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March 17, 2008

Comments

Deep thought?

More like short-term thought. What's the average number of years a US worker is employed? 18-65... 47 years?

Invest over that period vs. your snark period of 4 years for better results.

Plus, how's that alternative working out? Debt? IOUs? Nice job.

Considering that current social security funds are not invested in anything other that the federal government's ability to tax people in the future and that Social Security is the ultimate Ponzi scheme, people should not talking about what a great investment idea it is.

Current SS funds are invested in US Treasuries. I have no idea why you think this is somehow an inadequate investment vehicle. Lots of other people disagree, fortunately.

What's the average number of years a US worker is employed? 18-65... 47 years?

Well, no. The average worker is not employed over anything like 47 years. And by the way, our sample of 47-year intervals in the stock market is fairly small, so there's a certain statistical problem with your analysis in any event.

A further problem, assuming you are talking about individual investment, is that a bad few years as the worker approaches retirement can wipe out an awful lot of good years. Remember that the amount in the fund grows, so the amount of the losses can be quite large, in dollar terms, compared to earlier gains.

All the treasury bonds in which the SS is invested are nothing more than a future claim by one party of the government on the general revenue stream produced by taxes.

I cannot loan myself money, but the loan on the book as a asset, and then go spend the money. However, they is exactly how SS operates. It is one part of the federal government owing money to another part of the federal government. A private company would be in serious trouble if it tried to operate its retirement fund the same way.

As I said in the other thread, if people want to say how worthless US Treasury bonds are as an investment, I suggest you tell the banks of China, Japan, and the other countries propping up our debt that they're "just worthless pieces of paper".

Social Security is the ultimate Ponzi scheme

except for the fact that it in no way resembles a Ponzi scheme, of course. other than that: yes, Ponzi scheme.

The problem with investing ss in the markets is that markets on average grow at the rate of inflation. To my mind the potential risks of losing large amounts in bad investments outway to gain of having ss grow at inflation rate.

Hoodlumman:

I'm trying to find more comparative numbers for longer periods of time, and will return if I do.

But, could your US worker answer the following questions:

What year did they begin investing? If it was 1997, for example, the annual average returns for a few asset classes over the past 10 years (using Vanguard Index funds as a proxy):

S@P 500 Index: +3.99%
Long-Term Treasury Bonds: +7.16%
Intermediate-Term Treasury Bonds: +6.59%
Total U.S. Stock Market Index: +4.46%
Emerging Markets Index: +13.80

Or, did they retire ten years ago?

More numbers: Average Annual returns from 1980-2005:

U.S Treasury Bonds: +9.14%
S&P 500: +13.15%
Gold: -.55%

Better than before, and I agree that the longer out (back, actually) one looks, a common stock index will outperform a bond index. I'll also agree that the relative higher risk implications of common stocks evens out and lessens the longer one holds the asset.

However, the glib "How are the alternatives working out?" betrays shallower thought than you assume.

Other tidbits: The 1929 high in the stock market was not fully recouped (ex-dividends) for approximately twenty years. Where in that time period did your American worker invest his money?

Further: Despite herculean efforts to educate the American public about how to invest their 401Ks, IRAs, etc., the results are mixed. Sorry, I don't have precise figures, but many workers do not participate in their company's 401K despite matching contributions, many more leave the money in money market funds, many attempt to time the markets with poor results, some invest in individual stocks (perhaps their own company's exclusively -- a crap shoot), etc.

Details, variables.

Can we agree that a diversified portfolio accumulated via dollar-cost averaging over time is the way to go?

Good, you and I might be O.K. then. That's only two less people who require Social Security and since I don't know the exact date the bus is going to run me down, I like it the way it is.

I could be could convinced to Federally mandate (sorry, did that hurt?) that all workers place money from their paychecks in stock market index funds, over and above their Social Security contributions.

superdestroyer:

"Ponzi Scheme":

All markets are confidence games. Ponzi schemes, if you will, in which my investment purchased in the past is only worth what the very last buyer is willing to pay for it.

Also, re your 2:30 pm comment:

Government is government with the ability and authority to print money and, via the Federal Reserve, manipulate interest rates.

It's not a business and it's not a family sitting around the kitchen table deciding who's going to use the charge card this week.

It is the lender of last resort. They don't call the current flood of money piling into government securities a "flight to safety" for nuttin.

True, a private company would get in trouble if they ran their retirement plans that way. Because they aren't the government. Retirement plans of all stripes, however, invest in Treasury securities, which are a future claim, etc, to one extent or another.

Does that offend you?

Also, you can't loan yourself money. Not so directly, anywho.

Do you own a bank account or a money market fund? I don't know if you've noticed this but they run out with your money and lend it out thru various instruments to various everybodies, including the government.

If you have a mortgage or a car loan, some of that money they are lending might be yours.

I won't tell anyone.

Now, I'm going to the bank and have them show me my money. I'll see if yours is there, too.

It had better be. ;)

I'm going to drive down there in a brand new tank, just like the government does.

GEORGE: No, but you . . . you . . . you're thinking of this place all wrong. As if I had the money
back in a safe. The money's not here. Your money's in Joe's
house . . .
(to one of the men)
. . . right next to yours. And in the Kennedy house, and Mrs. Macklin's house, and a hundred others.
Why, you're lending them the money to build, and then, they're
going to pay it back to you as best they can. Now what are you going to do? Foreclose on them?

"I've got $242 in here, and $242 isn't going to break anybody."

As any textbook in finance will tell you, the reason stocks have higher average yields than bonds is because they are riskier. US treasuries is considered pretty much a risk-free investment. There is nothing wrong if people invest their own 401(k) or IRAs into riskier and more profitable investments like stocks and non-government bonds but why do it as a part of Social Security?

"markets on average grow at the rate of inflation."

???

True, a private company would get in trouble if they ran their retirement plans that way. Because they aren't the government. Retirement plans of all stripes, however, invest in Treasury securities, which are a future claim, etc, to one extent or another.

The issue is that the government can't magically escape the laws of economics just because it's the government. Treasury securities are not going to useful in paying out SS benefits unless the rest of the government has the cash on hand to redeem them. With a much smaller pool of workers from whom to draw revenue and a much larger pool of retirees to whom money is owed, that's going to cause difficulties.

Also, the primary reason Social Security is safer than market investments is because it's not an investment. It's a social welfare program. It may or may not be a worthwhile one, but to talk about it as if all the money any given worker contributes is magically earmarked to be returned to that worker with interest when s/he retires is just plain inaccurate. As long as the program continues to pay out benefits, it will be "safe". But if/when it becomes impossible to do that, the money flow dries up and it's not safe at all. Without a sufficient population of younger workers to replace retirees, that will happen eventually without changes to the program.

Lift the FICA cap. Problem solved probably forever. Yes, I know it's "soaking the rich." No, I do not care.

But if/when it becomes impossible to do that, the money flow dries up and it's not safe at all.

So it's safe so long as there keep being Democratic governments who regard it as a responsibility: not safe at all under Republican governments who want to make sure the money flow dries up and it's not possible?

Without a sufficient population of younger workers to replace retirees, that will happen eventually without changes to the program.

Six billion people in the world, I'm sure you can persuade some of them to move to the US. Conveniently, Iraq has an extremely youthful population, and there are a lot of Iraqi asylum seekers right now. Make them all US citizens, solve the SS problem!

Also, the primary reason Social Security is safer than market investments is because it's not an investment. It's a social welfare program.

Yes, that's right.

Look, Xeymon, the risk presented by the health of SS twenty, thirty, or forty years out is very small potatoes. As these things go, it's a pretty sound program.

Unless you just have some ideological objection to social safety net programs, I think you're barking up the wrong tree.

As I understand it, Medicare and Medicaid present the really scary growth areas for liabilities vs. available funds.

DoD spending is likely to continue to grow without any particular curbs.

Plus, you know, the nation as a whole has a negative savings rate.

SS is kind of an island of sanity.

Just saying.

Thanks -

Why is everyone acting as if private retirement plans are so wondrously sound? Lots of defined benefit plans are seriously underfunded. The total underfunding, before the Pension Guaranty people stopped announcing it, was over $300 billion in 2004.

That means those plans had $300 billion promised to retirees that was totally dependent on the companies' future cash flows, against which there are, by the way, higher-ranking claims, not on money set aside in, say, treasury bills to meet the promises.

And let me ask Xeynon and others a question. Suppose you work for a company that operates a pension plan. One day you read about plans going broke, etc. and it occurs to you to trot up to the HR dept and ask about the state of your firm's plan.

"No problem," says the HR director. "Our plan is fully funded for the next forty years at least, and invested in the safest possible thing - US treasury securities." You are given audited statements backing this up.

Are you reassured about your pension, or are your worries made worse?

Without a sufficient population of younger workers to replace retirees, that will happen eventually without changes to the program.

I've seen you make the same comment in other threads and it is still wrong. The SS trustees are quite good at actuarial modeling. Their projections are based on extrapolating long term trends like the baby boomer retirement, increasing industrial productivity, and changing worker support ratios (i.e., in the future, there will be fewer workers supporting each retiree).

And while all projections contain some degree of uncertainty, long term actuarial projections are surprisingly accurate. The classic example being that insurance companies can't tell you when you'll die but can tell you how many people will die in the next year with surprising accuracy. In addition, the SS trustees have been publishing their statistics in annual reports for decades. Their track record to date is simply excellent.

Despite that, you keep making these claims that imply that none of the SS trustees has ever considered the possibility that the baby boomers are all going to retire at roughly the same time. This is really bizarre; the SSA has a website with tons of data on it. May I suggest you spend some time studying the issues there?

A further problem, assuming you are talking about individual investment, is that a bad few years as the worker approaches retirement can wipe out an awful lot of good years. Remember that the amount in the fund grows, so the amount of the losses can be quite large, in dollar terms, compared to earlier gains.

Bernard,

There are ways to drastically reduce this risk. Most 401Ks offer computer managed funds that shift their risk profile over time so that as you get closer to retirement age, the asset portfolio moves to less volatile stocks and then largely into bonds. This allows you to place some bounds on how high your losses can possibly be as you approach retirement.

Nevertheless, I agree with you that SS should not be investing in the stock market.

This is really bizarre; the SSA has a website with tons of data on it.

Here you go. Live it up.

Thanks -

"long-term actuarial projections"???

George Bush's brain hurts. Them are IOUs in that there file cabinet.

He says it's spinach and to hell with it.

A 4-year old child could figure that out. Now, run out and find me a 4-year old child.

Helium closed up today.
Feathers were down.
Paper was stationary.
Diapers remained unchanged.

There are ways to drastically reduce this risk. Most 401Ks offer computer managed funds that shift their risk profile over time so that as you get closer to retirement age, the asset portfolio moves to less volatile stocks and then largely into bonds. This allows you to place some bounds on how high your losses can possibly be as you approach retirement.

True, and you hardly need a computer to do this. But it really doesn't help the problem all that much. Instead of the crash coming when you are about to retire, say it comes when you are maybe 50, and about to start reducing your equity exposure.

The main point is that it is incorrect to evaluate building a retirement portfolio on stocks the same way you would decide whether to put a fixed sum in the stock market. The risk in the former decision is greater than in the latter, because the amount you have in varies much more over time. It grows both from its returns and from your contributions. Get hit when the fund is at its peak a and it really hurts.

Six billion people in the world, I'm sure you can persuade some of them to move to the US. Conveniently, Iraq has an extremely youthful population, and there are a lot of Iraqi asylum seekers right now. Make them all US citizens, solve the SS problem!

Yes, because culturally and socioeconomically displaced Iraqis who may or may not be educated and don't speak English are going to produce just as much money as as the college-educated retirees they replace.

Look, Xeymon, the risk presented by the health of SS twenty, thirty, or forty years out is very small potatoes. As these things go, it's a pretty sound program.

It's small potatoes for you. But forty years from now is when I'm going to have to worry about retirement. If SS isn't working then (or isn't working as generously as it is now), I will have been paying into a system my entire working life that won't compensate me fairly when it's my turn.

As I understand it, Medicare and Medicaid present the really scary growth areas for liabilities vs. available funds.

Yes. Medicare in particular is in trouble, and the problem is much more severe than that with SS. But that doesn't mean there is no problem with SS, just that it's minor in comparison.

Plus, you know, the nation as a whole has a negative savings rate.

Part of that is because our tax code absolutely punishes people who try to save money rather than spending it. Wanna invest some of your money for the future? The IRS is going to collect a significant portion the returns on that investment. I understand the arguments about unearned income, capital gains mostly benefiting the rich, etc. But poor people will never become rich if they can't gain from investing their money.

And let me ask Xeynon and others a question. Suppose you work for a company that operates a pension plan. One day you read about plans going broke, etc. and it occurs to you to trot up to the HR dept and ask about the state of your firm's plan.

"No problem," says the HR director. "Our plan is fully funded for the next forty years at least, and invested in the safest possible thing - US treasury securities." You are given audited statements backing this up.

My company can continue to provide benefits from cash flow using these securities as storage cells, because my company can cash treasury bonds without it wrecking the economy. The SSA, holding a far larger debt and being part of the government, is not in the same position.

The SS trustees are quite good at actuarial modeling. Their projections are based on extrapolating long term trends like the baby boomer retirement, increasing industrial productivity, and changing worker support ratios (i.e., in the future, there will be fewer workers supporting each retiree).

The problem is, the number of variables they have to juggle has increased. One of the most important, which hasn't been included in historical calculations, is increased lifespan. It's also worth remembering that they still predict that the system will begin to run short of funds in the future. That's not an argument for totally scrapping it - but it is an argument for considering reforms.

I understand the arguments about unearned income, capital gains mostly benefiting the rich, etc. But poor people will never become rich if they can't gain from investing their money.

oh please. the government does not tax away all investment earnings. not even a majority. not even close.

The problem is, the number of variables they have to juggle has increased.

Can you give a cite to this? My understanding is that moving SS to a system that invests heavily in the stock market will generate massive revenue streams for Wall Street in the form of new fees. Given that, I expect that you should be able to find an analysis produced by Wall Street firms that demonstrates the brokenness and stupidity of the SS trustees.

One of the most important, which hasn't been included in historical calculations, is increased lifespan.

The analysis presented here looks pretty good to me. Can you explain why you think it is insufficient? Also, if you think the SS actuaries aren't smart enough to factor in changing life expectancy, do you also think that major life insurance companies' actuaries are also too stupid to do so? I'm trying to understand whether you think all actuaries are stupid in which case insurance companies are going to go belly up in a few years or whether you think SS has uniquely stupid actuaries and if so, why that might be.

It's also worth remembering that they still predict that the system will begin to run short of funds in the future.

This is a deceptive statement. The SS trustees publish the results of several models based on differing assumptions. The most pessimistic model does show that SS is in huge financial trouble many years in the future. However, that model has consistently underperformed reality. If the economy grows at a rate as slow as that model requires, then putting your money in stocks won't be any improvement because an economy growing that slowly requires a stock market with very poor returns.

I don't think anyone is categorically against SS reform ever; I believe that most people are against bad reforms (killing SS and replacing it with a stock market scam) and against reform carried out by the most incompetent government in living memory.

It's small potatoes for you. But forty years from now is when I'm going to have to worry about retirement. If SS isn't working then (or isn't working as generously as it is now), I will have been paying into a system my entire working life that won't compensate me fairly when it's my turn.

Hey, I feel your pain. I haven't checked in a while, but last time I looked I'm so far upside down in SS that it's hilarious. Plus, for some of the time I was self-employed, so I paid the whole nut.

I'm 51. People my age saw a big bump in our SS payments back in the 80's to bail out the Greatest Generation, and will probably see further increases before we're done to make sure there's something left for you whippersnappers.

But, as you point out, it's not an investment vehicle. It's a social insurance program. We all chip in so we all get something.

I think if you check out the SS actuarial information I linked to upthread, the program as currently funded is good for about another 40 years. The same collection of information offers a number of fairly reasonable tweaks that will put it on a good footing for 75 years out, which is about as far ahead as folks plan these things.

You should really take a look, it's pretty good stuff. I'm not an actuary, but folks that know these things tell me the information is reliable, and fairly conservative in its projections.

Part of that is because our tax code absolutely punishes people who try to save money rather than spending it.

Now you've lost me. AFAIK, unearned income tends to be taxed at a lower rate than earned income. And there are lots of vehicles that basically anyone can get into that will let you invest pre-tax.

I actually think the tax regime is pretty favorable for savers. What am I missing?

My impression is that folks don't save because they'd rather spend their money on stuff. I could be wrong.

Thanks -

Part of that is because our tax code absolutely punishes people who try to save money rather than spending it. Wanna invest some of your money for the future? The IRS is going to collect a significant portion the returns on that investment. I understand the arguments about unearned income, capital gains mostly benefiting the rich, etc. But poor people will never become rich if they can't gain from investing their money.

First of all, the terms savings and investment mean something different. Your arguments aren't really going to make any sense until you understand that.

Second, if you're making the argument that people aren't investing because of high taxes, you might want to go stare at a chart of historical capital gains tax rates for a while. Enlightenment may ensue.

Third, with the existence of a Roth IRA, there is no need for anyone truly poor to ever pay a dime in taxes on capital gains. If someone can put away more than 5k a year in an investment account, they aren't too poor.

Fourth.....

Ok, I give up. Someone is WRONG on the internet....

What has Wall Street really worried isn't reported on much, if at all, in regards to the boomers. When they retire they will stop putting money INTO their 401s, IRAs, etc., and start taking their money OUT. That's the street's biggest problem, why they want to get their corrupt little hands on as much of SS funds as possible.

Current SS funds are invested in US Treasuries. I have no idea why you think this is somehow an inadequate investment vehicle. Lots of other people disagree, fortunately.

Actually, they're not. They're in a special trust fund. US Treasuries are backed by the "full faith and credit" of the US govt, typically meaning "an unconditional commitment to pay interest and principal on debt, usually issued or guaranteed by the U.S. Treasury or another government entity."

The existence and use of the SS trust funds are under the control of Congress; they can reduce the payouts at any time. The trust fund trustees have no real power at all - all they can do is to make projections based on current conditions, including current payouts.

When people looking to ‘fly to quality’ buy IOUs from a government that has already made $70 trillion in unfunded IOUs, that kind of tells us where we are in 2008.

US Treasuries are backed by the "full faith and credit" of the US govt,

As are the treasury securities held by the SS trust fund.

Ok I'll be the goat here. A generally bright bunch of people spent a long thread here hopping for the amusement of a couple of really dishonest trolls.

Can't you see that you need to ban those people?

Ok maybe Bill really is that stupid.

Personally, I prefer Willamette.

My understanding is that moving SS to a system that invests heavily in the stock market will generate massive revenue streams for Wall Street in the form of new fees.

I'm not arguing for scrapping SS and replacing it with a stock-market scheme. Never have, never will. I agree that's a bad idea. What I am arguing for is a more streamlined system. Those are two entirely different things.

I'm trying to understand whether you think all actuaries are stupid in which case insurance companies are going to go belly up in a few years or whether you think SS has uniquely stupid actuaries and if so, why that might be.

It's not that actuaries are stupid. It's that, given rapid advances in technology, I just don't know if they have enough good data to go on. The advances in medical technology made between, say, now and 2028, are likely to dwarf those made between, say, 1960 and 1980. Granted, this may or may not have a major impact on life expectancy, and in any case Medicare is certainly going to be a far greater cash sink. But I think the broad point - that actuarial predictions will have difficulty accounting for the rate of technological progress and its effect on both productivity and lifespan - remains.

Also, note that I don't think the U.S. economy is going to remain as strong as it is right now into the far future. There are just too many factors working against us - debt, aging population, peak oil, rising competition from abroad, etc. Certainly it's impossible to guess how much of a negative impact all these things will make - but it will make a negative impact in all likelihood. That will effect SS too (though it's obviously not an argument for privatization - I agree with you there).

However, that model has consistently underperformed reality.

It has, but I don't know if it will continue to. See pessimistic rumblings above.

I believe that most people are against bad reforms (killing SS and replacing it with a stock market scam) and against reform carried out by the most incompetent government in living memory.

As am I. As I said, I'm not arguing in favor of Bush's proposal, or of scrapping SS altogether. All I want so see is some sensible streamlining reforms - means testing, perhaps an increase in the retirement age. I don't know if anyone here is categorically against those, but a lot of Democrats are, Hillary Clinton among them. Obama is willing to discuss them, which is one of the reasons I support him.

You should really take a look, it's pretty good stuff. I'm not an actuary, but folks that know these things tell me the information is reliable, and fairly conservative in its projections.

Yeah - see what I've said about the SS Trust Fund not being worth as much as it's made out to be, as well as skepticism about the economy's future performance. I don't know if SS will ever suffer a full-blown meltdown, but I think it's shortsighted to rule out any sort of sensible reform now that would push a day of reckoning further into the future and make future reforms less painful if they need to happen.

First of all, the terms savings and investment mean something different. Your arguments aren't really going to make any sense until you understand that.

You're right. I shouldn't have been so sloppy with my terminology. I can see how it would create confusion. I'm talking about saving here, not investment. My apologies.

Second, if you're making the argument that people aren't investing because of high taxes

This is a subtle distinction, but that's not what I'm arguing - rather, I'm arguing that the absence of low taxes means the failure to provide an incentive to save people need in order to overcome other incentives they have to consume. I don't think that high taxes are the primary reason people don't save - I think an innate preference for instant gratification in human nature is more to blame. Given that that preference is there, though, people need a prod to overcome it, and taxing middle class people on, say, their savings accounts, doesn't provide one - rather, it just exacerbates natural tendencies, since taxes tend to wipe out the gains necessary to make the value of savings keep pace with inflation. Which, as I said, is messed up, if you think that building personal savings is a sound financial strategy for most people. Which leads into my next point...

Third, with the existence of a Roth IRA, there is no need for anyone truly poor to ever pay a dime in taxes on capital gains. If someone can put away more than 5k a year in an investment account, they aren't too poor.

True. The Roth IRA is a wonderful thing. Its inflexibility is a problem, though - poor people need savings not just for retirement but for the proverbial rainy day, and Roths aren't suited to that kind of semi-flexible saving pattern.

A generally bright bunch of people spent a long thread here hopping for the amusement of a couple of really dishonest trolls.

I don't know if you're referring to me, but don't come here to troll. I'm genuinely interested in debate, try to argue with facts, try to admit when I'm wrong, and try to refine my arguments when their weaknesses are pointed out to me. Call me misinformed, an idiot, etc. if you like, but please don't jump to the conclusion that I'm arguing in bad faith.

Xeynon: Yes, because culturally and socioeconomically displaced Iraqis who may or may not be educated and don't speak English are going to produce just as much money as as the college-educated retirees they replace.

Well:

1. I was actually making a joke, because of course there's no way that the US will ever let mass numbers of Iraqi asylum seekers; after all, they could be terrorists! It wasn't nearly as funny as John Thullen's joke, though, and really, in a thread where Thullen is providing the light relief, no one else should try.

However:

2. Most of the Iraqis who have succeeded in getting out of Iraq are highly educated middle-class professionals who would be a terrific asset to any country that welcomed them and allowed them to work there: it's a shame in several senses that the US is intransigent about not letting them in.

Finally:

3: People who have an ideological thing about Social Security because it offends their idea of what is Right that people who worked hard all their lives for a living wage should get a financially-secure old age in which they don't have to work unless they want to, will try to argue demographically that Social Security just can't work. As others have already pointed out to you, this just doesn't make sense if you look at the data: but if you have an ideological conviction that something can't work, data is unconvincing against faith.

If a politician is of the ideological opinion that old age ought to mean misery, poverty, dependence, and death in harness, because that's all people below a certain income level ought to have to look forward to, that politician will look for reasons why Social Security can't work, because to their way of thinking it shouldn't - and rather than honestly admit that it's better for the very rich if the working classes don't have a secure pension to look forward to in old age, they will come up with demographic lies about how it won't work in the long run. Since this is what conservative politicians always do, it beats me why anyone pays attention to them when they tell such easily fact-checked lies.

1. I was actually making a joke, because of course there's no way that the US will ever let mass numbers of Iraqi asylum seekers; after all, they could be terrorists! It wasn't nearly as funny as John Thullen's joke, though, and really, in a thread where Thullen is providing the light relief, no one else should try.

Yeah, I know you were joking. Sorry I didn't clarify that. My reply was meant to illustrate that the "we can always let in more immigrants if we need more workers to produce revenue!" argument has its weaknesses.

2. Most of the Iraqis who have succeeded in getting out of Iraq are highly educated middle-class professionals who would be a terrific asset to any country that welcomed them and allowed them to work there: it's a shame in several senses that the US is intransigent about not letting them in.

Bring 'em in! I'm all for highly educated middle class professionals who want to come here being allowed to do so if they work hard, learn the language, and make an effort to adapt culturally, as most do. For once I think you and I are 100% in agreement,

3: People who have an ideological thing about Social Security because it offends their idea of what is Right that people who worked hard all their lives for a living wage should get a financially-secure old age in which they don't have to work unless they want to, will try to argue demographically that Social Security just can't work.

Yes, they will. I would point out, though, that I have never argued that, because I don't believe it - really, I don't have a problem with a national pension system. What I've argued is that SS can't continue to run smoothly forever, minus some changes (how serious remains to be seen) to the system, and that it makes sense to make those changes sooner rather than later.

As others have already pointed out to you, this just doesn't make sense if you look at the data: but if you have an ideological conviction that something can't work, data is unconvincing against faith.

I agree. I don't think SS is unworkable - I just think that making tweaks to prepare for coming societal changes is better done sooner than later. It just annoys me that some Democrats demagogue even the mildest and best-intentioned efforts at reform as Scrooge taking the reigns of the government to screw the poor. This was perhaps not the best thread to vent that annoyance, given that publius wasn't taking aim at such efforts. But that's where I'm coming from.

I don't think SS is unworkable - I just think that making tweaks to prepare for coming societal changes is better done sooner than later.

You may be shocked -- shocked! -- to find many of these tweaks outlined, in detail, on the SS website, along with a thorough analysis of their likely effects on SS's long term health.

It's not that actuaries are stupid. It's that, given rapid advances in technology, I just don't know if they have enough good data to go on.

SS 2007 OASDI Trustees Report -- Assumptions about the future.

Ultimate assumption number two:

Average annual percentage reduction in total age-sex-adjusted death rates from 2031 to 2081

You don't need to speculate about these things, you can just go find out.

It just annoys me that some Democrats demagogue even the mildest and best-intentioned efforts at reform as Scrooge taking the reigns of the government to screw the poor.

I think what most folks object to is the idea that SS should be converted into an equities-based investment vehicle, instead of remaining a social insurance program.

That's because most conservative proposals for 'reforming' SS consist of converting SS into an equities-based investment vehicle, instead of a social insurance program.

That, in turn, is because many of those conservatives have an ideological hatred of government funded and run social insurance programs. It just keeps them up at night to think that somebody else is getting some of their money.

Now, *that* is annoying.

Thanks -

What has not been mentioned is that idea of what effect social security taxes have on the economy. People who believe social security is the best program have to ignore the idea that ever increasing taxes slow the economy down, lead to higher unemployment, and lower standards of living.

The SS trust fund is nothing more than a future claim on general revenue funds to supplement social security tax income. The government will be forced to increase non-SS taxes in the future to fund social security. When the trust fund runs out, the Social Security Administration loses its claim on general revenues.

Also, people should consider what the outlandish support for SS with the rants about the massive risks of private sector investing has on personal savings rates. What should middle class people save and invest when they have been repeatedly told that it is too risky for the government to investment while also being told that future government payments will ensure their financial well being.

Yes, there are less people paying in per recipient, but they are making much more money. Raising the cap on witholding over a span of years will take care of that; unless one is a Republican who wants to get something for nothing.

As are the treasury securities held by the SS trust fund.

They may be called treasury securities, but they're not marketable, unlike real treasuries. It's important that everyone understand the difference. Any external party holding treasuries is unconditionally guaranteed repayment, right to the last breath of the gov't. The repayment could be made with inflated dollars, but those dollars are fungible - the same as the dollars we use to buy groceries.

The ss trustees are NOT guaranteed repayment. Congress can change the payouts to zero and let the entire trust fund sit there forever as a line item on a ledger someplace, uncollectable by anyone. The disbursement of the trust is strictly a political matter, not a legal one.

It's important that everyone understand the difference.

If you think it's important then you should explain it. Your comment explains nothing. So what if "Congress can change the payouts to zero" - does anybody dispute that? The USA can default on its debts to China or the European Central Bank just as easily. So what's your point? I live in Europe and believe me I'm well aware that there is no way we can force the USA to honour its obligations.

Social Security recipients have a vote in US elections; the Board of the ECB have nice-looking suits. Who has more political clout?

What Kevin said.

Plus, so what if they're not marketable? Just because a security is not marketable doesn't mean it's not a valid claim.

I often provide light relief because the more substantive heavy relief is so depressing.

Like statistics, for example.

The national savings rate came up in this thread. I'm about to read a 200 page tome on the subject, which is like the proverbial elephant fondled by the blind -- us.

I find that I often have a hold of one of Bill's boiled squirrels (see if you can hunt up that reference).

National savings and personal savings are two different calculations. When I'm done with the tome, I'll threadjack in about a month and explain the difference.

Did you know that capital gains on stocks, bonds, and real estate are not included in the national savings rate? Including those in IRAs, 401Ks, College Savings accounts, etc.

Did you know that household net worth (mostly unrealized capital gains) has soared over the past several decades just as the personal savings rate has gone negative?

Did you know that national expenditures on education (10% of GDP) and research and development (@8.5% of GDP) are counted as consumption, not as savings or investment?

Did you know that government expenditures on infrastructure are not counted as investment or savings?

***********

I agree with bc that it is important to know the difference between marketable securities and non-marketable securities.

But now that I know it, what should I do with it?

People often tell me in a loud voice, "Did you know that our entire financial system is backed up by the "full faith and credit" of the Federal Government, which are just words and empty promises and could be retracted at any time!?"

Yeah, I know. But it doesn't bear thinking about for too long, if you plan on getting out of bed in the morning.

I know two other things, too.

When I'm on an airplane, I know that a slight change in the cooperation between the physical laws of the universe and the relative sobriety of the mechanic who checked the plane out yesterday could be altered at any moment.

So bring me two more drinks and how bout them Yankees?

I also know that people walk around all day completely naked underneath their clothing. I try not to think about it because I don't want to spend another year or two like I did in junior high school --- thinking about that fact to the exclusion of all else and being called on in class and saying: "uh ..... I'm sorry, could you repeat the question?"


Your comment explains nothing.

Sorry if my explanations are lacking.

does anybody dispute that?

I'd bet many people think the trust fund represents a tangible claim. I'm glad nobody here is among them.

The USA can default on its debts

Of course it can. The difference is who gets hurt and the subsequent political fallout. I think the fallout from defaulting on our external debt would be more severe than would "defaulting" on the baby boomers. Especially 20-30 years from now. More likely the default will be a gradual thing, forced by continuing budget pressures. My main point is that this becomes a political calculation. The trust fund has only an incidental perhaps moral effect on that calculation. To pretend it has more than that is, IMO, naive.

marketable

I was simply showing that these securities are not the same as normal ones, in response to your inference that they are the same. Sorry if I inferred too much, I should have added a "for example".

Did you know that capital gains on stocks, bonds, and real estate are not included in the national savings rate? Including those in IRAs, 401Ks, College Savings accounts, etc.

Hey JT thanks for this. I've been curious about this for a while (and now *I* don't have to read the 200 page tome).

Are the initial investments -- not the capital gains, but the principal -- in 401k's and the like counted as savings?

I've never been able to get my head around how we could simultaneously be dumping billions into pre-tax investments, and still have a near-zero savings rate.

Do all countries measure this the same way?

If the answer to the above is "I'll get back to you when I'm done reading the damned thing" that's OK with me.

Thanks!

Datum: we have only a couple of thousand in conventional savings account, about five or six thou in government savings bonds, and some unmentionable number of hundred thousands in 401k.

Of course, the 401k is heavily invested in both corporate stock (which, until very recently, was unavoidable) and large- and mid-cap stocks, with about a 25% invested in bond funds. So it's not the same as, for instance, having a Scrooge McDuck room-sized vault full of gold coins that we can go dip into, when needed.

And our house is still worth a bunch more than we paid for it, but that could become less true, depending on how far we are from a housing market bottom.

As a backstop, though: we have a whole lot of canned and dry goods, but that's just because that's the way Costco sells them.

Russell:

I'll try to get back to you, becasue I'm not completely sure of the answer to your first question, but take "yes" as a provisional answer.

"Do other countries measure this the same way?"

Don't know, but I came across figures of 20% for European savings rates, and 25% for Japan, as opposed to ours hovering near 0%.

Where exactly public pensions fit into this is one further question.

"Current SS funds are invested in US Treasuries. I have no idea why you think this is somehow an inadequate investment vehicle. Lots of other people disagree, fortunately."

What do you think a Treasury security is except a pledge to tax in the future?

The Social Security "trust fund" is nothing more than a promise by the federal government to raise taxes or public borrowing in the future.

Suppose a married couple's only assets are a piggy-bank full of IOUs from each other to each other. Would you dare suggest they are "investing wisely"?

An IOU from myself to myself is not an asset. An IOU from the government to itself is not an asset.

This is only a difficult concept because disingenuous obfuscators like you intentionally make it difficult.

(Lots of other people agree, fortunately.)

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