Social Security and the market meltdown

posted at 9:31 am on December 2, 2008 by Ed Morrissey

In the wake of the stock market collapse, one theme emerged almost immediately — that derailing George Bush’s reform and privatization plans for Social Security saved retirees from disaster.  People saw the steep drop in stock prices over the last few weeks and figured that retirees would be eating cat food by Christmas. However, that ignores a couple of realities, and in fact we may wind up wishing we’d listened to Bush in the long run.

First, the people who were close to retirement weren’t eligible for privatization anyway.  In fact, the first stock purchases under the 2005 plan wouldn’t have been made until next year, and those only for people whose retirement dates were still years away.  Anyone within ten to fifteen years of retirement had to stick with Social Security with Bush’s transition proposal.  Having that money flowing into the markets now would have provided some welcome capital flow during a recession, and the portfolios could have bought some real bargains.

The bigger issue, I’m told, is the wage-growth assumptions made by economists to declare Social Security solvent in the first place.  The CBO’s analysis of SocSec’s insolvency date assumed a higher long-term growth than anything seen in the last 40 years in order to produce an insolvency date farther out than the one predicted by the Social Security Trust Fund trustees.  The financial collapse has proven those assumptions wildly optimistic and unreliable.  Not only that, but the Trust Fund itself has taken a big hit, thanks to a plunge in Treasury return rates.

The much-derided Trustees’ projections for cash flow deficits (2017) and insolvency (2041) are not going to prove to be wildly pessimistic.   More likely, the burst of the housing bubble will bring those dates significantly closer.  Not only will we wish that Congress had taken action with Bush to effect Social Security reform, we may have run out of time to get it done without putting people’s retirements at risk now.

In the meantime, let me share a couple of tables with you from the Social Security Administration.  The first shows the unfunded obligations just for past and current participants — with a $15 trillion shortfall.  The second shows that the Social Security shortfall is NOT a hypothetical, maybe-it-will-happen-someday event.  It’s on the books NOW in the form of the excess of benefit promises over revenue collected for people who have entered the system already.  Future generations don’t contribute to the problem at all — even if they get everything they’re promised, and even if they’re spared a tax increase (both impossible given the current shortfall), they’d put more into the system than they’d get from it, in present value terms.

Keep these tables and links handy. These tables may not survive the change in administration.


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Comments

Politicians spent the “social security lockbox” years ago.

lodge on December 2, 2008 at 9:51 AM

Yes, but we need to let the government handle healthcare!!! Prepare for disaster.

marklmail on December 2, 2008 at 9:52 AM

If the government would let me out of the SS system now, I would let them keep the money I have been paying them for the last 30 years.

txsurveyor on December 2, 2008 at 9:59 AM

this, and how are federal and state governments going to handle their massive pension obligations in the future?

vinman on December 2, 2008 at 10:00 AM

Having that money flowing into the markets now would have provided some welcome capital flow during a recession, and the portfolios could have bought some real bargains.

That’s not the point of Social Security. It’s not suppose to be about capital flow to the markets and buying some real bargains. It’s about security. Like a safety net.

Do you buy your safety nets from the clearance store when they are on sale?

mycowardice on December 2, 2008 at 10:01 AM

Democrats will have their standing and cheering video of their defeat of Bush’s SS reform at the state of the union address to keep them warm at night when SS fails. The rest of us will have to take comfort from knowing democrats will wiggle out of the blame in ignoring the problem and standing and cheering their own ignorance.

Sue on December 2, 2008 at 10:06 AM

Start your vegetable garden, buy your gun, get your safe, and store your gold coins. It’s going to be a long four years.

indythinker on December 2, 2008 at 10:06 AM

The real meltdown hasn’t even started yet. According to the GAO:

Our long-term simulations show that absent policy actions aimed at deficit reduction, the federal government faces unsustainable growth in debt…growth in spending on major entitlement programs will absorb the lion’s share of the government’s resources. Just ten years from now…76 cents of every dollar of federal revenue will be spent on retirees and their health care providers.

Bugler on December 2, 2008 at 10:10 AM

It was a good ride, but the American experiment is over.

And if human liberty was the objective of the enlightenment project, I think we can declare that over as well.

I maintain it all started with government education — we gave the keys to intellectual drunks and watched in horror as they totalled the car.

Western civ, we hardly knew ye!

jeff_from_mpls on December 2, 2008 at 10:11 AM

That’s not the point of Social Security. It’s not suppose to be about capital flow to the markets and buying some real bargains. It’s about security. Like a safety net.

No, thats not what its about now, but it could be in there future. I’m sure I’m not the only 20 yr old whipper snapper who would like to choose where there money went. It doesn’t just have to be in the market, you can buy into CD’s or gold. I don’t get why so many people are against the thought of managing their own money…

Could it just be laziness?

HMMMmmmm…

lgodfrey88 on December 2, 2008 at 10:11 AM

In these off again, on again Soc Sec. discussions I seldom, in fact never, hear SSI mentioned as a factor in the coming SS crash. SSI is a big part of the problem in my opinion as it’s given to un-reformed alcoholics, druggies and others whose life styles are/were perfectly changeable but these never found the backbone to do it and why bother anyway as your check for $700 plus dollars will come anyway. Many of these never worked and never contributed, or contributed so little that it’s not worth mentioning. Yes, there is a need for SSI–but it’s often given to the wrong people for the wrong reasons.

jeanie on December 2, 2008 at 10:11 AM

The current downturn has most investors declaring “buy & hold” dead. Some are questioning whether the premium that equities provide over the long-term is enough to warrant the volatility. Being disciplined (and lucky) enough to get your retirement money out of growth and into income at the right point is essential–too late and you might be selling near the bottom, too early and inflation will eat away at your fixed income if you live 25 years beyond retirement.

I’m all for doing away with social security, though we would have more people who outlive their money and have to address the social consequences.

dedalus on December 2, 2008 at 10:12 AM

Do you buy your safety nets from the clearance store when they are on sale?

mycowardice on December 2, 2008 at 10:01 AM

No, I just buy them the day they’re needed, no matter the cost; and I put them on my AmEx, knowing I’ll never hit my credit limit and will always be able to continue doing as I’ve always done. Somehow.

By the way — if you challenge my plan in any way, you hate old people and want them to all eat cat food and die in the streets.

/sarc

RegularJoe on December 2, 2008 at 10:12 AM

Yes, there is a need for SSI–but it’s often given to the wrong people for the wrong reasons.

jeanie on December 2, 2008 at 10:11 AM

In aggregate don’t druggies die off in high percentages before collecting much SSI?

dedalus on December 2, 2008 at 10:13 AM

Declaring “buy and hold” dead is one of the big wrongs with investors and Wall Street if you ask me. Many of these companies are perfectly solvent and will be fine but “OhmyGod” they dropped 3 cents–sell!

jeanie on December 2, 2008 at 10:16 AM

That’s not the point of Social Security. It’s not suppose to be about capital flow to the markets and buying some real bargains. It’s about security. Like a safety net.

Do you buy your safety nets from the clearance store when they are on sale?

mycowardice on December 2, 2008 at 10:01 AM

Viewed from a positive standpoint, social security is a whole life insurance policy, designed to help families when a breadwinner dies, and paying a small sum to a retiree if they make it to retirement. It was never intended as a retirement plan, and in fact was never sold as one. Promises were made that if enacted, it would never become a pension system. Viewed negatively, it is merely a Ponzi scheme, used by FDR to suck some more cash from workers during a period when other taxes could not be raised. Anyone who is near retirement and expects to live on social security needs to have their head examined, and those who are more than 15 years from retirement and expect to get payments are also deluding themselves. Within a decade, the program will be means tested, so that those who responsibly save money during their working years will get little if any payout from social security – it will be used to pay those that spent all their money.

Vashta.Nerada on December 2, 2008 at 10:17 AM

I can hardly wait for the day conservatives get to play the tape of when President Bush mentioned in his State of the Union address the failure of Congress to act on Social Security. The Democrats, led by Splash Kennedy, stood up and cheered. Let them explain that to taxpayers.

GarandFan on December 2, 2008 at 10:18 AM

Over the past 100 years over any given working, life-span, you could have averaged 8% to 12% on your money. Even now, you can average 7 to 9% on your money with the only risk being inflation!

The only thing social security does is force savings. Force the savings but I’ll manage my own money.

Vince on December 2, 2008 at 10:18 AM

No, thats not what its about now, but it could be in there future. I’m sure I’m not the only 20 yr old whipper snapper who would like to choose where there money went. It doesn’t just have to be in the market, you can buy into CD’s or gold. I don’t get why so many people are against the thought of managing their own money…

Could it just be laziness?

HMMMmmmm…

lgodfrey88 on December 2, 2008 at 10:11 AM

The point is not for people to speculate, or do what they want, etc. For that, you can invest in an IRA, a 401k, a roth IRA, etc. Everyone should do that as well.

Social security is meant to be a safe and steady way of managing the same safety net for everyone. We know you are against that, but it’s better to say that you are against the fundamental concept rather than attacking the plan is an subversive manner.

No, I just buy them the day they’re needed, no matter the cost; and I put them on my AmEx, knowing I’ll never hit my credit limit and will always be able to continue doing as I’ve always done. Somehow.
RegularJoe on December 2, 2008 at 10:12 AM

It’s funny but there are a lot of outlook calculations for Social Security. If you think about it, it’s a program where you can see things coming years in advance. I am not suggesting that it needs to stay the same. Some reform might be in order. But not the kind that will destroy the fundamental purpose.

mycowardice on December 2, 2008 at 10:19 AM

Declaring “buy and hold” dead is one of the big wrongs with investors and Wall Street if you ask me. Many of these companies are perfectly solvent and will be fine but “OhmyGod” they dropped 3 cents–sell!

jeanie on December 2, 2008 at 10:16 AM

It’s when they drop 80% and erase the gains of several decades that investors realize that knowing when to sell is more important than knowing when to buy.

dedalus on December 2, 2008 at 10:19 AM

When it comes to “dying off”, I think the elderly beat the death rates of druggies and alcoholics who should not be getting this money anyway. SSI gives enabling a new face.

jeanie on December 2, 2008 at 10:21 AM

I think knowing when to sell was always just as important as knowing when to buy in my opinion. But knowing when to hold seems to have fallen into dis-favor for reasons I fail to understand. Wall Street has fallen on a patch of often unreasonable and panicky selling which is benefitting no one in the long run.

jeanie on December 2, 2008 at 10:27 AM

Social Security was just FDR buying our grandparents’ votes with our money… And it worked.

zmdavid on December 2, 2008 at 10:29 AM

There is an investment product that solves the buy/hold dilemma. It’s called an Indexed Annuity. Suitable for long term savings but also for older individuals with a very short time horizon if you have a guaranteed income rider on it.

Vince on December 2, 2008 at 10:35 AM

Social Security is nothing more than a ponzi scheme. The original “investors” put in a little and got a lot, and it has been that way ever since, with current taxpayers paying off the previous generation. If any private insurance company tried this operation, the FBI and DOJ would be on them in a New York minute.

rbj on December 2, 2008 at 10:37 AM

I think liberal “solutions” to the Social Security problem will destroy the wider economy. I don’t know what they will do yet, but I can imagine (ending 401k plans, printing money, raising payroll taxes, etc). They will never give up on entitlements.

zmdavid on December 2, 2008 at 10:43 AM

I think knowing when to sell was always just as important as knowing when to buy in my opinion. But knowing when to hold seems to have fallen into dis-favor for reasons I fail to understand. Wall Street has fallen on a patch of often unreasonable and panicky selling which is benefitting no one in the long run.

jeanie on December 2, 2008 at 10:27 AM

You are right that there are a lot of forced liquidations and margin calls. I’d be an aggregate holder of stocks or adding to positions right now–provided your time horizon is at least 2012. In the short term, selling a 20% gain is a good idea since this market usually gives you a chance to buy a stock back cheaper every few days.

dedalus on December 2, 2008 at 10:49 AM

Just to give some perspective.

I’m 25. Me, my wife, my brother, every single intelligent person I know who’s around my age, is fully aware that we’ll never see a dime.
I’ve paid into it since I was 16 and by time it’s my turn I’ll get nothing and I have no illusions about that.

So I guess what I’m trying to say to the baby boomers is…you’re welcome.

Tesson on December 2, 2008 at 10:49 AM

Ed, the Social Security Trust Fund is an obligation that will be honored, unless you think Ronald Reagan’s word on that is meaningless, so the real problem is how to deal with the deeper federal budget debt left to us by the outgoing Bush administration. Obama may not sunset the post-2001 Bush tax cuts by 2010, but eventually they’ll have to go and the top rate will rise back up to, wait for it, the level it was during the Clinton administration. Which wasn’t such a tough time for the top 1% as I recall.

starfleet_dude on December 2, 2008 at 10:51 AM

The government is just a larger version of the Big 3.

BTW, does the government ever have a bad year?

joepub on December 2, 2008 at 10:57 AM

but eventually they’ll have to go and the top rate will rise back up to
starfleet_dude on December 2, 2008 at 10:51 AM

I think taxes are already above the point on the Laffer curve where increasing the rates will bring in more revenue. Increasing the rates now will harm the economy such that tax revenues will go down.

zmdavid on December 2, 2008 at 11:01 AM

All we need to do is start rationing services in Medicare and the number of retirees claiming SS benefits will drop off precipitously. Problem solved!

Kafir on December 2, 2008 at 11:03 AM

People saw the steep drop in stock prices over the last few weeks and figured that retirees would be eating cat food by Christmas.

Ed, cat food is no cheaper than a can of beans. In fact, the fancy feast my cat’s get is, ounce per ounce, about ten times the cost of baked beans.

Once the economy improves, and good times are here again, I’ll move up to cat food myself. But right now, I got to pinch pennies.

But a man has to have goals. Oh, yea, turkey giblets in gravy.

keep the change on December 2, 2008 at 11:11 AM

zmdavid, Laffer’s curve is only solid at the extreme ends. It’s bogus economics otherwise.

starfleet_dude on December 2, 2008 at 11:16 AM

“derailing George Bush’s reform and privatization plans for Social Security saved retirees from disaster.”

That assumes that people close to retirement were fully invested in the stock market or risky sub-prime derivatives. I am sorry but even government can’t “save” anyone that stupid.

Anyone within 5 years of retiring should have been 100% out of stocks anyway.

crosspatch on December 2, 2008 at 11:20 AM

this, and how are federal and state governments going to handle their massive pension obligations in the future?

vinman on December 2, 2008 at 10:00 AM

This is why we must “legalize the status” of the 20+ million foreign invaders on American soil… so they can pay into the system and support our retirees… [/sarc]

Paul the American on December 2, 2008 at 11:23 AM

zmdavid, Laffer’s curve is only solid at the extreme ends. It’s bogus economics otherwise.

starfleet_dude on December 2, 2008 at 11:16 AM

It works better with capital gains taxes than income taxes.

zmdavid on December 2, 2008 at 11:25 AM

It is amazing, sad, and 100% negligent that our government has set up this ponzi scheme. If they don’t address it, they aren’t doing their jobs. They don’t want to address it because (even though it is the right thing to do) it might cost them votes.

And ultimitely, this is the problem with our democracy. We can’t do what is right because if we do, that person that does the right thing for the country won’t be elected to continue doing the right thing. So what we have in DC is a group of people who are dedicated to doing nothing more than spending more money that they don’t have. They just kick the can down the road to our children’s children and hope that nobody notices.

I notice. So goes California goes the rest of the country. If Cali is going bankrupt, I expect the federal government to go bankrupt soon. Cali is bankrupt in no small part because of illegal aliens. . . yet the congress wants to add to the problem by allowing illegal aliens to continue breaking the law and straining local government budgets. They are afraid to do the right thing because it might cost them votes and make them look ‘racist’ against hispanics.

I fear for our republic fellow readers. It’s not good and it’s not getting better. The people who could make a difference don’t care.

ThackerAgency on December 2, 2008 at 11:26 AM

I’ve paid into it since I was 16 and by time it’s my turn I’ll get nothing and I have no illusions about that.

So I guess what I’m trying to say to the baby boomers is…you’re welcome.

Tesson on December 2, 2008 at 10:49 AM

Same here. Every time I get one of the SS statements showing how much I will get when I retire, I snort and think, yeah right. I do the same thing when I see look at my paycheck and think how much money my employer and I have flushed. On the plus side, I get to give my baby-boomer parents plenty of ribbing.

Any relatively young worker would be foolish to count on SS for their retirement. I don’t and none of the young folks I work with have it as a consideration in their retirement nest eggs. I wouldn’t be surprised to still have to pay SS tax after I retire.

batter on December 2, 2008 at 11:28 AM

All we need to do is start rationing services in Medicare and the number of retirees claiming SS benefits will drop off precipitously. Problem solved!

Kafir on December 2, 2008 at 11:03 AM

I’m assuming you meant that as a joke, but some people have advocated killing old people to “save” on resources.

People now are just “resource” to be handled like any other resource. How many companies now have a Human Resource dept. rather than a “Personnel” dept?

davidk on December 2, 2008 at 11:31 AM

Tesson on December 2, 2008 at 10:49 AM

batter on December 2, 2008 at 11:28 AM

I’m 58 and I’m not counting on SS. I do wish that we could do something else to insure you young folk a financially secure old age. I would give up my SS if they would just say, “we’re going to ditch SS and do something else” so you guys would be better off.

davidk on December 2, 2008 at 11:35 AM

I would give up my SS if they would just say, “we’re going to ditch SS and do something else”

davidk on December 2, 2008 at 11:35 AM

I would do the same. Just take the SS money from me for X years (I count it as lost anyway) and sunset the ponzi scheme once and for all.

batter on December 2, 2008 at 11:40 AM

zmdavid, Laffer’s curve is only solid at the extreme ends. It’s bogus economics otherwise.

starfleet_dude on December 2, 2008 at 11:16 AM

It can only be accurately plotted at the two ends; but it is both intuitively obvious and demonstrable, both in theory and in experimental game-playing, that the curve and the underlying theory are correct. The problem is only in knowing whether you are on the ascending or descending arcs of the curve (or at the maximum, which is especially unlikely). Based upon the increase in revenues following the Bush tax-cuts, we clearly WERE on the descending arc. It’s possible that we’ve passed the maximum, but we clearly should not return to the pre-Bush tax rates, if we increase them at all. I would favor 1% tax adjustments annually in the direction opposite the previous year’s revenues. Revenues go up, tax rate goes down; revenues go down, tax rates go up. Within a few years, we’d know the absolute maximum tax revenue that can be squeezed from our particular populace (yes, that sounds disgusting to me, too; but until we pay off our debts, I think that’s the responsible thing to do).

Then we’d have to adjust spending to something below that number in order to last for the long term.

RegularJoe on December 2, 2008 at 11:41 AM

People who speak of their SS taxes as “my money” misunderstand the deal that Social Security offers. The deal is not “set aside a little all your life, we’ll manage it for you and then when you grow old we’ll give it back to you with interest.” The deal is this: “your grandpa paid for your great-grandpa’s retirement, your dad paid for your grandpa’s retirement, you pay for your dad’s retirement and we’ll make sure your son will pay for yours.” So there is no money that you get to manage throughout your working life. Instead there is a promise that when your time comes, others will pony up the cash for your SS check.

Now you can ask for a new deal, one in which you forgo your son paying for your retirement in exchange for you not having to pay for your dad’s. In a deal like that you could take the money that you are now not contributing to the Social Security fund, and invest it in some other type of retirement savings (mutual fund, stocks, gold, whatever floats your boat). This is a good deal for you and a good deal for your son, but a very raw deal for your dad, who paid for your granddad’s retirement all his life, but now does not get his promised social security check.

factoid on December 2, 2008 at 11:55 AM

batter, I was younger back in 1982 too and heard much the same talk about Social Security not being there for me. 26 years later I still hear it, but it’s still around nevertheless. So don’t put too much stock in such talk.

starfleet_dude on December 2, 2008 at 11:56 AM

Liberals will never let us choose where to invest SS.

tx2654 on December 2, 2008 at 12:03 PM

Buy High
Sell Low

Kini on December 2, 2008 at 12:22 PM

Do you buy your safety nets from the clearance store when they are on sale?

mycowardice on December 2, 2008 at 10:01 AM

That would be the smart thing to do.

MarkTheGreat on December 2, 2008 at 12:26 PM

Now you can ask for a new deal, one in which you forgo your son paying for your retirement in exchange for you not having to pay for your dad’s.

factoid on December 2, 2008 at 11:55 AM

No one has ever proposed such a thing. The idea has been to phase out SS and replace it with accounts that we DO own. That means that over the course of a couple of generations we’ll be paying for both our parents’ retirement and our own; but with declining birthrates, the alternative is for the number of recipients eventually to overwhelm the number of contributors.

When workers can no longer pay the SS tax and feed their own families, they will revolt and the old folks (my peers? my children?) will be allowed to starve.

Haven’t we learned ANYTHING from the current crisis about waiting until it’s too late before making course corrections?

RegularJoe on December 2, 2008 at 12:28 PM

The much-derided Trustees’ projections for cash flow deficits (2017) and insolvency (2041) are not going to prove to be wildly pessimistic.

Given that the OASDI trust fund contains non-negotiable government bonds, ie, IOUs payable from general revenues when due, I would say that insolvency will occur when benefit payments become bigger than the mandatory premiums. As soon as this happens, the government will need to start cashing in these IOUs by taking monies from general revenues or trying to convert them into regular debt.

I liken this system to a person saving for retirement by writing a check to himself each month and putting it in a draw. The amount of these checks might look impressive but being able to cash them will depend on whether or not he has sufficient funds in his checking account when he retires.

Laurence on December 2, 2008 at 12:30 PM

This drop in the market is only a problem for those facing retirement if the market stays down for years. (A significant possibility given the policies espoused by Barack.)

The smart way to handle your retirement money is to keep most of it in the market, and only withdraw what you will need to cover expenses for the next couple of years. Keep that money in something liquid like a CD.

When the market is high, everytime you withdraw some living expenses from the CD pot, replace it with money from the your stock market pot.

When the market is low. Just live on the CD pot without tapping into the stock market pot. When the market goes high again, replenish the CD pot from the market pot.

You only loose money in the market when you sell.

MarkTheGreat on December 2, 2008 at 12:30 PM

Social Security was just FDR buying our grandparents’ votes with our money… And it worked.

zmdavid on December 2, 2008 at 10:29 AM

…and then they bought our parents’ votes by showing how “caring” the government was by expanding the coverage to pay for their drunken brother who had broken his back while out carousing and his childrens’ college.

Nathan_OH on December 2, 2008 at 12:33 PM

Social security is meant to be a safe and steady way of managing the same safety net for everyone.
mycowardice on December 2, 2008 at 10:19 AM

Are you honestly claiming that political promises are a safer bet then the stock market?

MarkTheGreat on December 2, 2008 at 12:34 PM

I’d be an aggregate holder of stocks or adding to positions right now–provided your time horizon is at least 2012.
dedalus on December 2, 2008 at 10:49 AM

The only people this wouldn’t be true for, are those who are planning on dying in the next 3 years.

MarkTheGreat on December 2, 2008 at 12:37 PM

starfleet_dude on December 2, 2008 at 11:56 AM

Sounds like you will be one of the beneficiaries from SS. Congratulations. How ’bout the rest of us are allowed to manage our own retirement rather than having government divert thousands of dollars to itself? If it’s so great, let’s make it optional.

All I’m saying is the ‘program’ has had persistent problems and counting on something that is always close to bankruptcy (and constantly having to be saved) seems like a poor retirement strategy.

batter on December 2, 2008 at 12:37 PM

zmdavid, Laffer’s curve is only solid at the extreme ends. It’s bogus economics otherwise.

starfleet_dude on December 2, 2008 at 11:16 AM

That must explain why every tax change over the last 50 years has followed the predictions of the laffer curve.

The peak of the laffer curve is in the 15 to 20% range.

MarkTheGreat on December 2, 2008 at 12:39 PM

Anyone within 5 years of retiring should have been 100% out of stocks anyway.

crosspatch on December 2, 2008 at 11:20 AM

That’s only true if you planned on withdrawing 100% of your money from the market on the day you retired.

Unless you planned on dying the day after you retired, that would be a pretty stupid thing to do.

MarkTheGreat on December 2, 2008 at 12:42 PM

RegularJoe on December 2, 2008 at 11:41 AM

It’s quite possible that the laffer point could change over time. Changes in technology changes the break even point for businesses, which change their profit profile, which changes how they react to tax changes.

In addition changes in other tax laws and regulations will affect the laffer point as well.

MarkTheGreat on December 2, 2008 at 12:47 PM

This is a good deal for you and a good deal for your son, but a very raw deal for your dad, who paid for your granddad’s retirement all his life, but now does not get his promised social security check.

factoid on December 2, 2008 at 11:55 AM

It’s illegal to make a contract which binds parties not involved in the contract. Unless you are a politician.

MarkTheGreat on December 2, 2008 at 12:48 PM

batter, I was younger back in 1982 too and heard much the same talk about Social Security not being there for me. 26 years later I still hear it, but it’s still around nevertheless. So don’t put too much stock in such talk.

starfleet_dude on December 2, 2008 at 11:56 AM

The problem is that in 1982, nobody was predicting that SS would fail in 26 years. Back then they were talking 40 to 50 years. So the fact that it hasn’t failed yet, does not prove that people in 1982, did not know what they were talking about. Just that you don’t.

MarkTheGreat on December 2, 2008 at 12:50 PM

Mark, the point is that people *were* predicting it until Congress and President Reagan came up with a plan to keep Social Security sound that was enacted in 1983. And the situation back then was much worse than what’s facing Social Security now.

The real problem is how the Social Security Trust Fund has been abused to help paper over a huge increase in the federal deficit that was created by Bush’s unwise tax cuts in 2001. They do need to sunset eventually as the Social Security surplus is declining and the Trust Fund will eventually be drawn upon by 2020.

starfleet_dude on December 2, 2008 at 12:59 PM

It’s quite possible that the laffer point could change over time.

MarkTheGreat on December 2, 2008 at 12:47 PM

Agreed!! General attitudes toward government, cost of living after taxes — all sorts of things could change the tax rate at which we’d get maximum revenues. That’s why we shouldn’t just find “the spot” and leave it there; allowing continued fluctuation would allow us to “follow” the point with policy.

I did realize after I posted earlier that my idea of 1% moves opposite the revenue trend every year won’t work. A better plan would be to move 1% per year in the same direction until revenues decrease, then change direction. That would mean a slightly wider oscillation (2% instead of 1%) but would prevent us from oscillating when we’re far from the maximum.

RegularJoe on December 2, 2008 at 1:00 PM

The real problem is how the Social Security Trust Fund has been abused to help paper over a huge increase in the federal deficit that was created by Bush’s unwise tax cuts in 2001.

starfleet_dude on December 2, 2008 at 12:59 PM

Oh my word! What flavor IS that Koolade??

The Social Security “Trust Fund” was already a box of IOUs long before Bush. If you remember 1982, you MUST remember Perot talking about that in 1992, and Gore running on a promise to put the SSTF in a “lock box” in 2000. All that was before 43 ever came to power. He was the first person since Reagan & O’Neill to even try to address the time bomb, and got tarred and feathered for even proposing discussions. To borrow from Clinton, “He tried. Others didn’t try; he tried”.

I’ve got my own problems with ‘W’, and am no stalwart apologist for him; but to blame this mess on him is just bizarre.

RegularJoe on December 2, 2008 at 1:07 PM

RegJoe, Treasury bills are IOU’s too but no one talks about whether they’ll be repaid or not, which is the reason why so many are buying them lately on Wall Street. The Social Security Trust Fund is a promise that will be kept, like it or not.

starfleet_dude on December 2, 2008 at 1:20 PM

Imagine the blood in the streets when massive Social Security shortfalls A) crater the economy and bankrupt the country; and/or B) require massive increases in taxes to keep SS “solvent”.

Not metaphorical “blood in the streets” (i.e. angry voters), literal blood in the streets. People won’t stand for this.

Pope Linus on December 2, 2008 at 1:34 PM

Are you honestly claiming that political promises are a safer bet then the stock market?

MarkTheGreat on December 2, 2008 at 12:34 PM

I’m arguing that some program like this one should not be left to the luck of the market.

mycowardice on December 2, 2008 at 1:37 PM

Social Security (and Medicare / Medicaid / SSI) are Ponzi schemes that are destined to fail. However, the better deal that Congress and other federal employees get is an improvement over SS. Their money has to be invested in T-bills or other federally guaranteed bonds–not much chance of loss there except by runaway inflation. This would be a good improvement over the current SS policies.
***
The government employees will get 2 or 3 times more money when they retire than I do now–their rate of return is higher. I recently retired and am finally collecting SS. The liberals like SS because it gives them more money for government to spend (aka WASTE) with no accountability.
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If you support SS ask yourself the following questions to figure out if you are getting a good deal. And remember that our “leaders” set up SS for us and then set up a better plan for themselves.
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(1) Would you like to retire on $1300. a month (SS) or $4000. a month (govt.)? (Depends on economy / interest rates.)
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(2) If you die would you like the government to keep the money they took from you (SS IOU) (2) or would you like the money to be yours to leave to your family or dog? (govt.)?
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(3) Would you like your benefits to be reduced to pay for 15 million recently amnestied ILLEGAL ALIENS benefits (SS) or would you like the payout to be limited to U.S. Citizens only (govt.)?
***
You don’t have to be a “rocket scientist” (like I was) to figure this out.
***
John Bibb

rocketman on December 2, 2008 at 1:38 PM

If the government would let me out of the SS system now, I would let them keep the money I have been paying them for the last 30 years.

txsurveyor on December 2, 2008 at 9:59 AM

Become self employed & then don’t pay into an account.
My spouse is self employed in agriculture & has never payed into SS. He does moonlight at odd jobs & then he does.
He & I aren’t kidding ourselves when it comes to SS. At 39 I know I will see retirement age balloon to the 70s. I probably won’t live long enough to get my share.
So I am not going to depend upon it at all.

Badger40 on December 2, 2008 at 1:44 PM

The Social Security Trust Fund is a promise that will be kept, like it or not.

starfleet_dude on December 2, 2008 at 1:20 PM

Like it or not?!? At what point did I ever suggest I didn’t want it to be kept? On the contrary, I’m trying to be sure that we DO keep that promise!! My concern is that we need to change course so that we don’t reach a point where we are no longer ABLE to keep that promise.

We haven’t reached that point yet; but if you seriously doubt that we are headed for a point where the workers can no longer sustain the retirees, then we have no basis for further discussion. And you, though it saddens me (really) to say it, are delusional.
_______________________________

By the way — in reference to your earlier comment about the “unwise Bush tax cuts”: I was so taken aback at the bizarreness of your comment that I didn’t respond as well as I should have. I’ll place a healthy share of the blame for deficits on Bush, alright; but the problem wasn’t the tax cuts. Revenues weren’t the problem — they went up, as they always seem to do when taxes are cut (funny, that). It’s just that expenditures went up even faster. Bush’s sin wasn’t cutting taxes; it was losing his veto pen for over four years.

RegularJoe on December 2, 2008 at 1:46 PM

Let’s face it, we are heading towards becoming a society where lower/middle and possibly upper middle class extended families will have to live under the same roof.

We should probably consider these current times the golden years of US prosperity.

If you are rich you are excluded from the above scenario.

FireBlogger on December 2, 2008 at 1:49 PM

RegularJoe, the issue then isn’t to find more revenue via increasing Social Security taxes and/or benefit cuts, but to fix the ongoing structural federal deficit. That structural deficit wasn’t caused by spending increases, but by tax cuts enacted without corresponding spending cuts in 2001. Now you could go on to say that we can make spending cuts, which is fine, but it’s crystal clear that the federal deficit was increased thanks to Bush’s tax cuts. Which is why they should sunset after 2010 so we can then fairly address both the spending and revenue side of the deficit problem.

starfleet_dude on December 2, 2008 at 1:56 PM

I have two slightly contradictory thoughts about privatizing Social Security, but the real world is complex. Social Security should be privatized so that people can’t get away with the delusion that how the economy does has nothing to do with them. Government handouts and even Social Security enable them to do that. On the other hand, there are many, many incredibly stupid people out there. We can’t go all Libertarian when we privatize Social Security. People must be require to keep at least 80% of their Social Security in index funds. Otherwise, no matter what the Libertarians may fantasize, we’ll be stuck rescuing stupid people who gamble their money for retirement.

thuja on December 2, 2008 at 2:03 PM

That structural deficit wasn’t caused by spending increases, but by tax cuts enacted without corresponding spending cuts in 2001. Now you could go on to say that we can make spending cuts, which is fine, but it’s crystal clear that the federal deficit was increased thanks to Bush’s tax cuts. Which is why they should sunset after 2010 so we can then fairly address both the spending and revenue side of the deficit problem.

starfleet_dude on December 2, 2008 at 1:56 PM

No such thing is “crystal clear”. There are two factors that determine deficit or surplus: revenues and expenditures. The revenues have gone up. So that’s not the problem. In fact, if you return to the previous tax RATES you will likely return to the previous (lower) tax REVENUES.

The problem is all in expenditures. The unpleasant truth is that a lot of our spending is going to have to get cut. Will someone get hurt? Yep. The alternative is to postpone it and see a lot more people get hurt a lot worse.

Gotta go to work to make some more money for Uncle Sugar (I’m not John Galt…yet). I’ll give you the last word.

RegularJoe on December 2, 2008 at 2:12 PM

In fact, if you return to the previous tax RATES you will likely return to the previous (lower) tax REVENUES.

The Laffer curve, as I said before, is bogus economics that didn’t pan out back when President Reagan took John Stockman’s advice. There are plenty of other factors that also affect revenues other than marginal tax rates, and the claim that you can somehow fine tune it within a few percent is just plain silly. I’m all for having a fair and open debate on spending and revenue, but such having-your-cake-and-eating-it-too-ism has no place in it.

starfleet_dude on December 2, 2008 at 2:22 PM

Otherwise, no matter what the Libertarians may fantasize, we’ll be stuck rescuing stupid people who gamble their money for retirement.

thuja on December 2, 2008 at 2:03 PM

That’s the rub. When are we going to make people take responsibility for their own lives? I would love to get paid for not working.

davidk on December 2, 2008 at 2:42 PM

Can someone tell me again why Liberals want the Government in charge of everything again? They literally destroy everything they touch, energy, education, social security, transportation, the Auto industry, Banking, the Airlines…

BiasedGirl on December 2, 2008 at 2:44 PM

I never wanted to retire anyway……..I suppose.

ThePrez on December 2, 2008 at 3:04 PM

Social security contributions should be unleashed to save this economy from the “mortgage meltdown.” It’s stupid to be forced to save thousands of dollars each year when the mortgage ballance costs 6% or so each year it remains unpaid. Getting out from under a mortgage is the best retirement strategy.

Money already contributed to SS should be used to pay down/off mortgages, refinance mortgages and as downpayments. Future SS and 401K contributions and matches should be available to apply to the mortgage.

That way, the financial sector gets the infusion of capital it needs and the performing loans will see accelerated payoffs whose cash flow will dilute the underperforming loans, allowing for some cram down of bad debt.

Mortgages would go from 30 years to 10 or less. The homeowners will save hundreds of thousands of dollars in interest over the life of the loan. That would be a huge boost to the overall economy at the expense of the financial sector, which would have to contract. and existing 401k’s would not be touched.

This all assumes loans no more than 3.5 times income, or else it will inflate another bubble.

With alot of people, especially young people at the age of buying their first home, believeing SS won’t be there for them, this will seem like free money. Of course, to keep SS going, contributions would have to resume after the home is paid for, and perhaps at an accelerated rate. That may mean adding half the interest savings to the 7.5%+7.5%, but the average home buyer wouild still come out way ahead.

As long as the gov’t is going into debt to get capital to the financial market, it might as well do it through our hands by separating part of the SS “trust fund” from the rest of the ballance sheet. It’s a purely free-market solution as far as I can tell.

shuzilla on December 2, 2008 at 3:39 PM

^ Plus, the value of mortgage backed securities will largely recover as much fewer loans than anticipated default due to SS contributions being diverted to pay the mortgage instead. That’s pretty much the ultimate backstop to bank failures and busted pensions.

There was a time we lived without SS and that time will come again. meantime, I can’t understand why Americans aren’t allowed to tap their own “forced savings” to save their individual and collective hides.

shuzilla on December 2, 2008 at 4:27 PM

Obama may not sunset the post-2001 Bush tax cuts by 2010, but eventually they’ll have to go and the top rate will rise back up to, wait for it, the level it was during the Clinton administration. Which wasn’t such a tough time for the top 1% as I recall.

Yeah, they did enjoy a different bubble – for a while.

rhodeymark on December 2, 2008 at 4:45 PM

Dear Ed,

Don’t worry. Be happy! Our government is at work. Frank and Dodd have figured out the solution. Since Medicare implodes about the same time, the elderly will receive no care and no meds. And most of them will die — thus saving social security.

PS: HORRENDOUS POLICY DECISION: Frank-‘n’-Dodd.

Dr. Charles G. Waugh on December 3, 2008 at 1:14 AM