the future, as Americans struggled through the Great Depression. The concept was pretty simple: workers would pay a Social Security tax, and when they retired they would get monthly checks to support them in their old age.
Fast forward 70 years. Today, many economic experts say Social Security will be in trouble in the years ahead and those promised benefits may need to be cut back, or even eliminated in the future, if changes are not made to the system. So what is the problem? Well, here is how it works.
The tax used for Social Security goes into a general fund, and that money is used to pay out benefits to today's retirees. The money that is left over goes into the treasury. Then the government takes out IOU's from it that are used to finance the federal budget.
The problem is, some projections show that starting in about 10 years, there will be no more cash for the government to use. And so, since the government still has to pay back those IOU's, that means Congress may have to raise taxes, increase the debt or cut spending to keep paying benefits.
David John from the Heritage Foundation said, "The simple fact is, that if we don't do something and do something quickly, then our kids are going to end up paying the bill for something they had absolutely nothing to do with starting."
The problem lies in that there are fewer workers today, because the Baby Boomers are just not having as many children. And people are living longer, so they are collecting benefits longer, and some experts worry that could mean serious difficulties in the years ahead. Many believe Social Security will go bankrupt in the next 30 to 40 years if something is not done.
But Dean Baker with the Center for Economic and Policy Research does not believe the dire predictions.
Baker said, "It's sort of silly for us to be running around like chickens with our heads cut off, because somewhere in the very distant future we might have a shortfall in the program. We can deal with that in fairly short order. We don't have to be making plans for 40 or 50 years down the road right now."
Nevertheless, there is a push underway on Capitol Hill to try and fix the system. The buzz words here are 'private savings accounts' in which workers invest a portion of their Social Security taxes into stocks and bonds that typically yield higher returns than the current government-managed system.
John adds, "This isn't going to be your brother-in-law's hot stock tip, although mine has done pretty well recently, and it is not putting your money in Joe's Bar and Pension Plan. This is a case where it would go into a very carefully selected, regulated investment series."
Backers of these accounts say the result will be an increase in revenue that will keep Social Security going and, in the process, give workers more retirement money when their working days are over.
Critics say setting up these accounts will be too costly. But John says it has to be done. He explains, "The simple fact of the matter is that these things are going to be expensive, but they are going to be so much less expensive than doing nothing."
The debate over what to do about Social Security will no doubt linger for years, and as it does, the clock keeps ticking.
It's a Pyramid Scheme. Always was. Such schemes can work in the short-run, but cannot work long term. Just can't.
"A Simple Program, A Complex Problem"
The problem is this: how can we get the Democrats to stop spending Social Security revenue on things other than Social Security?
For the past 30 to 40 years,
I have heard the politicians say,
that if we don't do something about it,
the social security system will go broke,
in 30 to 40 years.
By getting the Republicans, who have a majority, to stop voting with the Democrats.
There are several factual misstatements in an overall excellent article. Depict the individual SS accounts as IRA's or 401k' s, which most Americans are familiar with, and much confusion vanishes. It will NOT be expensive to set up the accouts..financial firms, banks, mutual funds are salivating at the opportunity to bid on the business, and if Congress removes the inane requirement to generate paper conformations for each purchase, they'll be inexpensive to administer. Indeed, many in the financial services industry worry that the low fee structure ( as these contracts will be awarded via a bidding process for expense rations) will ultimately force many firms to lower costs on their other funds..
"By getting the Republicans, who have a majority, to stop voting with the Democrats."
Too true. I cannot understand the GOP. Here they are running both houses of Congress, the White House, and the Supreme Court and they STILL kiss the asses of Schumer, Kennedy, and Kerry. It's disgusting.
The problem is not that it's a pyramid scheme - such schemes require a geometric increse in members to sustain themselves. Social Security benefits grow linearly with the retired population (and population growth is even slowing).
The real problem is the unified budget. LBW passed the unified budget, and use the SS trust fund to fund the Vietnam War. Ever since then the trust fund has been a massive fraud. It's an asset on one side, but since the "assets" are all gov't bonds, it's equially a liability.
Calling it a pyramid scheme fundamentally misunderstands the nature of the system.
uhhh... 'LBW' above should be LBJ. I use a Dvorak keyboard, and must be dyslexic today.
HOLD THE PRESSES!
"Backers of these accounts say the result will be an increase in revenue that will keep Social Security going and, in the process, give workers more retirement money when their working days are over."
I thought the whole point in privatizing was for the individual contributors to earn more money for their own retirement?
This states that "an increase in revenue will keep Social Security going."
So, it's another grand scheme to garner more money that the government con confiscate to spend on what it chooses, while still piling up the IOU's.
It is not a linear increase. Pyramid schemes grow because of increasing targets brought into the scheme. Social security grows (in the anount of money it sucks up from the "investors" - today's taxpayers - because of the growth in retirees, which is NOT linear anyway (baby boom), and because more and more is promised all the time. If it only grew with inflation then social security rates would only have gone up in proportion to coverage corrected for the difference between those paying in and paying out, but in fact rates have increased beyond that.
I therefore agree that it is not technically a pyramid scheme, but in fact what people mean when they say pyramyd scheme is Ponzi Scheme, with the principle that you get some suckers involved and start paying them off to give an appearance to new suckers that the investment will continue paying well, when in fact there is no investment, just payoffs of the first suckers to make things look good.
Ponzi Scheme describes the social securuty system quite well.
Thanks. I had a brain glitch. I usually call it a Ponzi Scheme, but today my brain typed Pyramid.
How hard is it to transition from Qwerty? I've always been interested in those.
The key to understanding the Social Security problem is to forget about "money." The problem has nothing to do with money, or what they did with it, or where it went.
Think instead about "stuff." Stuff is what gets purchased with money. You can live in stuff, you can eat stuff, and you can wear stuff. Note that you cannot eat, wear, or live in money.
By definition, "stuff" is made by that fraction of the population that is working. In a nice pleasant world, the working generation produces enough "stuff" for itself, for its children, and for its aged dependents.
Historically, the generation of "aged dependents" was (a) smaller than the working generation, and (b) not long for this world. This is what historically allowed working generations to support the aged without starving their children or themselves.
This scheme breaks down in the presence of three things that are going on now. One, the working generation is not that much bigger than the one that's about to retire. Second, the ones about to retire are going to live longer than ever before. And third, science is creating ever-more exotic and expensive medical treatments that can prolong the lives of the aged into ranges that humans have never seen before... but only at great expense.
The aged therefore represent a demand for "stuff" that is higher than any such demand in the past. This demand for stuff can only be satisfied by those working to produce stuff, i.e. the generation that also has young dependents to worry about as well.
No matter how much "money" the aged might have socked away, the quantity of "stuff" is still limited by the size of the stuff-producing generation. So forget about the money. It wouldn't matter if the government had put it all in gold bullion and kept it at Fort Knox. Beyond a certain point, the existence of more "money" held in safekeeping from the past cannot produce more "stuff" in the present. All it does is bid the price of "stuff" up to the market-clearing price.
All talk about "saving Social Security" with money tricks is BS. There are only two solutions to the real problem. One is euthanasia for the aged, and the second is to insert new adults into the working population from outside the system.
In Washington, they know this. They just can't say it out loud. So what they do instead is smile and say they are securing the borders, while allowing working adults from outside the system to get in here and get to work as fast as they can, because making the working generation bigger than the one we raised here is the only way out, other than euthanasia which is ugly or beggaring children to maintain the old which is even uglier.
What's really gonna happen is that fewer "aged" are going to retire. There will be tremendous peer pressure on older people to work until they drop, because the minute they go on Social Security they add to the load on the people who are also trying to raise the society's children. I think there will also be some suicides, and it might come to be seen as an honorable thing to do.
What we can't have is another generation like "the greatest" that keeps voting itself more and more bennies at the expense of the people raising the kids.
Very excellent writeup, Nick. Thanks for all the effort.
How hard is it when you have to type on someone elses computer? Can you keep both systems in your mind ready to switch in as required?
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