The Missing Money (Thomas Sowell on Soc. Sec.)

Creators Syndicate ^ | June 21, 2011 | Thomas Sowell

[jazusamo]

One of my earliest memories of revulsion against war came from seeing a photograph from the First World War when I was a teenager. It was nothing gory. Just a picture of a military officer, in an impressive uniform, talking to a puzzled and forlorn-looking old peasant woman with a cloth wrapped around her head. He said simply: "Don't you understand, madam? The village is not there any more." To many such people of that era, the village was the only world they knew. And to say that it had been destroyed in the carnage of war was to say that there was no way for them to go back home, that their whole world was gone. Recently that image came back, in a wholly different context, while seeing pictures of American seniors carrying signs that read "Hands off my Social Security" and "Hands off my Medicare." They want their Social Security and their Medicare to stay the way they are — and their anger is directed against those who want to change the financial arrangements that pay for these benefits. Their anger should be directed instead against those politicians who were irresponsible enough to set up these costly programs without putting aside enough money to pay for the promises that were made — promises that now cannot be kept, regardless of which political party controls the government. Someone needs to say to those who want Social Security and Medicare to continue on unchanged: "Don't you understand? The money is not there any more." Many retired people remember the money that was taken out of their paychecks for years and feel that they are now entitled to receive Social Security benefits as a right. But the way Social Security was set up was so financially shaky that anyone who set up a similar retirement scheme in the private sector could be sent to federal prison for fraud. But you can't send a whole Congress to prison, however much they may deserve it. This is not some newly discovered problem. Innumerable economists and others pointed out decades ago that Social Security was unsustainable in the long run, including yours truly on "Meet the Press" in 1981. But the long run doesn't count for most politicians, since elections are held in the short run. Politicians' election prospects are enhanced, the more goodies they can promise and the less taxes they collect to pay for them. That is why welfare states in Europe as well as here are facing bitter public protests as the chickens come home to roost. It has been said innumerable times that nobody already on Social Security will lose their benefits. But it needs to be spelled out emphatically, so that political demagogues will not be able to scare retired seniors that they are going to have the rug pulled out from under them. Retired seniors have the least to fear from a reform of Social Security, since neither political party is about to take away what these retirees already have and are relying on. Despite irresponsible political ads showing an old lady in a wheel chair being dumped over a cliff, the people who are really in danger of being dumped over a cliff are the younger generation, who are paying into Social Security but are unlikely to get back anything like what they are paying in. The money that young workers are paying into Social Security today is not being put aside to pay for their retirement. It is being spent today, paying the pensions of the retired generation — and it can't even cover that in the years ahead. What needs to be done is to allow younger workers a choice of staying out of a system that is simply running out of money. Nor can the system be saved by simply jacking up taxes on "the rich." Generations of experience have shown that high tax rates that "the rich" can easily avoid — through tax shelters at home or by investing their money abroad — do not bring in as much revenue as lower tax rates that keep the money here and the jobs here. Since the law does not allow private pension plans to be set up in the financially irresponsible way Social Security is, that is where young people's money should be put, if they ever want to see that money again when they reach retirement age.

[T-Bird45]

Drs. Sowell and Williams are such a pleasure to read for the way they make things plain and use such boundless common sense to support their points, along with sound economics, of course. Bookmarking for later reference...

[NVDave]

Small nit: The money was first laundered (in a way) by buying US Treasury debt issued as Congress spent more money than we had tax revenues coming in.

So the SS surplus wasn’t ‘spent’ so much as ‘used to buy debt payable by future tax revenues.’ The proceeds from selling that debt (to the Social Security fund, among other investors) was then spent.

You’re right that the banks had nothing to do with it. This is all the fault of Congress.

[achilles2000]

I think what happened some years ago was that they created a “unified budget” for counting SS receipts against other spending to make deficits look smaller. Before that the money was still being spent as it came in.

[achilles2000]

Yes, but the Treasury debt was special non-negotiable issue. In essence, the feds were writing themselves IOUs that amounted to a promise to tax the living daylights out of children not yet born to keep the Ponzi scheme going. Of course, Ponzi schemes must always collapse, and many of us here are part of the “lucky” generation that will be left holding the bag. Still, that is better than continuing with intergenerational theft that SS represents.

[Vinnie]

And must be a US citizen to collect.

[cpdiii]

I retired this year. I would be more than delighted if the government would return to me all the money that they have deducted, in constant dollars with the meager return of treasury certificates. For this I would sign any damn thing they want that says they owe me nothing and I am entitled to nothing from them. I would have far more money and better health insurance.

The real hell of it is, if means testing happens I am so truly screwed.

[kabar]

Myth President Roosevelt promised that the money the participants paid would be put into the independent "Trust Fund," rather than into the General operating fund, and therefore, would only be used to fund the Social Security Retirement program, and no other Government program

The idea here is basically correct. However, this statement is usually joined to a second statement to the effect that this principle was violated by subsequent Administrations. However, there has never been any change in the way the Social Security program is financed or the way that Social Security payroll taxes are used by the federal government.

The Social Security Trust Fund was created in 1939 as part of the Amendments enacted in that year. From its inception, the Trust Fund has always worked the same way. The Social Security Trust Fund has never been "put into the general fund of the government."

Most likely this myth comes from a confusion between the financing of the Social Security program and the way the Social Security Trust Fund is treated in federal budget accounting. Starting in 1969 (due to action by the Johnson Administration in 1968) the transactions to the Trust Fund were included in what is known as the "unified budget." This means that every function of the federal government is included in a single budget. This is sometimes described by saying that the Social Security Trust Funds are "on-budget." This budget treatment of the Social Security Trust Fund continued until 1990 when the Trust Funds were again taken "off-budget." This means only that they are shown as a separate account in the federal budget. But whether the Trust Funds are "on-budget" or "off-budget" is primarily a question of accounting practices--it has no affect on the actual operations of the Trust Fund itself.

[oldbrowser]

I think that only happened about twenty five years ago and there was quite a tahoo about it. Do you recall?

It started with LBJ's "war on poverty" and spread to just general throw around money.

[NVDave]

Yes, you’re right.

The problem is that the SS fund had all this surplus cash.... and the question becomes “OK, what do we DO with this cash?”

Well, they could leave it as cash, returning 0% yield, and suffer the effective negative return of inflation.

Or they could invest it in something.

Now things start going sideways, *fast*. How do you “invest” this surplus from this regular income stream and not distort some debt issuance? To be as “safe as possible,” you can’t invest it in private sector debt, or stocks, or even state debt.

Because of the size of the funds involved, there’s no way you could invest it in a great many things without causing a bubble.

But as you say, all Ponzi schemes collapse. This one’s collapse is being accelerated by the size and persistence of the US budget deficit.

[DrC]

“I would be more than delighted if the government would return to me all the money that they have deducted, in constant dollars with the meager return of treasury certificates.”

If it makes you feel better, whatever you’re losing on SS you likely are making up on Medicare. That’s why Medicare is going seriously broke. The average recipient is getting about $3 in benefits for every dollar paid in taxes. Today’s youngsters are paying the lion’s share of your Medicare, not you.
http://www.urban.org/UploadedPDF/social-security-medicare-benefits-over-lifetime.pdf

[rockinqsranch]

Yeah. He’s right on target with that one.

An aside: I’d like to see everything the Left has glued onto our Constitutional Republic steamed, and lifted off like the wallpaper it is. Bad wallpaper too.

The Left feeds off everything they have instilled in our system since Woodrow Wilson’s time. There isn’t one damned thing they put in place that isn’t a means for them to route monies into circulation off the left side of the government back porch for their own benefit.

It’s like ALL the corrupt types of any political party that go into the “Profession” for the purpose of enhancing their own bank accounts. Get some project going using blocks of taxpayer money, and once in circulation on the project it becomes fair game. It’s an old trick.

The Left, all of those we can point to as “the Left” have made a killing off of taxpayers. (includes RINO’s)

[DrC]

“How do you “invest” this surplus from this regular income stream and not distort some debt issuance? To be as “safe as possible,” you can’t invest it in private sector debt, or stocks, or even state debt.”

I must be missing something. If you had invested this in a stock index fund, how would that distort things? True, it would have increased aggregate investment in the stock market, but had this been done from the get-go, there would have been a slow and steady increase, followed by a slow and steady withdrawal. Again, unless the Feds tried to pick winners or losers, I don’t see a big downside in this approach.

Admittedly, it would be even better if we’d started off with individual accounts and let everyone make their own independent decisions about where to invest. But note that the latter would have changed the mix of investments, but not the aggregate amount. So any alleged problem associated with the sheer size of this investment pool presumably would occur even if every SS recipient had invested on their own. As I say, I don’t see the downside.

[cpdiii]

If it makes you feel better, whatever you’re losing on SS you likely are making up on Medicare. That’s why Medicare is going seriously broke. The average recipient is getting about $3 in benefits for every dollar paid in taxes. Today’s youngsters are paying the lion’s share of your Medicare, not you.

Unfortunately I am the exception. I have paid the max in social security and Medicare for the last 45 years. If you look at the amount of money taken, I could have been far better off in private plans without SS or Medicare.

Although retired I continue to pay into my private insurance plans as I do want good medical care. I am one of the few that would have been better off without social security or medicare. I guess I am one of the elite rich living off the backs of the poor. /sarcasm I was 18 years old when I went to work on a drilling rig as a roughneck. I owe not one person anything except for those that can not care for themselves due to physical or mental disabilities. I owe not one person anything except for those that are handicaped by physical or mental disabilities. Post Reply | Private Reply | To 26 | View Replies

[greatplains]

"I plan on working until I die.

I'm there with you. If I can keep a halfway decent job where I can take a couple of week-long vacations during the year I'll consider myself doing well.

[GourmetDan]

My mom had a hip replacement and was given a brand new walker which she used once or twice. Nobody would take it back. Every hip replacement gets a brand new walker to use once or twice.

Her husband died tragically and the hospital billed Medicare for surgical services that were not performed. When she complained to Medicare, they encouraged her to ‘work with the hospital on that’. They didn’t care one whit.

So much of Medicare is just plain wasted. I would estimate 50%. IMO, it’s not the seniors who are getting excessive benefits, it’s the providers who are enriching themselves at everyone’s expense.

[VRW Conspirator]

The primary beneficiary of a socialist program is the socialist politician.

[okie01]

So much of Medicare is just plain wasted. I would estimate 50%. IMO, it’s not the seniors who are getting excessive benefits, it’s the providers who are enriching themselves at everyone’s expense.

Don't knock the "providers", as a group. Sure, there are some who abuse the system -- but it's not the ordinary doctors, hospitals or services. It's a venal few -- I'd wager that 90% of the fraud is traceable to 2% of the providers.

That said, have you ever tried to reconcile a Medicare statement?

What you'll find is absolute chaos -- a total disconnect between real costs and arbitrary payments. The system defies rational accounting procedures; instead, it is an incoherent fabrication that nobody truly understands. Including those who are in charge of administering it -- either on the professional side or the government bureaucracy.

Like most government programs, it's a structure tailor-made for stealing.

Under the Ryan plan, with government vouchers available for the purchase of private health insurance, thus placing insurance companies in charge of administering the program, I would expect Medicare fraud to immediately drop by 90%.

[MontaniSemperLiberi]

“Their anger should be directed instead against those politicians who were irresponsible enough to set up these costly programs without putting aside enough money to pay for the promises that were made.”

Normally I would comment that it is impossible for a society to save dollars for the future. That’s still true. Our government though could have used that money to buy foreign bonds or gold. It did not. There was never a plan to do it. There was no “lock box” or savings account with anyone’s name on it.

[Gilbo_3]

great as usual jaz...at my age, galt is the only way togo...

[OldPossum]

But, that’s okay. I probably wouldn’t know what to do with myself if I wasn’t working, so, shrug.

Lacking so much in imagination, huh?