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January 26, 2005

Comments

I was very glad to follow your entry from a trackback ping you sent to that "we're all going to get hit by an asteroid" post (I'd pinged it, too).

I just don't understand how anyone expects to be persuasive with such over-the-top rhetoric; it's as if they knew nothing about the old Yale communication studies, which showed that if you start off talking bizzarre, than everything else you say gets seen as more extreme afterwards.

What I have yet to hear from anyone campaigning for privatization is a recognition that at some point people will outlive their private accounts. I haven't heard anyone grapple with what society is supposed to do for those people, or where the money is supposed to come from to do it.

von -- I'd always thought that 'private accounts lite' (of the sort proposed by Democrats) would just be some sort of private accounts in addition to Social security, to be funded by voluntary contributions, perhaps subject to rules on e.g. when you can withdraw from them without losing tax benefits etc.

(1) Means test. There is no reason to offer multi-millionaires a small subsidy in their retirement. Social Security functions like a welfare system; it's time to fund it like one.

(2) Radically up the limits on 401(k)'s and the like. If you want to put $25k a year into the market, you're doing us all a favor -- and you should be able to do it tax-deferred.

Shorter: create political pressure to end the system, while allowing the wealthy to take more of their earnings outside the tax system.

Means testing:

Easy to say; not so easy to apply.

1. We can tax Social Security distributions as ordinary income or even extraordinary income subject to a different tax rate, so that retirees who earn enough to file tax returns give some of their SS distributions back to the Treasury. (of course, the more that this is done, the more tax planning will occur to work around the issue.)

2. We can raise the salary cap on which SS taxes are levied. (making SS less like a pension.)

3. We can require that retirees file annual wealth statements, to determine eligibility.

option 3 would pretty clearly kill the program.

Increased Tax Deferrals:

Are you sure this is a solution? How many people will be able to afford the increased savings? And given the current fiscal crisis, what would be the impact on the Treasury?

SOX: no comment

Govt lite: Agreed that Uncle Sam should not be investing in the securities market.

The nature of Soc. Sec.:

This is the most interesting section of your post. Your use of the term "fetishized" suggest that you have strong views about the nature of the program, yet i'm not sure whether you want to increase distributions so your grandfather can live better, or decrease them?

I'd like to know where we disagree on the following points:

A. in a capitalist system like ours, a significant percentage of the population cannot make enough money to save for retirement.

B. Modern health care, control over reproductive decisions and mobility of labor are all really good ideas which have the effect of reducing our society's ability to expect that children will support their parents from retirement through death.

C. Neither A nor B are particularly new concepts. Serious elder poverty has been seen around the world in non-agrarian economies without a social security net (like the US during the Depression).

D. Govt-paid pensions are inherently political. Solutions for affording fair / adequate pensions should be designed to appeal to a strong majority (60+%) of the population, both now and in the future.

E. {something more radical here} Taxes ARE an investment -- in the country. Infrastructure, national defense, education, environmental protection, justice, in fact all federal spending are just as much as an investment as a share of IBM or a slice of IBM debt. The value of the IBM share and the ability of IBM to repay the debt are critically dependent on the continued health of the US as a whole.

F. So, having SS run a surplus may have been a bad idea, because it allowed the General Fund to collect less in taxes than it should have. But the bonds held by the SSA represent a real investment, like in the tanks currently deployed in Iraq.

Question: what is the expected SS benefit in 2025? What would the cost of an annuity be to receive that benefit? (please include in the price of the annuity all benefits paid by SS, including disability etc.)

Cheers,

Francis

"Shorter: create political pressure to end the system"

It seems to me Medica[id|re] are a good model for means testing. They are means-tested, correct? I pay into the system, I generate no immediate benefit from it, I'm fine with that, and apparently enough other people are fine with it that they've survived, various minor tinkerings aside, for a long time. Why would a means-tested Social Security differ?

"while allowing the wealthy to take more of their earnings outside the tax system"

That I agree with. Social Security and tax-deferred retirement saving in general does not exist to reward long-term thinking in the abstract. It exists to encourage (or force) people to build up a reserve to lean on when they retire. The currently wealthy do not need any such reserve. They already have their future worked out. Furthermore, many of the wealthy do not retire in any meaningful sense of the word, because their wealth-generation activities have nothing to do with exhausting labor. Warren Buffet's 74. I think he has his retirement figure out without tax-deferment.

Shorter: create political pressure to end the system, while allowing the wealthy to take more of their earnings outside the tax system.

Slightly less short, but more accurate:
create political pressure to end the system, while allowing those who are able to take more of their earnings outside the tax system.

sidereal: Medicaid is means-tested. It is also one of Bush's present targets for serious budget cuts. (Link in my African American's post from early this morning.)

"It is also one of Bush's present targets for serious budget cuts."

Good luck. God bless the AARP.

My apologies for the brevity of my reply -- I'm a bit swamped at work -- but there's no doublt-secret-feed the-rich-at-the-expense-of-the-poor aspect to upping 401(k) limits and means testing Social Security. One covers the other -- the difference is that wealthier folks, who won't be receiving SS, are encouraged to invest for their retirement.

Hilzoy -- If the Democrats propose a better plan than Bush, I'll consider it -- but it cannot simply be a defense of the status quo.

Von: If the Democrats propose a better plan than Bush, I'll consider it -- but it cannot simply be a defense of the status quo.

What happened to the good old conservative rule "If it ain't broke, don't fix it?"

Social Security was sold as a retirement program, but it ain't working no more

Wrong, it is working as designed.

It pays a pittance

As designed, SS is one part of savings for retirement, with the other two being personal savings and pensions.

It's a simple wealth transfer

No, a simple wealth transfer would be paying SS benefits out of the general fund instead of with a dedicated payroll tax.

Social Security functions like a welfare system

Wrong. Is someone who has not paid taxes eligible for welfare? Yes. Is someone who has not paid payroll taxes for years eligible for SS retirement benefits? No. See the difference?

Radically up the limits on 401(k)'s and the like

Didn't you just complain about offering the well-to-do subsidies in their retirement? This would benefit a very few wealthy people (only ~10% of participants max out the current limit) at the expense of the poor, who would have to pay increased taxes to make up for an increased amount of income being sheltered.

Better suggestions:

Repeal Bush's tax cuts which will help keep interest rates low and growth strong in the medium run. Reverse government policies that have led to corporations switching away from defined benefit pensions. Pursue "living wage" policies and an increased minimum wage that will allow a greater percentage of people to build substantial private savings. And finally, as SS will be in surplus given the economic assumptions the Bush administration is making in pushing its plans, cut SS payroll taxes, raise benefits, and lower the retirement age.

von: As far as I know, Democrats are willing to defend the status quo against the President's plan, by which I mean: given a choice between the two, they pick the status quo, and whether or not they'll spend a lot of time talking about alternatives right now, in the middle of a fight over the President's proposal, depends on whether they think that doing so will help or hurt in that fight. This makes sense to me, since I think that actually stopping the President's plan matters more than an opposition party, which can't pass anything anyways, making proposals. If proposals help, by making it clear that we are not wedded to the current system come what may, good; if it hurts by helping to create an environment in which everything is up for grabs, then we should have our priorities straight.

That said, there are a lot of people in the center-left talking about adding personal savings accounts on top of the existing system. This is, in my view, a good thing: it matters a lot to me that there be some real floor below which seniors cannot sink, and thus I will fight with what little strength I have to maintain that, but once that's in place, I think contemplating ways to help seniors to build up personal retirement accounts are all to the good. I think (though I haven't sat down and really worked this through, so I'm more than usually open to persuasion) that I'd favor savings accounts, tax-free if drawn on after the retirement age, with contributions matched by the government up to some annual cutoff point. I would also favor repealing some of the Bush tax cuts to pay for this, and raising the income cap on payroll taxes.

Von wrote:

Indeed, given the relatively long horizon during which Social Security will be solvent, increasing the national debt to pay for reforms is a little like taking out a credit card loan to pay off a mortgage.

Actually it’s quite the opposite. Since the federal government borrows at essentially the risk-free rate (given that there is pretty much no risk of default) and that you can get a greater rate of return in both (a) adding investment capital and (b) reducing Social Security’s unfunded liability by letting worker/retirees opt at least partially out, it’s more like taking out a second mortgage on your home to pay off a higher interest rate car loan.

That’s assuming the worst-case likely scenario that we have to borrow the entire “transition cost” (really just recognizing an already existing liability) which is unlikely since pro-reform legislators are already looking at phasing in a higher retirement age and/or going from wage-indexing to price-indexing. Which means then that we could get the arbitrage benefit from dealing with SS’s liability as well as further reducing the amount we have to pay with other reforms.

But your comment that we should means-test Social Security are on the mark.


I think nadezhda laid out an eminently reasonable framework here.

Kind of moot, however.

TW said: "reducing Social Security’s unfunded liability by letting worker/retirees opt at least partially out"

huh? why would a retiree opt out? If you don't want the money, give it to charity. And how does letting workers opt out reduce liability? that's precisely backwards -- the MORE workers in the system, the stronger it is.

and how can a gov't have an unfunded liability? Govts have the power to TAX.

btw, price-indexing just means blanket benefit cuts. I think the people who rely entirely on SS are poor enough. If you don't -- if you think that the poorest seniors are getting too much money -- just be up front about it.

Francis

Francis asks:

huh? why would a retiree opt out? If you don't want the money, give it to charity. And how does letting workers opt out reduce liability? that's precisely backwards -- the MORE workers in the system, the stronger it is.

In reverse order:

The reason why Social Security has an unfunded liability is because on the aggregate it promises a worker more in benefits than s/he is expected to pay in FICA taxes. Unlike legitimate retirement and insurance systems, it doesn’t invest those “contributions” to earn revenue to pay out future benefits but rather pays for current benefits out of current contributions. Basically a ponzi or pyramid scheme. Which is why simply adding more people to the scheme doesn’t work because you’ll have promised them more in benefits than they pay in “contributions” as well which makes the problem worse. It’s like trying to get yourself out of a hole by digging.

As far as how letting workers (partially) out reduces the program’s unfunded liability. The proposal that’s being floated about (I’ll assume the final proposal resembles this) is that a worker is offered a chance to put 4 of the 12.4 points they pay into FICA (roughly a third of what they and their employer, which is really a tax on the worker, pay) into a private retirement account in exchange they agree that this will take the place of one-third of the benefit that they are on paper only supposed to receive from Social Security. A younger worker would probably opt for this because Social Security’s retirement portion pays a negative return for workers under thirty for example, and it’s quite easy for them to do better even if limited to investing in a few diversified index funds. Which will probably be the what workers have to chose from since no one is seriously talking about letting workers pick individual stocks or bonds or whatever.

and how can a gov't have an unfunded liability? Govts have the power to TAX.

Because there is a perception (real or imagined) that Social Security is supposed to provide a guaranteed level of income for retirees. The amount it has “promised” (based on the current law) in benefits exceeds the amount that it is projected to collect in taxes. Hence we call it an unfunded liability. Naturally of course government can always cut the promised benefits or raise taxes (again) but doing either makes Social Security a worse deal for younger workers as well as negates the Ostrich Caucus’ ability to demonize a less painful reform like moving towards a mandatory savings system (as Bush is proposing).

btw, price-indexing just means blanket benefit cuts. I think the people who rely entirely on SS are poor enough. If you don't -- if you think that the poorest seniors are getting too much money -- just be up front about it.

Actually moving from wage-indexing to price-indexing means that the benefits of Social Security recipients will keep pace with inflation rather than exceed it. The last time it was seriously proposed was back in the mid-1990’s by the late Senator Daniel Patrick Moynahan (notorious for his hatred of the New Deal). Frankly, it’s silly to talk about “poor seniors” since senior citizens by and large are among the wealthiest demographic in the country. When’s the last time you heard anyone talking about poor Gen13ers who are having 11.67% of their wages confiscated for a system that promises them a negative return for their retirement?

Actually, the switch to wage indexing for initial benefits occurred in 1977. This was part of an effort to deal with the impact of high inflation rates on the CPI (in other words, at the time, it reduced the rate of growth in benefits). It wouldn't surprise me if wage growth over the past year and into the next few won't turn out to be lower than CPI growth. Overall, I suspect that wage indexing is more stable over time than CPI indexing and would provide a sounder basis for estimating long term benefit growth. If there is a need to reduce benefits, targeting the increases to a percentage of wage growth seems preferable than going back the using the CPI.

it is not "silly" to discuss the impact of a major change in govt policy on the poorest, as compared to the group as a whole. and appeals to authority, especially dead ones, do not impress me.

wages rise faster than prices due to increases in productivity. Linking SS distributions to price increases instead of wage increases (a) hits the poorest the hardest and (b) deprives pensioners of the opportunity of sharing in the increased wealth enjoyed by everyone else in society. Thanks, but No Thanks. The status quo is better.

Thorley,

You contradict yourself. On the one hand, SS promises more in benefits to workers than it collects from them in payroll taxes - hence an unfunded liability.

Social Security has an unfunded liability is because on the aggregate it promises a worker more in benefits than s/he is expected to pay in FICA taxes.

On the other it offers a negative return so workers will be happy to opt out.

would probably opt for this because Social Security’s retirement portion pays a negative return for workers under thirty for example,

So how can letting workers opt out reduce the liability? If we accept your description the workers who opt out are precisely the ones who reduce the unfunded liability by receiving a negative return.

What happens to people who invest unwisely?

SocSec does not provide for a well-off retirement; it was never intended to; it was intended, always, as a safety net. No matter how awful your other investments, no matter if your employer defaults on pensions, SocSec would be there to prevent you from actually starving to death on a frozen street.

People do not always invest wisely. They get taken by scams. They get taken by scams even that didn't seem to be scams - with corporations cooking the books in ways even accomplished CPAs can't figure out, even a seeming blue chip stock can be a scam. How do you protect people from predatory investment counselors? How can people make good decisions if they can't get good information? How do you protect people from Enron/Worldcom/Etc. type scams? Or even from the occasional industry meltdown (eg, the dot bomb).

If SocSec is a "Ponzi scheme," so are stock investments. Very few stocks pay dividends at all; none pay dividends that translate into meaningful income unless you own thousands of shares. People make money from stock by selling it at a profit, not by holding on to it and living off the dividends. Owning a portfolio isn't like owning magic beans.

'Caveat emptor' is not an acceptable answer to my question.

Bernard Yomtov wrote:

You contradict yourself. On the one hand, SS promises more in benefits to workers than it collects from them in payroll taxes - hence an unfunded liability.

and

On the other it offers a negative return so workers will be happy to opt out.
Correct, both statements are true (although the latter was limited to younger workers). While SS may on the aggregate “promise” more in benefits than it collects in revenue, it is not actually able to pay out all of what it has promised in benefits (a point tacitly admitted by the Ostrich Caucus when they say “what problem, we can still pay 75 percent of what we’ve promised retirees”) which is partially why the retirement portion is a particularly bad deal for younger workers and results in a negative return.
So how can letting workers opt out reduce the liability? If we accept your description the workers who opt out are precisely the ones who reduce the unfunded liability by receiving a negative return.

Actually they don’t reduce the unfunded liability of the program since they were still “promised” a certain level of benefits (at least under the current law). While they will in fact, under the status quo, end up losing money on the deal, it doesn’t reduce the program’s unfunded liability any more than deciding not to pay your electric bill this month of the next absolves you of that liability. However if you want to change the law so that they receive lower benefits by law (e.g. we’ll cut benefits by a certain percentage when the trust fund is exhausted), that would reduce the unfunded liability. However that would still leave the problem of younger workers being screwed over.

Thorley: Social Security is not a Ponzi scheme. A Ponzi scheme is one in which you have only the receipts from new entrants to pay out from, no actual assets. for one thing, SS does have assets in the form of treasury bonds, and for another, if the SS trust fund's optimistic forecast turns out to be wrong and the trust fund does run out of money, there's always the government, which has the ability to tax.

Or to put it another way: Ponzi schemes inevitably default. The only way SS defaults is if our elected representatives choose to do so.

CaseyL wrote:

What happens to people who invest unwisely?

You deal realize that no one is proposing letting PRA-holders pick individual stocks don’t you? I realize that the strawman of “what if they decide to invest in Enron” has been a pretty popular meme amongst many on the Left but pretty much everyone who has proposed going towards a forced savings system* has agreed that investments would be limited to diversified index funds and such which give a better rate of return and are generally safe. There will be some choice (probably not as much as I’d like) and quite a bit more than the current system but we’re talking about expecting workers to make a decision not much more difficult than picking among several indexes for your 401(k).

* And that rather than “privatization” is what’s actually being proposed by requiring a worker to invest a portion of their FICA.

Hilzoy wrote:

Thorley: Social Security is not a Ponzi scheme. A Ponzi scheme is one in which you have only the receipts from new entrants to pay out from, no actual assets. for one thing, SS does have assets in the form of treasury bonds,

The “assets” in this case are simply an IOU written from the federal government to . . . the federal government. Just out of curiosity, please provide examples of private insurance companies or pension systems in which writing an IOU to yourself is considered an “asset” for the purpose being able to pay out promised benefits.

and for another, if the SS trust fund's optimistic forecast turns out to be wrong and the trust fund does run out of money, there's always the government, which has the ability to tax.

Certainly and if Charles Ponzi had found a pot of gold or some other source of revenue outside of what he was collecting in contributions from his marks, his scheme would have been just as sustainable.

Or to put it another way: Ponzi schemes inevitably default. The only way SS defaults is if our elected representatives choose to do so.

Or to put it another way, Social Security like other ponzi schemes is unsustainable as it currently is set up (paying current benefits with current “contributions” rather than from revenue earned from productively investing its assets) but so long we can always bail it out in the end with a tax hike, there’s no real problem.

Thorley: in this sense, almost all government programs are unsustainable, and most are in a much worse position than Social Security. Think of the Department of Defense: billions of dollars a year, and no defined revenue stream at all! How we manage I have no idea.

If we refuse to repay the bonds in the Social Security Trust Fund, we (the US government) would be defaulting on our legal obligations. This would violate the Constitution (14th amendment.) You may be willing to think that this is a serious possibility; I am not.

Hilzoy wrote:

Thorley: in this sense, almost all government programs are unsustainable, and most are in a much worse position than Social Security. Think of the Department of Defense: billions of dollars a year, and no defined revenue stream at all! How we manage I have no idea.

Argument ad absurdum since the Department of Defense was never set up to be paid for with a defined revenue stream. Nor has it promised any sort of defined benefits (sans some military pensions perhaps but they’re probably paid for with some sort of investments like a real pension) as such.

If we refuse to repay the bonds in the Social Security Trust Fund, we (the US government) would be defaulting on our legal obligations. This would violate the Constitution (14th amendment.) You may be willing to think that this is a serious possibility; I am not.

Which is a strawman argument much like the professed concern that a worker with PRA’s might invest it in Enron.

If we refuse to repay the bonds in the Social Security Trust Fund, we (the US government) would be defaulting on our legal obligations.

We can pay off the bonds in cash; and then Congress can reduce SS benefits and keep on raiding the Trust Fund for cash like they've been doing for 20 some-odd years. Then you don't have to rely on General Revenues for SS which would require either tax increases or deficit spending - both of which are unacceptable.

"The “assets” in this case are simply an IOU written from the federal government to . . . the federal government."

No, the asset is the total income activity in the US combined with the right to tax it, enforceable by the US military. Any creditor in the world would be happy to lend against that collateral, and that's exactly what bonds are. I'm not, mind you, necessarily disagreeing with your premise, just clarifying terms. Social Security isn't a pyramid scheme. It may still be poorly constructed. It depends on the ratio of wage-earners to retirees being stable, and with changes in birth-rates and medical technology, that's untenable. It also depends on Congress being able to average the surpluses against the deficits by showing restraint, which is criminally untenable.

SocSec does not provide for a well-off retirement; it was never intended to; it was intended, always, as a safety net. No matter how awful your other investments, no matter if your employer defaults on pensions, SocSec would be there to prevent you from actually starving to death on a frozen street.

Nope, sorry I can't let you assert that and simultaneouly be ok with $10 billion a year to go to upper-middle class and wealthy people.

We should really have a 'not starving to death on a frozen street' fund that annually determines the minimum quality of life we'll tolerate for an American citizen, a reasonable income to maintain that quality of life, and then makes payments according to the difference between one's current income and that level. How does that not most efficiently solve the problem? And yes, at the low end it's a disincentive. If you make 1 dollar over the poverty level, you're strongly incented to quit your job and lose only a dollar of income.

Nope, sorry I can't let you assert that and simultaneouly be ok with $10 billion a year to go to upper-middle class and wealthy people.

Seb, I sympathize with that pov. I wondered years ago why there couldn't be means testing for SocSec.

But people opposed to the idea have a point when they say means testing just turns SocSec into another welfare program, which in turn sets it up to be destroyed completely.

The GOP has in fact done exactly that to other social programs: first, defunded them so they couldn't do what they were intended to do; then, attacked them as 'nothing more than failed government giveaways to Welfare Queens'; and then ended them altogether. I've seen the GOP do this so often I can't accept their current mechanizations in good faith. The GOP has a track record. I'd have to be stupid to ignore that record.

I should also point out that $10B, budgetarily speaking, is nothing. Halliburton misplaced nearly that much in Iraq; neither the GOP nor anyone else is screaming bloody murder over it. And if you want yearly figures, well... $10B isn't even a meaningful percentage of the federal deficit projected over the next 5 years; the GOP isn't screaming bloody murder over that, either.

No. No no no. I will accept the idea of discussing means testing for SocSec when the people in charge of the debate aren't today's GOP.

Thorley,

Your 6:59 response to me makes no sense whatsoever. Participants who contribute more than their promised benefits reduce the unfunded liability. This is simple arithmetic, something you and Bush may scorn, but which is valid nonetheless.

Your response to hilzoy is equally silly. On the one hand you criticize the comparison to the Defense Dept because it "was never set up to be paid for with a defined revenue stream." On the other you refuse to recognize the validity of the treasury securities SS holds, which were purchased with a "defined revenue stream."


Sebastian:

SS is NOT PURELY the frozen on the street fund. Anti-freezing funds are welfare; ss is a publicly funded pension.

Now, it may not be a very good pension -- you may believe that the cost is disproportionate to the benefit. But this pension has a disability component and a death benefit. And unlike, say, United Airlines' pension plan, this one cannot go broke. but the lack of risk means it costs more. and yes, this pension has a welfare component: some people get more out than they paid in. It's worth noting, though, that the worst of these offenders -- those that paid in for just a few years then enjoyed a long retirement -- have died off.

publicly funded pensions are a good idea. They encourage on-the-books work. They allow for individual investors to take greater risks with their own money during their working years. And they provide a mechanism for alleviating elder poverty without the stigma of welfare.

so its not just a question of not trusting the Bush admin. it is a question as to whether there should be publicly funded pensions.

Have the conservatives here been reading about the shift in risk in the last few years from employers to individuals? Our society as a whole has profited tremendously from an ever more competitive workplace. but the unraveling of the employer-based safety net system means that a public pension is more needed than ever before.

A good friend's father worked for years at United Airlines. It has defaulted on its pension obligation. He went from solidly upper middle class to really needing his soc. sec. to maintain his quality of life in retirement.

I see thorley, von and sebastian as Heinlein libertarians -- cool rational well-educated thoughtful people who simply refuse to believe that a high-tax, high-benefit public sector creates a better place to live.

I concede that the system isn't perfect. but i have yet to hear a persuasive argument that the system is fundamentally flawed.

but, as frazier crane used to say, i'm listening.

Francis

"The GOP has in fact done exactly that to other social programs: first, defunded them so they couldn't do what they were intended to do; then, attacked them as 'nothing more than failed government giveaways to Welfare Queens'; and then ended them altogether. I've seen the GOP do this so often I can't accept their current mechanizations in good faith. The GOP has a track record. I'd have to be stupid to ignore that record."

I hate to be rude, but what are you talking about? Do you believe that the welfare reforms were unneeded? That it was good to have people on welfare for their entire lives? Really? What other programs are you talking about? We can barely get rid of rural electrification projects.

Fdl. No one is talking about getting rid of the disability component.

Have the conservatives here been reading about the shift in risk in the last few years from employers to individuals? Our society as a whole has profited tremendously from an ever more competitive workplace. but the unraveling of the employer-based safety net system means that a public pension is more needed than ever before.

I submit that a large part of the appearance of this risk shifting is because people ignore corporations going out of business leaving their employees with nothing.

SH:

I'm afraid i don't understand your response on risk shifting. NPR (yeah, i know) has had a number of stories on the swelling liabilities of PBGC.

Having PBGC provide 100% coverage creates insane levels of riskiness on the part of the pension funds. But if PBGC imposes a haircut, the pensioner takes the hit, not the pension fund manager.

Is there a market for pension insurance? Should there be, and should pensions be easily transferable, or do defined-contribution plans make more sense for the private sector?

Nathan Newman would probably accuse me of being an anti-labor liberal, but i think corporate pensions are probably a thing of the past. but i'm ready to make ss stronger, not weaker, to balance out the loss of private pension reliability.

Francis

Corporate pension plans are almost certainly a thing of the past if only because people don't stay at one firm their whole careers. But if we changed the caps on 401Ks for instance or wanted to encourage it in some other way, we could easily have portable retirement plans. For example, my company pays 15% of every employee's salary into their 401k every year. It vests on a 1/3 immediately 1/3 next year 1/3 two years from now schedule which makes for both portability and an incentive to stay.

Seb - My memory for specific programs is a bit vague, as most of them were axed in Reagan's first term. I do remember that Manpower Training, CETA, and Employment Services were targeted as fraudulent giveaways, then ended. With job training and placement programs for poor people thus ended, more people stayed on welfare longer than they might otherwise have done. A case of penny wise, pound foolish.

A host of federally-supported mental health programs for teenagers were gradually starved to death. I know about this one because I used one of those programs when I was in high school (a walk-in neighborhood counseling center that didn't charge for its services and didn't report you to your parents) and I was very angry when I heard it had been discontinued. Also discontinued were telephone hotlines that did things like talk down suicidal kids, provide healthcare referrals (inc. info on birth control), and give accurate drug information.

These programs were targeted because it was easy to work up a public snit over them - Your Tax Dollars Are Paying for Crazy Kids' Birth Control!! - without ever addressing what would happen once they weren't around anymore. Well, teen suicide and mental illness rates have climbed ever since. Surprise, surprise.

It's sad when I remember so many ways and programs there used to be to help people, that actually did help people, that not only aren't around anymore, but we've forgotten what it was like to have them available.

Seb: they have also done it to a lot of low-income housing and community development programs, and even as we speak they are targeting Section 8 and CDBG grants. These are enormously important for poor neighborhoods. Section 8, in particular, provides access to housing for a lot of people who just wouldn't be able to afford it otherwise (where 'it' is not some nice sort of housing, but housing period), since it is not economically viable to build housing that someone working for minimum wage could afford (unless we relaxed codes to allow for shantytowns.)

I think the key is not just to think of really big programs (the ex-AFDC, Medicare, Medicaid, Soc. Sec.), but some of the mid-sized ones, where the Republicans have done a lot of damage. Though now the big ones seem to be in their sights as well. Consider the proposal to turn Medicaid into block grants while cutting it. Ugh.

And Head Start's on the block. Another incredibly successful program the GOP wants to 'fix' preparatory to eliminating it.

Notice, in contrast, that there is no serious proposal to end, say, the mortgage interest tax deduction. Wonder why?

And the one that makes me more angry than anything, the repeal of the estate tax. Democrats have said, over and over, that they're open to raising the limits below which it's not paid, to deal with small businesses and the like. No dice. We absolutely have to give kids like, well, me, who have already had every imaginable break, more money, and do it at the expense of Medicaid and Section 8. Because heaven forbid Bill Gates should not be able to pass on his fortune in its entirety to his heirs.

I think this is morally grotesque.

I'm not a big fan of government housing projects. The reason they have been targetted in the past 10 years is that they have created more permanent poverty-ridden areas than they have helped. 30 years of disaster-making doesn't need to be continued indefinitely.

I'm not a big fan of government housing projects.

I have to doubt from your comment that you understand what the Section 8 program is.

Felixrayman, thats nice. Do you mean the Section 8 housing rules that require 90 day notice of termination in California which has made it difficult to get rid of crack houses? Or is there some other one?
Furthermore my criticism was not directed soley at Section 8, but rather at HUD in general. Are you aware of the various problems with HUD housing in say New York, Detroit, Chicago, Baltimore and Washington DC? Are you aware of their effect in increased ghettoization and concentrating crime? From your comment I doubt it.

To take two prominent examples, welfare regulations and HUD plans have been changed in recent years BECAUSE THE LIBERAL DESIGN OF THE PROGRAMS WAS MAKING THE PROBLEMS THEY WERE ALLEGEDLY ADDRESSING WORSE

BECAUSE THE LIBERAL DESIGN OF THE PROGRAMS WAS MAKING THE PROBLEMS THEY WERE ALLEGEDLY ADDRESSING WORSE

You can stop shouting (it's rude), and I think at this point you have pretty much validated CaseyL's original argument.

Glad you can notice rude in other people, felixrayman.

And unless CaseyL's original argument was that liberal programs which make things worse ought not be changed, you are quite wrong.

I will now put you down as a either a proponent of pre-reform welfare which trapped people in poverty for their lifetimes and pre-reform HUD which almost always made worse neighborhoods than it started with or as someone who doesn't care about how the programs work in reality. Congratulations.

As for rude, may I direct your attention to your posts on this thread. Especially: "I have to doubt from your comment that you understand what the Section 8 program is."

I might also direct your attention to your posts on every thread on this website. But perhaps you only perceive rude when I'm directing it at you?

And unless CaseyL's original argument was that liberal programs which make things worse ought not be changed, you are quite wrong.

You should read CaseyL's argument again. It is quite relevant to the tone of your previous post, and the more the subject is discussed the more I realize that the take on the topic it presented is precisely right. If a program like SS were limited to the poor, it would be attacked with anecdotal evidence of the welfare queen/crack house variety.

And again, most of your criticisms simply don't apply to programs like Section 8 that were explicitly mentioned by hilzoy as programs worth saving. Specifically, your "crack house" argument is specious:

The U.S. Supreme Court upheld the federal government's "one strike and you're out" drug policy for low-income housing projects. A public housing tenant may be evicted if any family member or guest is caught using illegal drugs -- even if the tenant was unaware of the drug use.

I would argue that this policy goes too far, but then again, Clinton (A LIBERAL) enacted a number of policies of which I disapprove.

As for the rest of your post...meh.

The ball, folks. The ball.

Back to reform plans, from what I've seen (can't find the cites at the moment) participation in the current plans, whether 401k's, IRA's, or others, is well below the maximum allowed under the current rules. Also, there are studies that show that a large portion of the money invested in these programs represent asset shifting rather than increased savings levels. If these studies are accurate, increasing the contribution caps or adding new savings vehicles will probably have a very limited overall impact.

Sebastian - your employer is an outlier. Overall employer contributions to 401k plans hovers around 3% (see this Wall Street Journal article for more background).

Sebastian: As I understand it, there were at least two major sorts of Section 8. One was used for building dedicated housing where people with Section 8 vouchers could live. I'm not sure whether the big monstrous high-rises were built under this program, but stipulate that they were: this was seen (within the low-income housing policy world, and outside it) as a mistake very early on, and had been replaced by the idea of building much smaller buildings, often mixed-use. But if I'm not mistaken, this entire component of the program fell out of favor quite some time ago (which doesn't mean the buildings aren't still there, of course), and money has been going either largely or exclusively to the other component of the program.

This component gives families voucher which they can use at any housing they choose, though in practice their options are limited by how much Section 8 pays in that area. This side of the program does not create neighborhoods of any kind, precisely because its vouchers are not attached to any particular piece of real estate. It gives recipients a lot more freedom, obviously, and it's in many ways better. That's what's under attack.

About low-income housing more generally: you're absolutely right when it comes to the huge low-income buildings that were created early on. I think the record is quite different when it comes to the smaller developments. 'Different' doesn't mean 'uniformly great', of course -- it doesn't mean uniformly anything (one difference, since the huge monstrosities were uniformly bad) -- but there have been some really great projects.

One of the things I find frustrating about this, as an onlooker (my sister used to do low-income housing, and more or less transformed a neighborhood by replacing its crack houses with really good inexpensive housing which the largely Dominican families very much appreciated) is that within the low income housing policy world, they learn a lot from the past about what works and what doesn't work, and have actually gotten fairly good at it. And of course it's not as though the the problem they have gotten much better at is going to just go away. But the programs that work, like Section 8 vouchers attached to people, not property, are being gutted.

Sidereal wrote:

No, the asset is the total income activity in the US combined with the right to tax it, enforceable by the US military.

Nothing in that statement is http://www.uscg.mil/hq/g-cp/comrel/factfile/Factcards/PosseComitatus.html>even remotely close to being true.

Seb, you did prove my point. The GOP singled out programs they disliked on ideological grounds, and claimed the budget cuts would somehow 'fix' those programs.

The budget cuts did not 'fix' what was wrong, because what was wrong had little to do with the funding. However, the lack of funding did render the program unable to function at all, which allowed the GOP to then claim the program 'didn't work' (switching their rhetoric from the ideological to the utilitarian), and then end it.

Note that the problems didn't go away - the people who needed them are still with us: still homeless, still malnourished, still badly educated, still beset by mental and emotional illness, stll beset by substance abuse issues, still without good healthcare, still without good health and nutrition education, and still living in environmentally unhealthy areas. The GOP destroyed the programs that assisted these people, and replaced the programs with... nothing.

The consequences have been horrendous.

I'm not letting this wrecking crew anywhere near SocSec.

I was googling to find a WaPo article on problems that PGcounty is having with Section 8, and came across this very interesting link. (also go to the full transcript) It's clear (at least to my biased viewpoint) that this is not a simple 'yes it's good/no it's bad' kind of question. I was struck by this comment:

"What we're finding is that there are lot of misperceptions (on the part ) of Section 8 participants, and that leads to unfortunate policy decisions on the part of governmental officials. There's a misunderstanding that...Section 8 participants are bringing crime and other problems, social problems, into a community.

"There're a number of incidents that we point to where we see the Section 8 program being a lightning rod for community problems. If there're declining property values, people are trying to look for a reason and they connect with that. They see the presence of minorities and immigrants as connected to the presence of Section 8 assistance. Folks don't believe that people can be in their community who look different than they do, and they believe that subsidized assistance is the reason for it. They also start to connect the presence of those people with the decline of property value and other difficulties.

Bernard Yomtov wrote:

Your 6:59 response to me makes no sense whatsoever. Participants who contribute more than their promised benefits reduce the unfunded liability. This is simple arithmetic, something you and Bush may scorn, but which is valid nonetheless.

If it didn’t make sense to you, perhaps you should try reading it and my prior response more carefully. I pointed out earlier (in response to Francis' 05:41 PM post from yesterday) that adding more workers wouldn’t fix Social Security’s unfunded liability problem because in the current SS scheme, those workers would also be “promised” more in benefits than they were paying in FICA. In other words, you’re just digging yourself a deeper hole because under the current system, you will still have “promised” them benefits as well.

Now certainly if you want to change the law and say that we’ll reduce benefits when the “trust fund” is exhausted (an admission which would effectively cut the knees out from the Ostrich Caucus) you can mitigate that unfunded liability. Or you can even take Sidereal’s suggestion of http://www.uscg.mil/hq/g-cp/comrel/factfile/Factcards/PosseComitatus.html>ignoring US law and use the military to forcibly confiscate more money to prop up the system to pay SS benefits. However that just makes the system an even worse deal for younger workers as they are either (a) getting less in benefits or (b) paying more in taxes or (c) both.

Your response to hilzoy is equally silly. On the one hand you criticize the comparison to the Defense Dept because it "was never set up to be paid for with a defined revenue stream."

Because comments like Hilzoy’s were an obvious argument absurdum as the US military was never set up to be self-funded while Social Security was pretty much sold that way (hence the belief that many people have that they are “entitled” to benefits because they “paid into the system”). If you want to argue that should not have been the case and we should treat it like any other income transfer program and fund it (or not) from general revenue, feel free to make that argument.

On the other you refuse to recognize the validity of the treasury securities SS holds, which were purchased with a "defined revenue stream."

I never said that the United States would renege on its treasuries; I merely stated that I don’t consider an IOU written by the federal government to itself to really be an “asset” and I asked for examples of legitimate insurance and/or pension plans that wrote IOU’s to themselves and used the “revenue” of paying interest on a debt owed to themselves to pay out current benefits. No one hasn’t because, it’s absurd to think that writing an IOU to yourself is an asset in any meaningful sense.

Thorley,

Stop crawfishing. Your claim was that letting people opt out of the system would reduce the unfunded liability. But by your own description those who would opt out would be those who are net contributors to the system. Thus letting them opt out makes it worse, not better. Maybe you should revisit your comment.

Suppose we get a hundred people to each put $10 in a pot and then we redistribute the money, promising half of them $12 and the other half $9. Well, we have an unfunded liability of $50 because we promised to pay out $1050, when we only have $1000. Now, according to you, if we let those entitled to a $9 payout out of the system things improve. But of course that's ridiculous. We are left with $500 and promised benefits of $600. Now do you see?

As for the "worthless IOU" argument, do we really have to go around one more time on this? Just because you consider the bonds worthless doesn't make them so. Obligations backed by the full faith and credit of the US have value.

As for other pension plans that are backed by the IOU's of the payers, please note that many private pension plans are underfunded. In substance, if not in form, these plans are precisely funded by IOU's from the plan sponsor.

My point regarding the Defense Department was this: you argue that SS was set up to be funded by a dedicated revenue stream. True enough. But then you deny that any surpluses accrued by SS in excess of benefits paid are not really the property of the SS system. That is nonsense or worse. It is even more nonsensical when we recall that the current surplus in the plan is there by design and reflects the excess of collections over benefits accrued over the past two decades. It was accrued precisely in anticipation of the fact that at a future date collections would be inadequate to fund benefits.

Now you want to pretend it's not there? Forget it.

If the Fed buys a T-bond from a bank, does that bond cease to be an asset?

Bernard Yomtov wrote:

Stop crawfishing. Your claim was that letting people opt out of the system would reduce the unfunded liability. But by your own description those who would opt out would be those who are net contributors to the system. Thus letting them opt out makes it worse, not better. Maybe you should revisit your comment.

You really need to try replying to what I actually wrote for change. Seriously it isn’t that difficult considering it was the previous comment on this thread.

As I said in my previous post (and have said consistently), Social Security has an unfunded liability because it has “promised” on the aggregate each worker more in revenue than it collects from them in “contributions.” Ergo, adding more workers or keeping them in the system does not help the situation because they too are “promised” more in benefits than they pay in.

Suppose we get a hundred people to each put $10 in a pot and then we redistribute the money, promising half of them $12 and the other half $9. Well, we have an unfunded liability of $50 because we promised to pay out $1050, when we only have $1000. Now, according to you, if we let those entitled to a $9 payout out of the system things improve. But of course that's ridiculous. We are left with $500 and promised benefits of $600. Now do you see?

Except of course that this has nothing to do with Social Security since, to use your analogy, younger workers aren’t being promised a $9 payout for a $10 “contribution” they’re being promised the same $12 payout as the current retirees.


CaseyL, no one is suggesting that Section 8 housing vouchers be eliminated. The main proposal which is causing people to freak out is that the vouchers not be automatically renewed every year for all tenants--which makes perfect sense because the idea of poverty assistance is to assist for some time, not forever.

My problem with the whole tenor of this argument is that it is highly reactionary. You won't allow for any changes to any of your favored programs so long as Republicans are in power. This is fueled by your idea that Republicans are attacking programs just because they don't like them. That isn't true at all. The programs are being changed because of the perverse way in which they operate. Welfare reform is a classic example. It was quite clear to anyone who bothered to look into the issue by the early 1970s that the US welfare system was not performing in its function to support people through temporary difficulties, but was instead becoming a permanent system for creating and maintaining an underclass. Did the Democratic controlled Congresses of the next 20 years do anything about that? No they did not. It wasn't until 1996 (after the Republicans took the House for the first time in 40 years) that welfare reform was passed though it was laudably signed by a Democratic President. Welfare reform not only saved money and contributed to the economic growth of the 1990s by encouraging more people to work, but it survived its first test in the recession and is largely seen as a success even by many of the social scientists who hated it when proposed. It did not eliminate welfare, it changed it and made it better.

Section 8 housing has two problems (that I am aware of).

A) Owners don't like Section 8 renters. This isn't because they are poor. This isn't because they are members of minority races. It would be mysterious, why wouldn't you want to rent to someone when the rent is almost guaranteed to be paid. Owners don't like to rent to Section 8 tenants because bad Section 8 tenants are almost impossible to get rid of. Owners occassionaly make bad choices in tenants. Sometime they pick people who make other tenants' lives hellish and drive them away. Sometimes they cause lots of damage. Sometimes they run crack houses (note that the drug rules quoted above apply in very limited areas and not in most states.) Owners typically want to replace such tenants. This is very difficult to do with a Section 8 tenant because with the Section 8 money comes lots of special rules.

Second, many section 8 vouchers renew automatically. This doesn't make sense if there is a significant change in household income--especially if another adult comes into the household--or if their is a significant drop in expenses--your children move out. Or sometimes there can be both--your children stay in but start work.

The idea that we can't improve programs until Democrats are majorities is ridiculous. Furthermore, given the history of Democratic majorities in the 50s, 60s, 70s, 80s and early 90s, it would be a resolution to never fix these programs.

note that the drug rules quoted above apply in very limited areas and not in most states.

In which states do you believe federal law does not apply, Sebastian?

"If the Fed buys a T-bond from a bank, does that bond cease to be an asset?"

You aren't noticing the actor. Let us chart your argument.

A) The Fed sells T-bonds to an investor.

State of the money. Investor has an asset. Fed has a liability. What is the bond? It depends upon its relation to whom.

B) Investor sells bond to bank.

State of the money. Bank has an asset. Fed has a liability.

C) Fed buys bond from bank. Is it an asset for the Fed? No. It is retiring an asset.

The problem with the SSA holding bonds as 'assets' is that they are assets to one part of the government and liabilities to another making them mere accounting fictions. If you want, you can call them promises to pay. But that doesn't make it an asset because it isn't worth anything to the federal government.

So when you talk about selling assets to cover payments, you can't be talking about the SSA held bonds, because they can't help pay for anything from the point of view of the budget. The reason they can't help is because redeeming them adds zero value to the government budget.

"In which states do you believe federal law does not apply, Sebastian?"

Felixrayman, for someone who suggests that I know little about Section 8, you are exposing yourself to be supremely ignorant.

Section 8 is implemented in different ways in different states. The so called 'one strike rule' is applicable only to PHAs which represent a minority of projects and do not even exist in all states. Sheesh.

The so called 'one strike rule' is applicable only to PHAs which represent a minority of projects and do not even exist in all states. Sheesh.

A relevant (and representative) portion of the bill, emphasis mine:

(a) IN GENERAL- Notwithstanding any other provision of law, a public housing agency or an owner of federally assisted housing (as applicable), shall establish standards or lease provisions for continued assistance or occupancy in federally assisted housing that allow the agency or owner (as applicable) to terminate the tenancy or assistance for any household with a member--

(1) who the public housing agency or owner determines is illegally using a controlled substance; or

(2) whose illegal use (or pattern of illegal use) of a controlled substance, or whose abuse (or pattern of abuse) of alcohol, is determined by the public housing agency or owner to interfere with the health, safety, or right to peaceful enjoyment of the premises by other residents.

As for your "supremely ignorant" remark...meh.

to the extent that the conservatives on this thread REALLY want to have an honest discussion about the status of SS financing, let's go 'round one more time.

1. SS is not, for now, a ponzi scheme. Inflows exceed outflows.

2. Depending on a number of factors, including mortality rates, immigration rates and growth in productivity, it is possible that SS will NEVER be a ponzi scheme. It is entirely possible that the $12 being promised (reference above) will be available when it is due.

3. the very use of terms like "ostrich caucus" and "ponzi scheme" demonstrates the weakness of those arguing against ss. Insults and cliches are not persuasive to those who take the other side.

4. the buildup of assets in the SSA was a POLITICAL move, not an economic one. There has been agreement in both the legislature and the executive office since the founding of soc sec that the federal government should not be a direct investor in the US financial markets. Hence the investment in T bills.

5. medium to high income individuals (like, presumably, many of the posters here) have received an extraordinary benefit by the political move to overfund SS. Had that revenue stream not been there, the fed govt would have had to raise income taxes years ago to achieve the same inflows into the treasury.

6. the purpose behind the political move to overfund SS was to cover the coming retirement of the baby boomers. in other words, the fake "crisis" being waved around by the Bush admin was expressly dealt with years ago. If, consistent with the 14th amendment, the next several administrations honor the debt owed to the SSA, the boomer bubble will be covered. And frankly, no one has any idea what the economy will look like in 2050. how much productivity growth will there have been? immigration? mortality? there is lots of time between now and then to make MINOR adjustments in the public pension system to keep it whole.

7. Since many conservative posters appear to find analogies between individuals and govts persuasive, here's the simplest possible analogy:

GWB has been borrowing from his 401K to play paintball. (Maybe he thought that he would win the paintball competition and have prize money to make paying back the loan a little easier. whether or not he actually thought that, he didn't win and the money is gone.) Having spent that money on an activity which has not made him any richer, he wants to change the rules so he doesn't have to pay it back.

8. I have posted a series of arguments in support of the idea of a public pension system. I note a singular LACK of direct response to those arguments.

cheers

Francis

Felixrayman, is it your contention that all owners who rent to tenants with Section 8 vouchers count as "or an owner of federally assisted housing"? Because if that is your contention, it is incorrect. If that is not your contention, you quote is inapposite. Which is it?

Sebastian,

The life of a bond begins when it is issued by the Treasury and ends some years later when it is redeemed by the Treasury. Typically it passes through many hands during its life. Private sector holders can sell it to public sector holders and vice versa. But from start to finish it is a liability of the Treasury.

If you are talking about the consolidated accounts of the public sector, then of course you are right to say that T-bonds held by the SSA are not assets in those accounts. If you are talking about the Treasury and the SSA as distinct entities then the position is that the SSA has an asset and the Treasury has a liability.

The way to create confusion is to say that the assets of the SSA are not really assets, because they are not assets of the public sector as a whole. To an accountant an asset is something that belongs on the debit side of a balance sheet. It is simply wrong to say that an SSA asset is not really an asset, just because it does not appear on the consolidated balance sheet of the public sector. You create confusion in just this way when you say that SSA assets cannot pay for anything from the point of view of the budget.

If we allow your logic then a loan from a subsidiary to a parent company is not an asset since it “adds zero value” to the group. But the CFO of the subsidiary will insist that it is an asset. If the parent company is profligate there is a problem, but it is wrong to suppose that the problem lies in the subsidiary. In that case it is the managers of the parent company who should be sacked, not the accountant who quite rightly treats a loan to the parent as an asset.

Anyone can play Humpty Dumpty and say "words mean what I say they mean, no more and no less", but if standard accounting terminology has to be twisted to serve your argument, it suggests that there is something wrong with the argument.

is it your contention that all owners who rent to tenants with Section 8 vouchers count as "or an owner of federally assisted housing"? Because if that is your contention, it is incorrect

First of all, you stated that the law is "applicable only to PHAs". The bill references "a public housing agency or an owner of federally assisted housing". Your statement is obviously false.

More specifically in response to your question, according to the law, "federally assisted housing" includes housing "assisted with tenant-based assistance under section 8 of the United States Housing Act of 1937". "Owner", according to the law, "means, with respect to federally assisted housing, the entity or private person (including a cooperative or public housing agency) that has the legal right to lease or sublease dwelling units in such housing".

The SSA is not ruled by the laws of Congress? It operates independently of the federal government? Its rules are not laid down by acts of Congress? Congress does not have the power to change the benefits or the retirement age? The SSA is not sufficiently separate from the federal government to pretend that it is a separate entity for accounting purposes. It isn't even close. In a subsidiary situation, the subsidiary has substantial freedom or else it is seen as a sham. And in derivative suits, if its principle asset is stock in the parent company, that is often used as evidence that the subsidiary is not sufficiently funded or separate. If the only asset is parent company stock, even worse.

When the SSA attempts to cash those bonds, it will cause a crisis. Calling it the 'Social Security Crisis' is not misleading as it is social security which triggers the crisis. The danger has been well known for decades and for decades has been called the looming Social Security crisis. I'm not going to worry about taking flak for using the term which has commonly described the problem since before I was born.

"More specifically in response to your question, according to the law, "federally assisted housing" includes housing "assisted with tenant-based assistance under section 8 of the United States Housing Act of 1937". "Owner", according to the law, "means, with respect to federally assisted housing, the entity or private person (including a cooperative or public housing agency) that has the legal right to lease or sublease dwelling units in such housing"."

So let us be perfectly clear. It is your contention that the one strike law applies to every person who uses a section 8 voucher in any capacity? Because your definitional gaming looks very suspicious to me. Are you contending that "or an owner of federally assisted housing" is a legal identity to the general owner definition? Because that isn't my understanding at all. And that isn't my personal experience with Section 8 housing eviction in California in the apartment complex where I live as of 2003 which would be 5 years after the implementation of the bill. It seems very likely that your highly generalized reading of the statute is both A) wrong and B) not how the law is being enforced in this country.

Also, I still haven't seen evidence that Section 8 is being zeroed out or anything approaching that. Bush is proposing that its budget be marginally reduced and that qualifications for it be mildly tightened. Playing it as a comprehensive attack on the program is mere rhetoric.

SH sez: "When the SSA attempts to cash those bonds, it will cause a crisis."

why? more to the point, why won't the admin at that time:

a. increase revenue from other sources; and/or
b. decrease costs of other programs (like, for example, DOD); and/or
c. borrow more money in the open market?

Many conservative bloggers (including, recently, Dean's World) insist that the very act of talking about defeat in Iraq emboldens our enemies / is non-patriotic / constitutes treason.

I accuse conservabloggers of the same sin regarding ss: the mere act of asserting that a crisis will arise makes it more likely that there will be one! You should all be ashamed of yourselves! You are emboldening our enemies to launch economic war against the US!

yes, i'm joking. but until i see some evidence that the US will be unable to increase revenue / cut costs / swap internal debt for external debt without launching another worldwide depression, the unsupported cries of crisis are not persuasive.

btw, please feel free to include a discussion of the efficient markets theory as it relates to the impact of swapping internal debt for external debt.

Francis

It seems very likely that your highly generalized reading of the statute

Highly generalized? I cited the text of the bill. I cited the definitions of the words being used, again, straight from the bill itself. They contradict your assertion of the facts, which we now learn, is based on anecdotal evidence. If you want to argue the point further, you're going to have to come up with something better than that.

Although at this point, it's moot. It has been established to my satisfaction that CaseyL's argument is valid.

"I'm not going to worry about taking flak for using the term which has commonly described the problem since before I was born."

The term in question is "asset"; if I lend money to a member of my family it is an asset in my accounts and it does not appear at all in the family accounts. It is nonsense to say I don't have an asset just because the family doesn't. Ditto for a subsidiary. Bringing company law into this is mere distraction; what I am pointing out is that an accounting term is being misused.

Your remarks about the undoubted fact that Congress can do anything it likes with the SSA are also beside the point. The status of the Fed can be changed too, but the Fed can reasonably be considered as an entity for accounting purposes.

If you want to think clearly about this, be clear about which entity you are discussing. If you prefer to regard the SSA as a veil which is best stripped away that is fine. Then the only entity to be considered is the Federal government and the only crisis to be considered is the yawning gulf between Federal revenue and Federal spending.

Francis decides to try to set us straight with:

1. SS is not, for now, a ponzi scheme. Inflows exceed outflows.

It goes without saying of course that whether inflows exceed outflows at a given point in time has nothing to do with whether something is a ponzi scheme.

2. Depending on a number of factors, including mortality rates, immigration rates and growth in productivity, it is possible that SS will NEVER be a ponzi scheme. It is entirely possible that the $12 being promised (reference above) will be available when it is due.

Taking them in order. Unless you are expecting a reversal of the general trend in increasing life expectancy, as people continue to live longer and stay on the system longer, mortality rates are going to exacerbate rather than alleviate the problem. Immigration rates won’t help because you are essentially talking about adding more workers who will pay in $10 and expect to get paid $12. With reference to productivity, since SS benefits are currently tied to wages that means that as wages increase so do benefits which is pretty much a wash.

You’re 0 for 3.

3. the very use of terms like "ostrich caucus" and "ponzi scheme" demonstrates the weakness of those arguing against ss. Insults and cliches are not persuasive to those who take the other side.

Actually it doesn’t. We call Social Security a “ponzi scheme” because it is a ponzi scheme in that it is set up to pay for current benefits out of current “contributions” rather than productively investing its “assets” to earn revenue to pay benefits as a legitimate pension plan or insurance plan does. If members of the “ostrich caucus” are made uncomfortable because they are defending a system that is designed and operates like a criminal enterprise, that’s their problem. But I do apologize to any ostrich-lovers. ;)

5. medium to high income individuals (like, presumably, many of the posters here) have received an extraordinary benefit by the political move to overfund SS. Had that revenue stream not been there, the fed govt would have had to raise income taxes years ago to achieve the same inflows into the treasury.

Actually it’s more accurate to say that those who have been living off the government system by receiving social welfare benefits are the ones that have received the “extraordinary benefit” of having their favorite paid for with FICA overages or income taxes. In which case, direct your ire at those who demand increased levels of government programs since they’re the culprits.

6. the purpose behind the political move to overfund SS was to cover the coming retirement of the baby boomers. in other words, the fake "crisis" being waved around by the Bush admin was expressly dealt with years ago. If, consistent with the 14th amendment, the next several administrations honor the debt owed to the SSA, the boomer bubble will be covered. And frankly, no one has any idea what the economy will look like in 2050. how much productivity growth will there have been? immigration? mortality? there is lots of time between now and then to make MINOR adjustments in the public pension system to keep it whole.

The immigration, productivity, and mortality canards have been dealt with above. The “overfund[ing]” of Social Security is just another name for the “trust fund” and that’s been factored into the debate. Hence we talk about the date when the “trust fund” will be exhausted (assuming, albeit unlikely) that the funds would have been replenished. Which is why we talk about two different dates – when Social Security begins to pay out more than it takes in and when it’s bankrupt and the (replenished) “trust fund” would be exhausted. The prior “fix” has nothing to do with the demographic problems. 0 for 4.

7. Since many conservative posters appear to find analogies between individuals and govts persuasive, here's the simplest possible analogy:

Analogies can sometimes be useful to illustrate a larger or complex point but in order to do so, they have to accurate or relevant to the issue at hand. Bernard Yomtov’s analogy about the worker paying $10 expecting to receive $12 was inaccurate because it falsely assumed that the younger workers were expecting to receive $9 rather than $12 (which is closer to how Social Security is currently set up) and was unpersuasive. Your analogy about GWB and paintball is unpersuasive because it is wholly irrelevant to the issue of Social Security reform which is independent of the your "feelings" about the President.

Thorley -

Insisting upon describing Social Security as a Ponzi scheme and those who would support no immediate changes to Social Security as the "Ostrich Caucus" can only harm any effort at constructive discussion. Since you continue to use those terms, and defend their use when someone objects, I can only assume that you have no interest in a constructive discussion.

Insisting that a system that funds current benefits out of current “contributions” rather than from the productive investment or assets is not really a ponzi scheme or that an IOU written to yourself is really an “asset” can only harm any meaningful discussion. Using Jerry’s logic, we can assume that anyone who does so has no interest in any meaningful discussion.


If you say that a Treasury security held by the SSA is not an SSA asset then you must also say that it is not a Treasury liability. Face the implication: the only sensible approach is to regard pension obligations as part of the burden which the government has assumed.

Now, if "a system that funds current benefits out of current “contributions” rather than from the productive investment or [sic] assets" is a Ponzi scheme then the entire Federal budget is a Ponzi scheme.

So what?

OK, so if the as-you-insist Ponzi scheme is to be altered in such a way as to convert it into a mandatory contribution based annuity system, how do you propose to deal with those who are either currently receiving benefits or have too few working years left to establish an adequate amount to annuitize? Cut those people off? Short of that, there are significant transition costs that the government would assume at a time of growing deficits in its operating accounts. Should we not care about that?

As to the trust fund holdings, there are valid concerns about distortions caused in the markets by the government holding large quantities of stocks and bonds in publicly held corporations. There are also legitimate concerns about unintended consequences of the government being a large shareholder in private sector companies. It was these concerns that led to the trust fund investing in Treasury issues. What would you suggest here?

"If you say that a Treasury security held by the SSA is not an SSA asset then you must also say that it is not a Treasury liability. Face the implication: the only sensible approach is to regard pension obligations as part of the burden which the government has assumed."

I indeed have said that it is not a Treasury liability. That is why I have repeatedly refered to it as an accounting fiction. It is neither a liability nor an asset when held by the government.

"Although at this point, it's moot. It has been established to my satisfaction that CaseyL's argument is valid."

All we have established is that you have the reactionary belief that changing government programs ought to be impossible. Further we have established that you believe the law as played out in actual situations has nothing to do with anything. Which makes perfect sense considering your studied inifference in how actual welfare policies play out, how actual investment works, or how actual housing policies work. I am not a HUD expert so I cannot point you to the statutory language which contradicts you, but I can tell you with certainty that your cursory reading of the statute is either not complete or does not conform to the actual practice in the United States. But, again, you have no interest in practice. Classic technocrat.

vin Donoghue wrote:

If you say that a Treasury security held by the SSA is not an SSA asset then you must also say that it is not a Treasury liability.

In your intention is to suggest that the SSA is somehow not a part of the federal government or that when SS’s shortfalls arrive that somehow the federal government will not be obligated to either cut benefits or raise taxes (or some combination of the two), then I can see trying to make an argument that this would be an asset. However since we all know that that isn’t the case, it’s a fallacious argument.

Face the implication: the only sensible approach is to regard pension obligations as part of the burden which the government has assumed.

Which is an argument for putting SS obligations on the books, at least for those who believe that we are somehow obligated to pay these benefits in the future. I should state for the record that my desire to reform the system is only because I recognize that any action we’re taking is going to be constrained by the general political consensus which for better or worse is that the federal government is going to provide some sort of “safety net” for the elderly. Talking about “transition costs” for example is simply one way of recognizing what those who actually believe we are obligated to pay benefits is an already existing liability (granted a smaller one than if we adopt the OC’s approach).

Now, if "a system that funds current benefits out of current “contributions” rather than from the productive investment or [sic] assets" is a Ponzi scheme then the entire Federal budget is a Ponzi scheme.

By “system” I was clearly referring to a pension or insurance plan but I get that my failure to include that modifier that one time (even though I had been using it pretty consistently throughout this thread) left me open for your little attempt at word play. Congratulations.

JerryN wrote:

OK, so if the as-you-insist Ponzi scheme is to be altered in such a way as to convert it into a mandatory contribution based annuity system, how do you propose to deal with those who are either currently receiving benefits or have too few working years left to establish an adequate amount to annuitize? Cut those people off? Short of that, there are significant transition costs that the government would assume at a time of growing deficits in its operating accounts. Should we not care about that?

First, no one is (unfortunately) talking about converting the entire system either by privatizing it or going to a mandatory savings system. We’re talking about a partial conversion (probably about 1/6 to 1/3 of FICA) and more than likely its going to be limited to workers at a select age group (e.g. the youngest ones who stand to gain the least from the system). Your concern about the someone with only a few years left (e.g. a worker in her 50’s) is probably not going to happen.

As far as dealing with the “transition costs,” let me reiterate again that what we’re talking about is recognizing an already existing liability and because on the aggregate each worker under the current system gets more than s/he pays into it (even though currently it won’t be able to meet what its “promised” to pay), it’s cheaper in that it results in a smaller liability for the taxpayer to let workers opt out, even partially. That being said, I fully acknowledge as has the POTUS that in the short-run this will increase shortfall even though its outweighed by the savings in the long-run. To mitigate that problem, I support:

1) Changing the COLA formula by going from wage-indexing to price-indexing (as the administration seems to support) which would keep benefits at the level of inflation. Although your earlier point as to why we changed to it is well-noted.
2) Phasing in a higher retirement age from 67 to about 70 while allowing those workers are physically incapable of working the extra three years to collect benefits (similar to expanding the disability portion of OASDI). I think we ought to do the same for Medicare as well BTW.
3) Means-testing both SS and MC.

I’m willing to acknowledge that there are quite a few specifics to work out for 2 and 3 although they are my preference (even though I support all three) because they can be applied to the larger problem of Medicare.

As to the trust fund holdings, there are valid concerns about distortions caused in the markets by the government holding large quantities of stocks and bonds in publicly held corporations. There are also legitimate concerns about unintended consequences of the government being a large shareholder in private sector companies. It was these concerns that led to the trust fund investing in Treasury issues. What would you suggest here?

I would suggest that the federal government not be the holder of securities in privately-held companies and that they be the property of the individual PRA-holder. It should be noted that pretty much everyone who supports moving to a (partial) mandatory savings system has been pretty consistent on that point. Just like they’ve been pretty consistent that we’re not talking about individuals picking individual stocks but rather investing in some sort of selection of diversified indexes.


All we have established is that you have the reactionary belief that changing government programs ought to be impossible

Another completely false assertion as my January 26, 2005 05:23 PM post demonstrates - I give examples of government programs I would like to see changed and exactly what changes I would like to see made.

Further we have established that you believe the law as played out in actual situations has nothing to do with anything

If you are implying that the law as written is not being enforced, I would suggest that there is an entire branch of government dedicated to seeing that it is. Perhaps you should direct your criticism in that direction.

I am not a HUD expert so I cannot point you to the statutory language which contradicts you

Nor am I such an expert. Indeed, it has been suggested by some that I am "supremely ignorant" on the matter.

I'm pretty sure TW is arguing in bad faith. If anyone other than him agrees with his views, please feel free to chirp in and explain, but I can't understand a thing he's saying.

on the one hand, the president argues that SS is a terrible investment for young people, generating a negative rate of return for some people.

on the other hand, TW says that SS is a ponzi scheme, which is usually defined as:

"An investment swindle in which high profits are promised from fictitious sources and early investors are paid off with funds raised from later ones." [hat tip: thefreedictionary.com]

If SS is a terrible investment, then it is not a ponzi scheme.

More to the point, ponzi schemes MUST collapse, because the population of the planet is not infinite. for example, a simple ponzi scheme is double-your-money. Investor 1 invests 1 dollar and gets back $2. (Call this Round 0). The $2 come from Investors 2 & 3. (Round 1.) By simple math, to keep the scheme going, you need to double your investors at each round, expressed as 2^round. Round 10 requires 1,024 investors. Round 20 requires about a million investors. Round 30 requires about billion investors and we're out of investors by round 32. Everyone on the planet would be taking 1 dollar out of their wallets and expecting 2 back.

public pay-as-you-go pensions are not, obviously, ponzi schemes. At any given year, the health of the system is based solely on the relationship between the number of taxpayers, the number of retirees, the size of the reserve, and the authorized benefits. [But this statement is true only if the pension is a stand-alone system.]

Since, according to TW, the SS trust fund isn't real, the dedicated income stream into the SSA from payroll taxes isn't real either; its just part of the overall budget. It is therefore purely a matter of legislative will to set overall tax policy and overall benefits to retirees. Distribution to retirees is just another line item, like defense spending.

0-7 back to you, TW. Your Chicken Little Caucus still hasn't explained why the sky is falling.

Francis

felix, your email link doesn't work.

"Since, according to TW, the SS trust fund isn't real, the dedicated income stream into the SSA from payroll taxes isn't real either; its just part of the overall budget. It is therefore purely a matter of legislative will to set overall tax policy and overall benefits to retirees. Distribution to retirees is just another line item, like defense spending."

Sure, and the sky is falling because we are promising larger and larger benefits to be paid to a larger and larger population of retired people from a smaller and smaller population of working people.

your email link doesn't work

Had .net instead of .com, oops.

Clever me, I had tried that already:


(reason: 550 unknown user )

----- Transcript of session follows -----
... while talking to speed-racer.com.:
>>> RCPT To:
<<< 550 unknown user

Not so clever me. Modulo the brackets:

[email protected]-racer.com
(reason: 550 unknown user [email protected])

Try it again...

SH:

given the SSA forecasts and K. Drum's extensive and persuasive analysis, you're going to need a little more evidence before i agree with your contention that Chicken Little is for once correct.

Francis

At last a clear statement of the case for panic: “the sky is falling because we are promising larger and larger benefits to be paid to a larger and larger population of retired people from a smaller and smaller population of working people.”

Evidently the productivity of the shrinking workforce will not rise enough to take care of this. Which leaves just one teensy-weensy flaw in the privatisation proposals: the profitability of the investments will depend on rising productivity. So the poor slobs who retire in 2050 will find that their dividends do not amount to much.

This is the trouble with predicting the collapse of the sky. The proposal for propping it up never looks convincing.

Thorley,

Read your own posts:

Social Security’s retirement portion pays a negative return for workers under thirty for example,

This means they get back, in my example, $9 for their $10 contribution. A negative return means you get back less than you put in, for Pete's sake.

younger workers aren’t being promised a $9 payout for a $10 “contribution” they’re being promised the same $12 payout as the current retirees.

Are you just making it up as you go along? You apparently don't even understand your own arguments, much less Social Security. And you call me unpersuasive.

And if you want to talk about an ostrich caucus when it comes to the Treasury meeting its obligation to the trust fund, let's talk about those who insist that the Bush tax cuts have absolutely nothing to do with the looming fiscal, not Social Security, pace Sebastian, crisis.

OK, as a member of the "Ostrich Caucus", I am deeply suspicious of the partial privatization proposals that have been talked about. (I know that no plan has actually been put forth, bear with me.) As I see it, they don't provide for sufficiently large accounts to really transform the program. Let me explain:

The proposals being discussed not only limit contributions to 1/3 to 1/6 of FICA contributions, they include a cap of $1000 to $1500 annually. Let's make some assumptions to estimate what this means at retirement. Let's say the cap is $1250 (splitting the difference), a person contributes at the max level for 40 years, and their account (the 60/40 stock/bond mix that Cato uses) earns 5% annually after fees. This yields $160,000 at retirement to put into an annuity. YMMV, but today a lifetime, zero beneficiary annuity for a 67 year old male pays out around $1100 per month. According to the Social Security site, projected max benefits in 2045 are a bit north of $2100. (Today's dollars throughout.)

So, assuming that we reduce the SS benefits only by the annuity amount, the government is still on the hook for 48% of the payout to someone who has basically maxed out their personal account. Does this help? Sure, by diverting less than 1/3 of the revenue, the SSA has cut costs by 1/2 in this case. But, you still have to redeem those trust fund bonds to pay full benefits, plus doing whatever other borrowing is needed to cover the transition period.

Oh, and twiddle the numbers a little by having the yield set to 4.5% and the annuity is under $1000. Or, keep the yield at 5%, but knock the cap down to the low end ($1000) and the annuity pays less than $900.

Bottom line is that I'm suspicious that this is just an attempt to get the camel's nose into the tent. The proposed change isn't enough to "fix" the problem, but it is enough to get the mechanisms in place to make it easier to push through more radical changes later.


Evidently the productivity of the shrinking workforce will not rise enough to take care of this. Which leaves just one teensy-weensy flaw in the privatisation proposals: the profitability of the investments will depend on rising productivity. So the poor slobs who retire in 2050 will find that their dividends do not amount to much.

This is the trouble with predicting the collapse of the sky. The proposal for propping it up never looks convincing.


Two responses.

A) Investment spurs innovation and productivity as winners earn more money and losers get shaken out of the system. That helps out the economy. Taxation tends to spur innovation only in tax dodging. That doesn't help out the economy.

B) Even if we assume that investment and taxation are not different for your purposes, then privitization shouldn't hurt anything because if the economy is doing well there is no crisis and if it isn't there was going to be a crisis either way. The transition cost isn't a big deal over the long run because it explicitly recognizes future costs and does so now at historically low interest rates.

In your intention is to suggest that the SSA is somehow not a part of the federal government or that when SS’s shortfalls arrive that somehow the federal government will not be obligated to either cut benefits or raise taxes (or some combination of the two), then I can see trying to make an argument that this would be an asset. However since we all know that that isn’t the case, it’s a fallacious argument.

What difference does it make if the government has to raise taxes to meet its obligations? That doesn't mean they are not obligations. Let's take your argument a step further. Suppose the government was well able to meet its obligations to SSA with no tax increase. Then, you concede, it would be reasonable to consider the SSA bonds as assets of the system. Now suppose in that case the government suddenly and irresponsibly cut taxes, so that paying off the bonds presented problems which could be solved by rescinding the cut. Then, you maintain, incredibly, that the bonds are no longer assets of SSA.

Amazing.

TW:
" 'No, the asset is the total income activity in the US combined with the right to tax it, enforceable by the US military.'

Nothing in that statement is even remotely close to being true. "

Perhaps you should address the statement, then. No obligations of course, but that's normally how these things work.

Do you disagree that the collateral against which treasury loans are made is the expectation of future federal tax income, that an 'IOU' is another word for a loan, or that outstanding loans are accounted as assets?

If you want to get into an asinine side argument about the likely enforcers in the event of a general tax revolt, that sounds like a blast, but we should probably take it offline. I'm guessing it would escalate to the National Guard fairly quickly.

SH sez: "Investment spurs innovation and productivity as . . . losers get shaken out of the system."

which is PRECISELY why we need a public pension system.

Francis

Sebastian,

I have no quarrel with the idea that people who save to provide for their own retirement are likely to get better returns in aggregate than the state would do. (Some would lose a bundle of course.) I would go further and say that they would also outperform the fund managers who will get the business if this story develops as I expect it to – towards a system which will simply give funds a bigger chunk of Other People’s Money to play with.

But these effects are probably minor. If your concern is really with raising the future level of output per worker then the thing you should be really worried about is America’s savings rate. Low saving means slow accumulation of capital, means less capital per worker. Think along those lines and you see that the really big problems are the budget deficit and the trade deficit, which is just (I-S)+(G-T) like the textbook says. Social security is just a distraction.

My apologies if someone directed a post at me and I didn't respond. I've been swamped with a filing, and haven't been much around the comment threads. Mea culpa.

At last, the definitive answer to all these questions. Also includes Glofish!

"If your concern is really with raising the future level of output per worker then the thing you should be really worried about is America’s savings rate."

I hear higher taxes haven't historically helped much with the savings rate.

classique:
"Q: I ended up with crap stocks, and my private account went empty early. What do I do?
A: You run out of money and starve. But you’ll starve in freedom, because you OWN your empty personal account, which means you OWN your starvation!
Q: I feel so free and hungry!"

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