A post by Maynard

I’m bumping this post of mine from the carefree days of July, 2006. I’m inspired to revive this after reading this Drudge-linked article:

Social Security will run at a deficit this year and keep on running in the red until its trust funds are drained by about 2037, congressional budget experts said Wednesday in bleaker-than-previous estimates.

The massive retirement program has been suffering from the effects of the struggling economy for several years. It first went into deficit last year but had been projected to post surpluses for a few more years before permanently slipping into the red in 2016…

This has all been projected years in advance. But the politicians did nothing, and now judgment day is upon us.

Social Security has built up a $2.5 trillion surplus since the retirement program was last overhauled in the 1980s. Benefits will be safe until that money runs out. That is projected to happen in 2037 – unless Congress acts in the meantime.

That “$2.5 trillion surplus” is a file cabinet filled with IOUs which the government has promised to pay to itself. The money was all spent, and the IOUs can only be paid back by raising taxes or more borrowing.

Social Security supporters are adamant that the program will be repaid, just as the U.S. government repays others who invest in U.S. Treasury bonds.

“Its’ an IOU that is backed by Treasury bonds and the faith and credit of the United States government,” said Sen. Bernie Sanders, I-Vt. “It is the same faith and credit that enables us to borrow from rich people and from China and from other countries. As you well know, in the history of this country, the United States has never defaulted on one penny owed to a creditor.”

Liars! Damned liars! Yes, as a technical point, the government has never defaulted. What it has done is debase the currency. A dollar today is worth less than a nickel in the real currency of a hundred years ago. You keep your dollars but you lose the purchasing power. In effect, money is robbed right out of your pocket by toxic monetary policy, and the Feds get away with it because nobody understands what happened.

Anyway, here’s my earlier post.

Maynard explains why those responsible for Social Security should be jailed

Social Security is one of those topics that I can’t talk about without raving like a lunatic. It’s a program founded upon lies and kookiness, and every time it threatens to collapse under its own weight, the politicians get together and serve up more lies and kookiness. Anyone who attempts to speak the truth or warn of danger is immediately branded as a heartless greedy dirtbag who wants to run down the elderly in his golf cart while they’re sitting in their cardboard-box homes eating dogfood.

The biggest argument in favor of some form of Social Security is the moral obligation of the society as a whole to care for its elderly. We owe something to those who have put in a lifetime of work and are slowing down. But, as always, the devil is in the details. How much do we owe, and to whom do we owe it? How much should be attended to by the individual (or by his relatives), and how much obligation should fall upon the government?

Naturally, when the state got involved, it did so in a big way. In the depths of the Great Depression, Roosevelt’s New Deal gave us a universal state-run pension plan. The Depression caused a lot of desperate people to rally behind crazy economic theories, and Social Security gained momentum from the times. For example, an old kook named Francis Townsend rose to great fame with his crank plan to tax young people and give the money to old people. The old people would be required to spend the money within a month, which would cause the factories to expand and hire more young people. This would, the theory went, bring an end to unemployment and raise the living standards of young and old alike. Who could possibly object to that? A few astute workers might have realized that stealing their wages and giving the money to someone else wasn’t going to save the world, but what did they know? The Townsend Plan developed a national following and many advocates in Congress, and this, plus other such thinking, led to Social Security.

In order to sell Social Security, the government lied to us. You see their lies posted on the history section of the Social Security website. Here’s what they told you Social Security was going to cost you:

After the first 3 year — that is to say, beginning in 1940 — you will pay, and your employer will pay, 1.5 cents for each dollar you earn, up to $3,000 a year. This will be the tax for 3 years, and then, beginning in 1943, you will pay 2 cents, and so will your employer, for every dollar you earn for the next 3 years. After that, you and your employer will each pay half a cent more for 3 years, and finally, beginning in 1949, twelve years from now, you and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. That is the most you will ever pay.

Wow, that seems like a sweet deal, doesn’t it? Security in your old age for a pittance (cleverly split between you and your employer, so it appears that you’re only paying half of what you’re really paying). “That is the most you will ever pay.” And once the program started up, it was politically unkillable. If a private company behaved this way, you’d rescind the deal and have the perpetrators jailed. But we’re dealing with the government here. So there are no apologies for the lies. Instead, the “promises must be kept”, and so we’re obligated to undertake an endless series of “reforms”. Each “reform” is of course a tax hike, and yet the cost/benefit ratio of the program continues to slip. The early retirees paid little and collected a lot. But the later you got onto this ride, the worse your deal is. And now we’re watching the system grind towards insolvency in the next generation, and the boys and girls in Washington do nothing but curse anyone who dares observe that the emperor has no clothes.

So as the current generation passes through its years of economic productivity, it is being robbed of the money it should be saving for retirement. That money is going straight into the pockets of the older generation, or perhaps spent as part of the general fund of the Federal Government. This robs the nation of much-needed domestic capital investment (thus forcing us to borrow money from abroad and pushing up interest rates), and assures that, as we retire, many of us will be forced into an artificially-created dependence upon government largesse. And that’s right where the Leftists and Washington bureaucrats want us, unable to survive without them. Shouldn’t it be the other way around, with Washington begging us for money?

The fundamental economic problem with Social Security is that it was set up as a “pay as you go” program, meaning it’s paid out of current revenues. You receive an annual statement of your long-term “contributions”, implying that you’ve got an account full of money. But that account doesn’t exist. Most of your taxes goes straight into someone else’s pocket, and any surplus goes into the Social Security Trust Fund. The politicians all sincerely swear how they’re protecting the SSTF, but the simple truth is that it’s all a colossal fraud. The fund consists of Treasury securities. Stop and think about this for a moment. A Treasury security is an IOU from the government. When the government holds Treasury securities, it means it holds an IOU against itself. What sort of collateral is that? Try writing an IOU to yourself and using it to get a loan, and you’ll get laughed out of town, or maybe arrested. So the Trust Fund does not exist. You remember when Clinton ran a budget surplus? Well, that was a lie as well. His “surplus” was actually a deficit, but if you tossed the Social Security receipts into the general fund, then it became a surplus. The only way the Trust Fund can ever be recovered as cash is through future tax revenues. Do you think the next generation will be willing to raise taxes on itself to pay for your gullibility? Don’t count on it!

So Social Security is an unfunded liability measuring in the trillions of dollars. At present time, the Social Security taxes are adequate to cover the expenses, with the excess going into the Trust Fund (which, as I explained, is immediately looted). But this situation is deteriorating. It is projected that around 2018, the taxes will be inadequate to cover expenses, and it will be necessary to draw from the (non-existent) Trust Fund. This will create a tax crisis, but at least the system will remain technically solvent for a few more years. By 2042, the (accounting fiction known as the) Trust Fund will be exhausted, and Social Security will be financially unable to meet its obligations. The Democrats spin like tops to avoid the word “bankrupt”, but that’s the word that applies to a business that runs out of money and settles its debts for 70 cents on the dollar.

Why is the system, which seemed to work well for a while, going bad? It’s a matter of demographics. We’re living longer and having fewer children. Once upon a time, there were more than 10 people being taxed to pay for one retiree. Now the ratio is 3 to 1, and it’s falling towards 2 to 1.

You can see the advantage of a privatized, or even a partially privatized, retirement system. If you’re saving for yourself, or saving collectively for your generation, then you needn’t worry about changing demographics. It’s not an inter-generational thing. Sure, there’s still the question of increased longevity, but at least the system doesn’t require an exponentially-increasing population to maintain its solvency.

But when George Bush raised the possibility of some degree of privatization, the Democrats stomped him with both feet. Sadly, the public really doesn’t understand the issues, and they’re easily scared. The Democrats seem to have beaten back any possibility of Social Security reform. Their triumph, in combination with George Bush’s reckless spending, has doomed us to economic turbulence as Social Security starts to go under in the coming years.

But, to be fair, I’m not sure that reform is possible at this point. We’re pretty much stuck paying the pensions of people who have paid in, because we stole their savings. Could we possibly come up with the money to pay off the old generation while not following their path to government dependency ourselves? George Bush talked of a possible huge indebtedness to bridge the transitional gap. That’s just like George, ready to borrow money. His “solution” didn’t eliminate the problem of a huge debt; he just proposed transferring that debt from the next generation of taxpayers to the banks. So I wasn’t convinced that his ideas were good, but I’ll give him credit for acknowledging the problem, and inviting an intelligent discussion. But the Democrats figured they’d get more mileage from demagoguery than discourse.

The real problem is that the squeeze is fundamental. You simply can’t run an economy if everybody is retired, even if everybody’s got a fat bank account. If our workers-to-retirees ratio falls too far, somebody is going to be squeezed, and there’s not a thing to be done about it. Somebody’s got to do the work.

So the final truth that no politician will tell us is that the coming pain is unavoidable even under the best of circumstances, and the best thing we can do is try to grow the economy and spread the pain around “fairly”. As a practical matter, this says two things to me: A higher retirement age (a small degree of which is already part of the last round of Social Security “reform”), and a means-test (meaning that people with assets won’t get their government check). I’m not saying this is fair, because it’s not; I’m simply being pragmatic. One way or another, we’ll need more workers and fewer pension expenses.

Since the truth is too painful to admit, maybe the politicians are right in doing nothing. Perhaps we’ll bumble along, one day at a time, and stumble through somehow. It’s a shame, but that’s the way politics is. In the meantime, think of your Social Security tax as the price you pay for not having your parents move in with you. Or if you’re living in your parent’s basement, consider it rent.

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6 Comments | Leave a comment
  1. Rod says:

    SS has been a diaster for 50 years. My Freshman year in college (1961)was the first declaration of impending diaster. That was the year the new President (JFK), citing a financial emergency that “the program may go bankrupt”, asked for a trippling of the SS tax from a max of $45 to $150. It met stiff resistance in Congress and was passed after his death. LBJ later said the program was still heading for bankruptcy got the tax doubled to $600. The emergency reappeared again in the 70’s and again in the 80’s.
    Each time the tax was raised. Dole made SS 2 programs so he could double the govt Office space and more than double the # of federal employees working in SS. He set one of the SS taxes to run to infinity! The lazy eight for you college grads.
    It now seems we need to raise the other SS tax to infinity!
    After both SS taxes are at infinity … How do we solve ne next “emergency”?

  2. Vicki says:

    I had breakfast at a Denny’s the other morning. A little old lady named Lois waited on me. I could tell her feet hurt. She reminded me of my grandmother and I felt like asking her sit down so I could serve HER breakfast. We talked. She retires soon. Been doing that crappy job all her life. She’s looking forward to some time off and she’s glad her social security check will help make that possible. In fact, she’s counting on it.

    Do you want to talk to her about raising the retirement age, Maynard? You seem like a nice person so I’m betting you’d probably not say a thing about it and do what I did. A big tip for her and your heart would swell a little when she gave you a sweet peck on the cheek.

    Is Social Security bankrupting this country? No, it is not. Social Security could be fixed easily and it doesn’t involve raising the retirement age or denying benefits to those with assets.

    Robert Ball had good ideas. They are:

    1. Gradually raise the cap on earnings covered by Social Security so that (again) 90% of income would be taxed and counted for benefits. (Btw: this is what Reagan wanted).

    2. Dedicate future proceeds of a revised estate tax to Social Security beginning in 2010. Freeze it at 7 million/couple.

    3. Invest Social Security funds in equities, just like other pension plans do.

    4. Adopt the more accurate consumer price index recently developed by the Labor Bureau. Cost of living adjustments would rise more slowly this way.

    5. Beginning 2010, cover all new state and local employees under Social Security.

    And I’ll say one more thing as well. Actually two things. BALANCE THE BUDGET. That’s the discussion worth having. ALSO, FIX HEALTH CARE. The Social Security debate is a dull diversion from those two important domestic conversations.

    Lastly, private investments are a great idea. Buy a home, make investments and expand your safety net. But we can have those things in addition to the Social Security Program so that our desperately old/poor will have something to count on. I just don’t want to have any other conversations on this subject until the deficit starts shrinking.

    Good night.

  3. St. Thor says:

    Social Security was a fraud from the start. When it was passed, the average life expectancy was below the age that retirement benefits could be collected. It is also a Ponzi Scheme that requires ever larger numbers of players entering the game to cover payments for those already in the game. People have gone to jail for such frauds in the private sector. It is a classic example of how government is theft.

  4. […] This post was mentioned on Twitter by Tammy Bruce, Douglas Parker and ww3 response, rsscity. rsscity said: RT @HeyTammyBruce: The Myth of Social Security http://bit.ly/h3dvtG #tbrs […]

  5. Pangborn says:

    So this is why Our Peerless President said we need to accelerate “investment” in order to climb out of this bottomless pit in our economy. Right? This is indeed our “Sputnik Moment”. And, as Our Smarter-Than-Thou Leader fully understands, this time it’s not an existential threat posed by the “Red Menace” but the very real risk that our beloved country will soon be drowning in “Red Ink”. Right? Please tell me he knows that 1 minus 100 just doesn’t add up. Please!

  6. ChrisL says:

    When the Chilean military dictatorship recognized their SS system was (like ours) unsustainable, they had the wisdom to privative their Social Security system back during Reagan’s era. They repaid all of the money people had paid into the system and required them to invest it 100% privately. They have enjoyed an average 9% return to this day. 100% privatization is the answer. We are not collectively obligated to take care of “our” elderly, who are in fact the wealthiest class of people on Earth today. And I don’t want my children or grandchildren, as a collective, to be obligated to support my generation’s retirement. If I have to work until I’m no longer able to dress myself, then so be it. Until that time I want to be able to save my own money (without surrendering 12% off the top) and build a nest egg to carry me through until I die. If I can do that, I’m certain anyone with the same attitude, like myself, will leave money to our family’s after we’re gone. Liberals are very fond of telling us we have to sacrifice. What they are actually saying is we have to sacrifice the labor and lives of future generations so they can enjoy lives of leisure at 65 today – screw the future. What I say, is that if you haven’t yet earned and saved enough to retire at any age, tough on you. That doesn’t give you the right to confiscate my earnings when I’m working often 12 – 16 hour days and just making ends meet. Social Security as we know it needs to be ended at some cut off age and all the money that’s been contributed up to that age cutoff point should be refunded. I’m 53 and have been working full time for over 30 years. Give me my money back, with 1% compound interest, and let me out of the SS system. I’ll be much better off in the long run and so will my family, and everyone else’s. If you haven’t worked and saved your whole life, you better hop a southbound freight to spend your retirement panhandling and camping out in a warm climate, because I don’t care about you any more than you care about stealing from my children’s future.
    Where do we as a nation get the money to close this system down while continuing to pay those who are currently retired, and pay off the rest of us? There’s about a $2.5 trillion head start sitting under just Alaska right now. Drill baby drill! And there’s a lot more where that came from. Mother Earth created oil and natural gas to nourish us. It’s Earth’s Mother’s milk. We should drink it all up.

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