Social Security

[Beavah]

Blancmange raised some discussion about Social Security, so it seemed worth spinning it off over here.

 

What says the group?

 

Is the Social Security Trust Fund real, or is Social Security a Ponzi scheme where da money that was contributed is gone, spent on government programs, and da future obligations to an ever-larger group of retirees will be taxed (or inflated) out of an ever-smaller group of working young people, thereby impoverishing the nation?

 

Beavah

 

[John-in-KC]

Based on what I understand, Ponzi-- since the late 1960s.

 

Thank you, Lyndon Baines Johnson.

[GernBlansten]

Yes, thank you LBJ.

My father had a massive stroke at 47. Me and my siblings lived off his disability SS while my mother went back to work to make ends meet. Without it, we would have lost everything since my grandparents were also on SS and couldn't support another family.

Yes, thank you LBJ.

[Eagle92]

What's Social Security?

 

I know I keep paying in, and I know it does help some folks, but I know it won't be around when I retire.

 

And the government does NOT have to pay those who contribute to Social Security; there was a federal court case to that effect stating the US government does not have to pay social security to those who pay into it.

[83Eagle]

It's the textbook definition of a Ponzi scheme, but heaven help any politician with the honesty to say so.

 

I've never counted on it in my retirement and, as that date gradually (!!) approaches, I just hope Uncle Sam doesn't raid the retirement vehicles I put in place to take care of myself. Unfortunately when SS gets in real trouble I fear that all bets are off.

[Engineer61]

Yes, SS and every other corporate pension account is a Ponzi scheme.

 

Unfortunately, I believe that there is just as much risk to private retirement funds due to the corruption of Wall Street and the Bankers, that retirement for any of us is at best a 50/50 possibility.

 

My wife will be able to retire...I'll kick the bucket, and she'll get the life insurance!

[The Blancmange]

Consider this:

 

Without Social Security benefits, 45.2 percent of elderly Americans would have incomes below the poverty line, all else being equal. With Social Security benefits, only 9.7 percent are poor.

See: http://www.cbpp.org/cms/index.cfm?fa=view&id=3260

Most of these peple are seniors. Your parents, grandparents (maybe even you in the case of our elder board members :-) )may be included in those numbers. The number also includes the disabled, widows, and surviving children. Has the program been a success? Look at GernBlasten's anecdotal report. There are millions of stories like that. Know anyone on dialysis or who has received a kidney transplant? Most likely paid for by Medicare. ALS (Lou Gherig's disease)? Medicare again.

I addressed the long-term viability in my earlier post. Beavah raises the issue of whether the surplus is illusory because the government has borrowed from the surplus for current expenses. If it is indeed illusory, then I don't think the Chinese or other major investors in Treasury Bonds would be too happy to hear that. Is the federal government about to start defaulting on its own bonds?

For the first time, I find myself agreeing with Engineer61. If you classify SS as a Ponzi scheme, you should do the same for any other private, traditional pension, as well as casualty and life insurance companies.

Don't believe the chicken-little reactionaries. Social Security has been the most successful government program in history, and can continue to be so with some modest, common sense adjustements.

[Eagle92]

Blanc,

Common sense adjustments to SS is not reality. Heck folks have ignored FDR's own words about SS. A historian found a letter about SS in a letter at the FDR Presidential Library in NY, and FDR himself said that SS would not be viable after 1960 and would need to allow individuals to invest their contributions in order to make it viable after 1960. Ok the letter was written in the 1930s prior to the boomers, but even FDR saw there were problems with it.

[Kahuna]

"Social Security has been the most successful government program in history, and can continue to be so with some modest, common sense adjustements."

 

WHAT?

[eisely]

The main difference between social security and a ponzi scheme is that participation in social security is mandatory. You can always walk away from somebody peddling a private sector ponzi scheme.

 

Private sector retirement plans, insurance contracts, etc are not ponzi schemes since they are based on contracts and have to meet standards of actuarial soundness. This is not to say that all private sector retirement plans are well managed or even honestly managed, but at least there is some disclosure to beneficiaries and regulatory authorities.

[John-in-KC]

Gern,

 

Allow me to clarify. LBJ moved the monies form the Trust Fund into the General Fund, and placed IOUs (not even Treasury notes) in the Trust Fund.

 

That was bad policy then, and is the basis for my claim that SS has become a Ponzi scheme. If our inputs were actually set aside and doing something ... even being the basis of Treasuries or Ginnie Maes, I'd be OK. IOUs? I do not think we are OK, in a policy or in an actuarial sense.

[GernBlansten]

Think of the mess we would have been in had Bush been able to "invest" it in the stock market back in 2005!

[83Eagle]

If you classify SS as a Ponzi scheme, you should do the same for any other private, traditional pension, as well as casualty and life insurance companies.

 

HOGWASH! Insurance funds its payouts not only from premiums collected but by investements. In fact, if you know anything about the insurance industry at all, it is that companies make little (if any) money on their pure "combined ratio" (premium earned / losses + expenses). Instead, they make money on investments.

 

That is not a component of social security, which started with the initial recipients receiving far more than they paid in due solely to contributions from subsequent participants...the next people to get paid out had paid in a little more but were still upside-down...and on and on, until the structure can no longer support itself because it is paying out far more than it is taking in to remain solvent.

 

This is a simple, basic, and inarguable mathematical fact, not being a "chicken little." Without an investment component, there is no way to keep the program solvent without A) reducing payouts (just try that one!!) or B) increasing contributions; i.e., taxes. Either that or take a big harvest from the Magical Money Tree.

 

"A Ponzi scheme is a fraudulent investment operation that pays returns to separate investors from their own money or money paid by subsequent investors, rather than from any actual profit earned. The Ponzi scheme usually entices new investors by offering returns other investments cannot guarantee, in the form of short-term returns that are either abnormally high or unusually consistent. The perpetuation of the returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors to keep the scheme going."

 

(This message has been edited by gotta run)

[Eagle92]

Gern,

Partially correct. Yes for those under the specified age that could opt into privatizing some of the SS we pay under the Bush proposdal would take a short term loss, using economic models we would make long term gains better than current SS projections.

 

That's one reason why I beleive the City of Galveston, federal employees, and our Congress Critters do not contribute to SS, but have their own programs instead.

[John-in-KC]

E92,

 

Except the Armed Forces. Trust me. We paid SS.