Social Security Reform Debate -- Excellent Article

[zerosum]

If you're following the Social Security debate, you may find this article in Sunday's New York Times Magazine worthy of your time. It's the best single piece I've read on the subject.

The author mixes statistical and historical information with elegant description and context, and he touches on a number of points that are commonly either ignored or distorted.

A Question of Numbers
By Roger Lowenstein

http://tinyurl.com/5uo8m

[natedogg]

I read this article with an open mind, I really did. I didn't know Lowenstein but I gave him the benefit of the doubt.

Yet it became apparent early on that he was staunchly biased in favor of SS status quo and was not beneath using the same name-calling and obfuscation that he blames on the opposition.

Throughout the piece the SS reformers are "ideologues", "crusaders", and "at war". They use "metaphors intended to frighten" and their real motive is that they "just want to change people's behavior". This last one is howlingly funny coming from someone who (we'll see later) reveals a penchant for totalitarian statism. Gee, are there any leftist policies that try to "change people's behaviour"? To quote the Great and Powerful Oz: "Ignore that man behind the curtain!".

Nevertheless, being biased doesn't mean you're wrong, so I read the whole thing and he's not entirely wrong. Despite his realistic assertion that SS is not a full-blown crisis even if it needs tinkering, he resorts to deceptions in support of his position:

Deception #1

"But by 2018, as baby boomers retire en masse, the system will go into deficit. At that point, in order to pay benefits, it will begin to draw on the assets in the trust fund."

All the SS apologists blithely refer to the "assets in the trust fund" without clarifying that there are no assets in the so-called "trust fund". The Trust Fund is a big IOU from the general fund: i.e. your future income taxes. One way or another, we'll have to make up that difference between the payroll tax and the SS outlays because IT'S NOT THERE. They like to dismiss the problem and say that it's just accounting voodoo but that's not right either. The debt must be paid from the general fund, period. And the general fund is made up of your income taxes. Do the math.

Now, I for one would love to believe that Congress will trim spending to make up for the money it will have to spend on the SS shortfall, but I'm not counting on it. The bill comes due in 2018 if not earlier and if you believe Congress will responsibly cut spending instead of raising income taxes and/or borrowing, I have an armored Humvee in Iraq to sell you.

So the "trust fund" is truly nothing more than your future higher income tax, yet the apologists keep referring to it as if it's just sitting there waiting to be spent on govt largesse.

I was annoyed by his standard misuse of these elementary facts, but I continued.

Deception #2:
"The C.B.O. assumes that the typical worker would invest half of his allocation in stocks and the rest in bonds. The C.B.O. projects the average return, after inflation and expenses, at 4.9 percent. This compares with the 6 percent rate (about 3.5 percent after inflation) that the trust fund is earning now."

Wow. First, he inexplicably compares the after-inflation return on stocks to the pre-inflation returns for the trust fund (although he notes the post inflation value in parens as if it were less relevant). He also inexplicably includes the expenses on investment vehicles and ignores the cost of the SS program as if govt is free. Is he getting PAID to peddle this nonsense?

This confusing comparison is bad enough, but comparing trust fund returns to stock returns is totally misleading in the first place, since trust fund returns do NOT equate to what individuals get from it. One must look at the actual money paid from SS to an individual for a meaningful comparison to the potential stock returns for that individual. The numbers for a return on SS contributions are well-established, which is probably why Lowenstein grasped for something different. You get a 2% return by the time your money comes back to you in the form of SS benefits. Why does he dishonestly use the trust fund return values for comparison? Maybe, just maybe, he's an ideologue with an agenda, the very evil he keeps intimating about SS reformers .....

There are more deceptions, but I'll leave that as a fun excercise for the reader.

Look, it's ok to have an ideology. It's not ok to pretend you don't have one while condemning your opponents as mere "ideologues" and using half-truths to back up your own ideology. That's hypocritical and deceptive.

I admit my opposition to SS status quo is motivated by ideology more than numbers. The same goes for Lowenstein, he just won't admit it.

So what is the ideology he won't admit to? He makes it pretty clear if you read between the lines. His gushing adoration for all things govt-run is revealed by this sentence where he addresses the compelling reformist argument that stock investments are probably a better return for retirement savings than social security:

"In any case, Social Security could capture the return on stocks, without putting individuals at risk, by investing in equities directly. ... That option would be far more efficient, in economic terms, than separating the money into 150 million disparate accounts. Costs are much lower for one big investor."

I couldn't make up something this good if I was trying to caricature a nanny-state leftist.

To mollify those who'd like to invest in stocks, he ACTUALLY proposes that Social Security invest your money in stocks for you, obviating the need for your own plan. Apparently, it's important to have govt in control for the sake of it, even to the point of allowing govt to do what he has already argued is a bad idea: investing in stocks at the expense of SS. And he actually has the gall to claim it would be more efficient!

All his arguments against stock investment and in favor of traditional SS go out the window as he grasps at anything to defend the role of govt for the sake of govt. Is he getting PAID to peddle this nonsense? He continues:

"And more important, in a system of individual accounts, benefits will vary with individual choices, and some people will make poor ones. "

Oh my god, you mean individuals who make different decisions will get different results? We can't have that. Let's have the govt control our decisions, because of course the govt NEVER makes bad decisions. And that way we can ALL suffer the bad results.

It's as if he's morally opposed to allowing people the freedom to live with the consequences of their own actions. The unbridled elitist paternalism required to argue against individual choice on the basis that some individuals will choose poorly is significant and should be noted.

Let me repeat: He presents the general argument that some individuals might make poor choices, therefore no one should be allowed to make choices.

I can only imagine the level of state control he also advocates in other arenas. In Lowenstein's world, will I be allowed to eat a Big Mac or drink a beer? Will I be allowed to even choose my own reading material? Maybe the govt should step in and tell me what to eat and read, too. After all, some people might foolishly choose to read economic analyses NOT endorsed by Democratic-party hacks! We can't have that can we?

He can dress it up however he likes but his baseline argument is NOT about the numbers, it is ideology, the very vice he accuses the reformers of having. When he states that "in a system of individual accounts, benefits will vary with individual choices" as if that is an appalling outcome, he reveals that a scenario where some people may be financially better off than others - due SOLELY to their own actions - violates his notions of right and wrong. It's not the mere question of people living in abject poverty anymore, it's the fact that some might actually retire with more money than others. In Lowenstein's world, this is an evil that should not be allowed. In my world, it's called communism.

The paternalism, the overt communism, the love affair with statist micromanagement of people's lives, the quixotic belief that govt won't make mistakes with your money (never mind thatthey already have!), and the firm conviction that the masses are too stupid to do anything right reveals an ideology of his own. I have to agree with him, this issue is more about ideology than numbers and his ideology stinks.

natedogg

PS: Don't be fooled by the false dichotomy presented by the SS apologists. They'd have you believe that either we must have SS or the elderly will starve. I have no problem with a bona fide safety net. In fact, we already have it. It's called welfare. The drag on the economy and on individual incomes from SS is not worth the results, the results being that we barely maintain seniors with a lifestyle just above poverty after we have sucked away 12.4% of their lifetime earnings. But at least the lowest income seniors can now pretend they're not on welfare.

I have no problem giving baseline subsistence to anyone who is destitute, be they 21 or 80. We could even have a different kind of welfare for elderly and call it something else to make them feel better. Eliminating payroll tax would allow more people to avoid the fate of a destitute retirement anyway because many are put into that position by the very program designed to alleviate it. Note that 12.4% is GREATER than what you are allowed to contribute to a 401k. It's a big chunk of money that would make a huge difference.

Basically, the cost to the system is too great. The benefits are only marginally better than simply giving away free subsistence money to the truly destitute. This change would stimulate the economy and create more opportunities for people to avoid a broke retirement. Not to mention it would generate more wealth for those who are wise with their money, allowing them to support their elderly parents and family members who need it when the time comes. But it would also empty the pig trough that feeds Congress's borrowing orgy. Hmmmmmmmmm I wonder why they're opposed?

Instead of a trillion dollar program, we'd have an extremely cheap and efficient, bona fide welfare support for the very few who can't feed themselves. I'm no monster, and I don't want to see people starve, but I don't like seeing generations of govt-dependent suckers created by witholding enough of their income that they can't save on their own and become independent. Of course, we know who DOES like that scenario don't we? The politicians who need votes. If something doesn't change soon, I'll be one of those poor bastards lining up to vote for whichever hack has promised me the biggest payout on the benefits I had no choice about needing, and he'll be borrowing from my grandkids' future incomes to pay for it. Nice system.

[adios]

natedogg,

You have far more patience with in responding to this stuff than I do. Excellent comments on that article and I for one appreciate your efforts. Social Security is a pay as you go system as you point out and as you also point out a safety net can co-exist with privitized accounts.

[bholdr]

Great post Natedogg.

i liked many of your points.
esp:""In any case, Social Security could capture the return on stocks, without putting individuals at risk, by investing in equities directly. ... That option would be far more efficient, in economic terms, than separating the money into 150 million disparate accounts. Costs are much lower for one big investor."

I couldn't make up something this good if I was trying to caricature a nanny-state leftist."

this particular prosal is more than just 'big government'- it ammounts to nationalization of some privatly held companies. Investing that much money in the stock market would give the managers of that money a scary degree of control over the economy. We already have the federal reserve bank for that.


what do you think about raising the retirment age? i've thrown out some numbers in some other threads, but haven't recieved a response. raise the benifits age to 73 over the next fifty years. poof! problem solved. how hard was that?
'course the AARP and the AFLCIO don't like the idea...


65 is no longer OLD in america. 65 year olds do not deserve government pensions. if you want to retire at 65, earn it. otherwise, work until you can't be fairly expected to do so anymore (i think 73 is fair)

[andyfox]

"what do you think about raising the retirment age?"

The adjustments made in 1983 did raise the retirement age, gradually, from 65 to 67. (It is currently 65.5.) One would think that another adjustment, gradually implemented, would help with the solvency "problem."

[Phat Mack]

All the SS apologists blithely refer to the "assets in the trust fund" without clarifying that there are no assets in the so-called "trust fund". The Trust Fund is a big IOU from the general fund: i.e. your future income taxes.

Would you consider a US savings bond an asset?

[natedogg]

[ QUOTE ]
All the SS apologists blithely refer to the "assets in the trust fund" without clarifying that there are no assets in the so-called "trust fund". The Trust Fund is a big IOU from the general fund: i.e. your future income taxes.

Would you consider a US savings bond an asset?

[/ QUOTE ]

A US Savings Bond is an IOU from the general fund.

If you were to sell yourself the note to your car, you could I suppose call it an asset but really it's just a bunch of nonsense.

If the trust fund were held in FOREIGN securities, then we have an asset.

It's quite simple: You gave the govt $100 for X. They only needed $50 for that purpose so they spend it on something else and promised to get you that $50 back later. Now it comes time to pay you back the $50 and what is their source of revenue for generating it? YOU.

I'm not sure why this is so hard for people to understand.

natedogg

[Phat Mack]

It's quite simple: You gave the govt $100 for X. They only needed $50 for that purpose so they spend it on something else and promised to get you that $50 back later. Now it comes time to pay you back the $50 and what is their source of revenue for generating it? YOU.

You're say that if I don't give the gov't $50 extra dollars for X, then they won't spend the extra $50: in other words, they won't just borrow the $50 from someone else? Is the Social Security Trust Fund causing deficit spending?

I'm not sure why this is so hard for people to understand.

I am not sure, either.

[andyfox]

"Is the Social Security Trust Fund causing deficit spending?"

No, it's reducing deficit spending. The government has taken in $1,700,000,000,000 more in Social Security taxes than it has spent on benefits in the last 20 years.

[LaggyLou]

When the President admits that the goal of this exercise is to eliminate SS, as you favor, then you can speak about the "deception" of your opponents without being a hypocrite.

Until then, your cries of the "deception" of SS proponents are laughable in light of your silence at the deceptions of SS opponents.

[adios]

You miss the point totally. The point is that Social Security surplus probably encourages the government to spend more money than it otherwise would. When Social Security runs a deficit (about 10 years from now are what I've read) will the government have to cut back on spending in other areas? Methinks that this is probably true.

[andyfox]

My language was poor. Social security reduces the apparent amount of deficit spending.