Mathematics of the Social Security "Crisis" 1910
ScottyB writes "Here's a good start for reading into the economics and history of the much-discussed 'crisis' in Social Security. It's from the NY Times magazine, so you know the drill...'A Question of Numbers.'"
Uh, try under 65 crowd. (Score:1, Interesting)
Time to face the truth.
The last ones in must pay the price.
I want out (Score:3, Interesting)
The real problem that I see is that my parents signed me up as a child. I don't want to be in. I don't want to have to be in to get a job.
I think that is the biggest problem. I don't have any choice in the matter, and unlike any other retirement scheme (IRA, Roth IRA, 401k, annuity), I can't get out if or when I want.
So much for Land of the Free.
You can always invest in Treasury debt (Score:5, Interesting)
No additional risk, and with some obvious added benefits. I'd welcome any extra freedom the government threw my way, even if I did not take advantage of it. Not that I personally would invest in US Treasury debt.
Re:Gah! (Score:5, Interesting)
The idea that SS taxes shouldn't be applied to capital gains and other forms of income is basically a huge giveaway to the rich. Now I know that some /.'er is going to talk about how we are in an ownership society and lots of people who aren't rich own stock and blah, blah, fucking blah, but if you look at the numbers you'll see that the people who make most of the money from capital gains and the like are pretty damned wealthy. I see no reason why they should enjoy a separate tax system designed to shield their gains while those of us who take home a paycheck as our primary source of income have an entirely separate tax system.
Re:Shocked, shocked I am (Score:3, Interesting)
The problem is that more and more people are drawing on the system because people are living longer. At the time it was passed, very few people lived much past the age of about 60, let alone 65. It was designed as a "pay as you go" system, so your money is not really put aside for you somewhere so that it can earn interest. Your money is used to pay the benefits of those currently collecting. Your benefits (assuming the system is around that long) will be paid by those who are paying into the system when you retire.
I've even tried to look into taking my parents onto my health policy, but federal law won't allow it for the reverse. After years of being on my dad's policy while growing up, I am legally not allowed to take him onto mine now that both he and mom are retired. Wouldn't it be nice to have an option to do something like "no medicare withholding because one or both over-65 parents are classified as dependents"? Sure, the health insurance companies would balk and probably start up all kinds of FUD and lobbying against it. Why? They've become more concerned with making money than doing what they're supposed to do... cover your health care expenses.
Sold to us by the same guys who sold the IRAQ WAR (Score:1, Interesting)
Re:This whole "There is no crisis" (Score:1, Interesting)
Lets agree that Social Security is flawed, take the hit this generation, and start something new and rational for the next.
Re:The "Drill" (Score:1, Interesting)
Mod the Moderation -1 Hypocritical
The Real Problem.. (Score:2, Interesting)
Re:I can fix the problem (Score:1, Interesting)
One thing I do believe firmly is that the average person wont save suffiently if not required to do so.
You might change your mind if you look at Hong Kong before 2000. They didn't have any mandatory retirement/savings programs, and their savings rate was greater than 30%. Compare that to our savings rate, which is up to 0.3% now. People WILL save if they know the government isn't going to bail them out.
Re:Gah! (Score:3, Interesting)
This whole practice of borrowing money that can't be paid back because it doesn't look like a tax increase is horrific.
In the following, public debt refers to money owed to external agencies (mostly China for new debt), and intergovenment mostly means IOU's from SS. However, I have not been able to find a detailed break down of which depts are involved in intergovermental stuff to what degree. I would really like to see those numbers.
Current Debt [treas.gov]
Why this is a horrible horrible idea (Score:5, Interesting)
If we were, then the idea of privitizing Social Security would be no big deal. If someone misinvested by putting all his retirement money into Tyco or Enron stock, fine. We let him die broke and impoverished and that's that.
But we're not savages and we won't do that. If a person screws up and loses all their retirement we'll cover them some other way via state or local government instead of via the Feds. You'll still pay for that person's retirement, just not in a predictable way, and it'll be more expensive as more poverty retakes America's elderly.
Social Security is the SINGLE most effective government program ever. Elderly poverty was endemic in the 1930's and before. Unless you were really rich, you stood a really good chance of dying poor and dragging your children down with you. Now, that's much less prevelant.
You object because you want to invest in a free market? Great. Most investors lose money, but if you really want to invest outside of the SS program, what's stopping you? Go ahead. You just can't risk this small percentage of your earnings. That goes to make sure you won't be too much of a burden on the rest of us when you get old.
Make a simple graph (Score:5, Interesting)
If we tax at 0%, revenue is $0.
If we tax at 100%, revenue is $A (where A > $0 - this is basically Communism)
If we tax at something in between, let's say 50% for the sake of argument, revenue is $B (where B > A - this is Capitalism).
Ok, now draw a single line connecting those points. Obviously you can't do it with a straight line, it has to be curved. And therein lies the heart of the matter.
If the tax rate is below a certain point, cutting taxes decreases revenue.
If the tax rate is above a certain point, cutting taxes increases revenue.
You cannot argue that cutting taxes always decreases revenue. You cannot argue that cutting taxes always increases revenue. What's arguable is whether we're currently above or below the point where it switches from one to the other.
Banks and Suckers (Score:4, Interesting)
> I wonder if your bank cleaned out your account, you would claim it was your own fault, because "I'm a sucker for trusting them with all that money."
You choose an interesting analogy.
If your bank statement said "By 2042, there won't be enough other depositors depositing checks with us to pay all of the balance owed to you. At that point, there will be enough money to pay only about 73 cents for each dollar you deposited with us", would you continue to bank with them?
But what if you don't? (Score:3, Interesting)
If Social Security really were pay-as-you-go, it wouldn't need investing at all: today's money is supposed to meet today's expenses. The Social Security Trust Fund had to be established to make up for the Baby Boomers having fewer children than was necessary to support themselves.
You can formulate that several different ways; having more children wouldn't necessarily put more money into SS coffers. Suffice it to say that too many people were expected to retire simultaneously.
But that money isn't invested except in Treasury debt, which is a rough analog of investing in the GDP (since taxes are roughly proportional to the GDP), and the GDP grows fairly consistently. But the tie is too inexact; better directed investment could yield better results.
The stock market is the obvious place to look, but you can't invest the SS Trust Fiund; it would totally skew the markets to have a single investor make those decisions. So, the Bush administration wants to let individuals make those decisions.
But now we return to where I started. If the individuals make the decisions, some will gamble and lose. What do we do about them? We started this in the first place as a way to make sure our elderly were cared for. It wasn't about returns; it was about care.
That leads into a whole mess of issues, but I'll spare you. But I wanted to be clear on one point: just allowing people to invest in the same safe place doesn't solve the original problem: some people starve when they get old. That is "additional risk" over the current scheme.
Re:the real agenda (Score:2, Interesting)
For example, take a microcosm like the north Georgian Rabun County, population approximately 15,000. The median income there is currently $23k annual (and it pays to remember that, according to 2002 stats, the average national was a mere $30k). It doesn't cost much to live there and, just a handful of years ago, local business provided adequate jobs and salaries for these families, most of whom have lived in the area for umpteen generations.
Then Wal-Mart moved in with the allure of cheap goods. Local businesses shuttered, unable to compete against retail prices lower than their wholesale costs. Money that had once remained in the community via local business owners now filtered out to parts unknown. Decent wages and benefits withered, replaced by fewer jobs at lower salaries with little, if any, benefits, meager advancement and no community responsibility.
In a few short years Wal-Mart has become the biggest employer in their county seat, not because anyone wants to work there, but because people have to work to eat. To survive. Now Home Depot is on the docket, and poised to kill the locally owned and staffed hardware store, feed and seed and building supply store. Lower prices indeed, but at what cost? Sadly, it's cyclical; the more destitute a person becomes, the more they have to rely on these big-box corporate ventures for their goods. You might want to shop at the local grocers, but now that the only job you could score is as a Super Wal-Mart stocker the only place you can afford to shop is, ironically, your employers. Add to that the facet of the wealthy snowbirds who flock to vacation in the lower Blue Ridge and used to spend their money at local establishments, but now go to Wal-Mart because it's familiar, they dont't really care where they shop, and it's rapidly becoming the only game in town, and the entire economy of the area has been turned on its ear.
Did they fight the introduction of these corporate giants? Well, they tried. Problem is that the local government stands to gain from bringing these entities in, and pushes to make it happen. And, when it inevitably does, the only remaining option is the voting booth... and the damage has already been done. Interestingly, a lot of other northeast Georgia counties have redoubled their efforts to keep giants like Wal-Mart out of their area, bolstered by witnessing the results in places like the city of Clayton.
The average citizen of Rabun County isn't a person of means, and they don't come from a lineage of people with means. They're hard workers from a line of hard workers. Without money, and without secondary education, these people are trapped in their circumstances. They can't move to Atlanta to get a job... not only do they lack the funds to make such a move or afford a place to live in the city, they haven't the credentials to score the employment necessary to remain in the city. They just have to tough it out.
I don't necessarily expect the average participant on
Trust me; these people want to be personally responsible. Now lets concentrate on making them capable of being personally responsible. Pulling a safety net, no matter how meager, out from under them isn't teaching them. It's punishing them for the misfortune of being born into the wrong station.
The big problem is borrowing against SS (Score:5, Interesting)
So those bonds (or loans, if I'm thinking incorrectly) will come calling sometime in the 2030's?
I think that is the point where many analysts are saying that SS will be calling for the replayment on that.
But who pays it?
The US Taxpayer. Somehow, somewhere, the $ to repay the $ which was taken against the social security funds will need to be repaid.
I think THIS is the bulk of the problem.
Solve this, and make it so that we can't pass expenditures that aren't already funded.... basically cut those government credit cards up.
Re:Liars (Score:4, Interesting)
On the other hand the pro-"leave it as it is" crowd rarely mention the coming boom of retirees and the growth in the number of retirees combined with a shrinking work force. For example; if people live too 100 in stead of 80 because of better nutrition, care and medicine it could cause problem with much higher health care costs than previously though. And the existing solution fail to account for the the slackers that work far less than they could.
So I have come to the conclusion that something needs to be done with the system at a point. But, and there is this this big but, at the same time I don't think the proposed solution is a good one. It seems to create far more problems than it solves. It is basically a free market solution with an add on to solve some of the problems with the people allready "inside" the existing soulution. Since they need to be covered in the future even if their children ("we under 30") stops funding them, Mr Bush needs to visit the bank and borrow an awful lot of money. I don't remember the exact number but i belive it was around $3 Trillion.
Also the new system places a lot of faith on both the market as a mechanism to handle money effectly without waste and more importantly peoples ability to handle their own money on the market. Quite frankly I don't think people will be able to handle their pension. Even if they are forced to invest them somewhere under some program people will waste them on stupid funds, expensive stock and all sort of scams that will pop up. I have faith in Wall Streets ability to lobby the administrators that regulate this new solution but I also think that many folks will lose much or substantial parts of their investment. Just look at how many people today pay insane amounts on various fees and administartion costs on their index funds.
One might think that well that is those peoples problem and lets leave it to Darwin, but there is this problem about what all those partially broke people will do when they approach retirement. My guess is that all those retirees close to 40% of the population and maybe 50% of the voters will vote for a social security system anyway.
So allthough I belive that something needs to be done in the long term; I don't think Mr. Bush is the man to handle such a big reform. Of Bush 20 biggest contributors at least 15 [opensecrets.org] of them, and all in the top 5, have serious finanial interests in this reform and I belive much of the money will eventually end up in their hands.
So as long as the system doesn't need to be changed now I see no reason to change it now with the risk of a failed reform.
Anyway; just my opinion.
Re:the real agenda (Score:4, Interesting)
In all honesty, I'd be more than happy if the government could help me live a decent life with me working less. I don't know why we have to work as much as we do; 40 hours a week doing a job is way too much time. There are so many other things I'd rather be doing with that time. I'm sure a lot of other people feel like this, too.
I don't understand why work is seen as a virtue. Just doin' a job for the sake of doin' a job sucks. I don't see how that makes you a good person.
Re:Gah! (Score:5, Interesting)
SS is not in crisis - not within any reasonable horizon, and probably not at all. The general budget deficit, our foreign debt, and our current accounts deficit are all very serious crises, right now. Crises that are already imparing the national security of the United States, and that run a real risk of substantially affecting our standard of living in the near future. Why can't we, for once, focus on actual problems and have real discussion about them, rather then descending into ideologically-driven drivel?
Re:Liars (Score:3, Interesting)
Re:I've read this article before it was on /.... (Score:3, Interesting)
Funny thing about that "surplus" - while the deficit was (supposedly) negative, our National Debt was still increasing.
For historical purposes, here's the National Debt during Clinton's terms in office:
09/29/2000 - $5,674,178,209,886.86
09/30/1999 - $5,656,270,901,615.43
09/30/1998 - $5,526,193,008,897.62
09/30/1997 - $5,413,146,011,397.34
09/30/1996 - $5,224,810,939,135.73
09/29/1995 - $4,973,982,900,709.39
09/30/1994 - $4,692,749,910,013.32
09/30/1993 - $4,411,488,883,139.38
Notice that it got larger EVERY year, even the ones where we were running a "Surplus"?
dromedaries and bactrians. (Score:2, Interesting)
1) Raising taxes increases revenue by collecting a higher percentage of the circulating money on each pass.
2) Raising taxes decreases the circulation of money by draining resources from the economy.
3) Effect 1) is dominant at low rates, effect 2) at hight rates.
In the absense of any other mechanism, or any reason to believe that the effects are not monotonic, continuous, and reasonably smooth (except for discontinuites at the extremes such as the jump from no tax at all to some tax), the result is a curve with exactly one hump, with a location dependent on the shape of the functions responsible for 1) and 2).
Can you postulate an additional mechanism (or wild nonlinearity) that would produce an additional hump?
It's easy to claim that there might BE one (or more) additional hump(s). But until you can come up with a plausable reason FOR aonther, I'm going to continue to assert this camel is a dromedary rather than a bactrian.
Re:I've read this article before it was on /.... (Score:3, Interesting)
I see nothing in the constitution that says, take money away from every working person, stick it into an account, spend the interest earned off of it, and try to pay them back when they get older.
Let's start with this one, first paragraph, first sentence: " promote the general Welfare".
If that's not enough for you, let's try: The entirety of Article 1, Section 7.
Going further we find in Section 8: "Clause 1: The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States . . . Clause 18: To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.".
So there are two clear references to the general welfare (of which Social Security was deemed by Congress to be a crucial part beginning in the 1930s), and I haven't even gotten into Articles 2 or 3 or any Amendments.
What were you saying about studying the Constitution before sinking to ad-hominem attacks?
Re:Sure. (Score:4, Interesting)
The Nobel Prize for economics a couple of years ago went to Daniel Kahneman [nobelprize.org], who demonstrated that
Kahneman also demonstrated that the Heritage foundation's intuition is poorly suited to understanding the economics and statistics of the real world.
Kahneman showed that people often prefer to choose a pair of gambles that equate to
- 25% odds of winning $240 and
- 75% odds of losing $760
over an alternative pair that equate to- 25% odds of winning $250 and
- 75% odds of losing $750
which violates the fundamental postulates of economic rationality. Specifically, economic preferences are not rational: It is easy to set up choices where people consistently prefer a to b and c to d, but prefer (b+d) to (a+c) (see D. Kahneman and A. Tversky, Eds., Choices, Values, and Frames [google.com]).Kahneman's colleague Colin Camerer [caltech.edu] also demonstrated [caltech.edu] that taxi drivers work longer hours on nights when they make less money per hour and knock off early when they make more money per hour. In other words, the supply of cab drivers increases when the demand decreases and vice-versa!
Camerer's results violate the Heritage Foundation's intuition and suggests that increasing taxes might well lead people to work harder because people often work until they earn a target, after which they decide to knock off early and enjoy their leisure.
In the real world, people's choices frequently violate in a fundamental manner the postulates of economic rationality and thus refute trite intuitive assumptions that people act to maximize their income, wealth, or other measures of utility.