by hilzoy
Ben Smith at Politico has a story called 'Left Silent On Social Security, Medicare':
"Strikingly, however, Obama appears to be getting unusual room to maneuver on entitlements by most of his liberal allies. On the subject of entitlement reform, in fact, Obama’s honeymoon continues — at least in the unlikely precincts of the Democratic left, a counterintuitive development that has buoyed the spirits of reformers who would like to see drastic changes in the way Social Security works. (...)
The relative silence of liberal activists who smashed Bush’s hopes of slowing entitlement spending is a mark of the deep trust Obama enjoys from the left of his party — and it’s also giving hope to those who would like to see major shifts in the way Social Security and other programs are funded and managed."
Speaking for my personal corner of The Left: I am not silent because I am prepared to let Obama do things I would have criticized had Bush attempted them. I haven't written about entitlement reform for two main reasons. First, Obama hasn't yet said anything specific about what, if anything, he intends to try to do. And second, this is one of those issues where the details really matter.
For one thing, I believe, as a lot of people do, that there is no "crisis in Social Security, Medicaid, and Medicare". (See Figure 1.1 of this report (pdf)). Insofar as there is any problem with Social Security, it is not urgent, and can be fixed by minor tweaks like raising the cap on payroll taxes. We do have a problem with Medicaid and Medicare, but that is due to the fact that we have a much more general problem with rising health care costs. Spending on Medicaid and Medicare has risen less rapidly than spending on health care generally over the past decade:
"Entitlement reform" can mean any of a number of things. On Social Security, it might mean a privatization plan like Bush's, or it might mean something like raising the cap on payroll taxes. If Obama plans to try the first, he will not get any silence or benefit of the doubt from me. I thought it was a terrible idea when Bush proposed it, and I think it's a terrible idea today. If he wants to raise the cap on payroll taxes, on the other hand, I don't have a problem with that.
Similarly on Medicare and Medicaid. There are a lot of good ideas out there about how to reduce spending on health care (the CBO lists 115 of them in this pdf alone.) Obama claims that he will make this a priority, and I'm all for that. But if he tries to gut Medicare or Medicaid, that would be entirely different.
Or, in short: once Obama comes out with specific proposals on entitlements, I will say something about them. Until then, my little piece of the Silence of the Left should not be taken to reflect anything more than not knowing what, exactly, he proposes. (It's certainly not that I am "afraid to express concerns", as Rep. Jim Cooper suggests in the Politico piece.) Some things that go by the name of "entitlement reform" are fine. Others are not. If Obama proposes the latter, there will be no "honeymoon" or "breathing room". But until I have some idea what, exactly, Obama proposes to do, I don't really see much point in speculating.
And if my failure to comment on this has "buoyed the spirits of reformers who would like to see drastic changes in the way Social Security works", they have a surprise in store for them.
Is it just me or are at least 50 percent of the articles on Politico on any given day a complete joke?
Posted by: Ugh | February 12, 2009 at 12:10 PM
Or, in short: once Obama comes out with specific proposals on entitlements, I will say something about them.
Indeed, it seems absurd that anyone would criticize Obama for simply pointing out that entitlement costs need to be addressed. Although, I'm not holding my breath waiting for those specific proposals: I think they (along with a lot of other important policy) will be kept on the back burner until it is clear that an economic recovery is underway.
Posted by: MikeF | February 12, 2009 at 12:15 PM
The term "entitlements" seems to be nearly as bad as "WMDs" in terms of muddying discussions by lumping disparate items together. Generally if someone starts talking about "Social Security, Medicaid, and Medicare" it's a good indication that what they're saying is not worth listening to.
Posted by: KCinDC | February 12, 2009 at 12:17 PM
Agreed. When someone complains about these sorts of things en masse--not with specific objections, but as a general category of spending to which they object--you can most likely translate it as "I don't want my money being used to help other people".
Posted by: Catsy | February 12, 2009 at 12:33 PM
I can understand the sentiment of not rushing to judgment, but I take from the Stimulus Bill process an important lesson. Namely, the Obama Administration is willing to compromise with the Right at the expense of the Left for the sake of "bipartisanship." What that means is that when a proposal gets thrown out for public consumption, that's probably as good as it's going to get, and the subsequent negotiating will very likely make it worse. Maybe I'm drawing too big a conclusion from that fight, and maybe Obama has learned a lesson from that process. All the same, I figure that in the event this becomes the OA SOP, it's very important for progressives to be active in shaping any bill that does get proposed.
In other words, we need to be proactive, not reactive.
Posted by: argo0 | February 12, 2009 at 12:36 PM
If he wants to raise the cap on payroll taxes, on the other hand, I don't have a problem with that.
It increases the perception that SS is some kind of welfare program, thereby possibly justifying benefit cuts for the most affluent of retirees, and then decreasing direct interest & support for SS among a more powerful subset of voters.
And in any case, what argoll said at 12:36. Under the current Senate alignment, I can't see being able to raise FICA taxes on the uppermiddleclass without massive offsetting concessions to Blue Dogs and/or Republicans. Maybe you can tell me me where to find 60 votes for raising the cap, and only that.
Obama will try to raise the cap, and will accept a raise in the retirement age and some decrease in benefits in exchange. It will weaken SS in the long term, and provide momentum for the next Republican President.
Someone else can speculate on his motivations or strategy.
Obama's real base will accept it, if not applaud.
Posted by: bob mcmanus | February 12, 2009 at 01:03 PM
I take from the Stimulus Bill process an important lesson. Namely, the Obama Administration is willing to compromise with the Right at the expense of the Left for the sake of "bipartisanship."
What specific aspect of the stimulus bill do you derive this lesson from? I ask because recently I have with some frequency encountered the assertion that tax cuts were put into the stimulus bill as a sop to the right, in the hope of attracting GOP votes - a hope which was obviously mistaken.
I don't think this analysis is in fact correct. If you look carefully at Obama's key economic advisors, and Summers in particular, the conclusion I come to is that they recommended large tax cuts on policy grounds rather than as a political negotiating tactic. The tax cuts are there for speed (sacrificing multiplier), not as bait to fish for GOP votes, and would have been in the bill even if the GOP were a non-factor.
Posted by: ThatLeftTurnInABQ | February 12, 2009 at 01:06 PM
I hate the term entitlement. If you paid for it in advance its not an *entitlement* its a *purchase.* Getting something you paid for is a *right* not a favor that the seller does you by handing over your purchase. In effect the middle class paid for SS with the Reagan FICA tax increases, and the rest of the country since then has willingly paid forward in the expectation of receiving what they are paying for in the future. This is not hard to understand.
In addition, and I'll be blogging this myself over the next few days. The absolutely last thing you want to do when you are in an economic slump that includes or necessitates restricted consumer spending is create a mass panic about the future--either the future of health care, of social security, or of unemployment insurance. That is because if you want people to go back to spending (within reason) they have to know that they aren't spending their last dime.
Societies without a safety net for the old, the unemployed, the ill have very high levels of saving because people are forced to work and save in order to avoid the inevitable disaster of the years when they can't work or retire. Demand is very low in those societies. China is facing this problem right now as they try to move from a market that sells goods abroad to one which can be supported internally by domestic demand. There simply isn't enough, because of people's fears of destitution.
While we are trying to stimulate consumer demand would be a terrible time to remove or weaken social security and other forms of safety net. It will cause people, and rightly, to put money into their mattresses.
aimai
Posted by: AIMAI | February 12, 2009 at 01:51 PM
argo0,
I believe that Obama did talk about this in his remarks to Mara Liasson of MSNBC (h/t Crooks & Liars):
"I mean, I suppose what I could have done is started off with no tax cuts, knowing that I was going to want some, and then let them take credit for all of them, and maybe that's the lesson I learned. But there was consultation; there will continue to be consultation."
So at least there's a hint that there may be hardball in the future if bipartisanship is not reciprocated.
Posted by: Fraud Guy | February 12, 2009 at 02:09 PM
My wife and I are just coming into the wonderful world of Social Security and Medicare. Boy is it a mess!
The new Medicare Advantage plans are all the rage and I can see why. Most of the official "Medicare and You" book is devoted to selling the notion. The old medical supplement options, twelve altogether, are mentioned in passing, but without any explanation or recommendations. It is as though the whole program has been turned over to the insurance industry to convert Medicare into (private) managed care, except the industry still has to make enough over the cost of medical care to pay performance bonuses to their sales people and brokers. And don't forget the shareholders. And, yes, executives at the top who really can't make ends meet for a mere ten thousand dollars a week. Oh, I almost forgot: THEIR bonus as well.
I'm learning a lot, starting with the interesting fact that there is a wide range of "premiums" to attract newbies like me and my wife to abandon Medicare and get into a managed care plan for old folks instead. For some plans in our county the "premium" is zero! How's that for a bargain? (I think the government may be awarding a "rural incentive" for some places, but I don't know for sure.)
I don't trust insurance companies at all. Something is very wrong with this picture. The reason they are so avidly recruiting is that Medicare pays them for every person they enroll. And the newly enrolled cannot change until the next open enrollment period.
The old supplemental plans, derisively called the "alphabet plans" (A through L) carry an elaborate formula of premium determination (age, geography, gender, smoking or not, etc.), widely variable from company to company. And compared to Medicare Advantage all are terribly expensive. Difference is you can go to any provider and are not restricted to those in the managed care pool. And (since you are still a citizen and have not handed your health care responsibility over to a managed care outfit) remain entitled to Medicare benefits.
Either way one still pays the "Medicare Part B" charge, even if Medicare is no longer in his life. I think that money, or some portion of it, is forked over to whatever insurance company catches that fish. That money, plus whatever kickbacks received from providers plus additional charges to the happy new "members" becomes their revenue stream.
When our payroll taxes were split up a few years ago the Medicare portion was separated from the FICA part. Why? The cap on Medicare was removed in return for a means test of sorts: the "premium" for Part B is a sliding scale based on income during retirement, with the lowest charges being paid by those of us at the bottom of THAT scale. As one's retirement income increases, so too does the Part B premium, even though the benefits are s'posed to be the same.
Seems to me a similar arrangement could be made with Social Security, reversing the deal so that as one's retirement income goes up the amount received from Social Security diminishes. Nothing for those whose income makes Social Security of no consequence. (I hear anguished cries of "no fair!" from rich people everywhere whose estates may support one or two generations yet unborn.)
And as long as I'm ranting, let me get this into the conversation:
LET'S NOT USE THE TERM "SOCIAL SECURITY" WHEN SPEAKING OF "INDIVIDUAL SECURITY".
Roths, pensions, IRA's, 401-K's and the like are INDIVIDUAL arrangements.
Payroll taxes are collected for SOCIAL security.
It is important not to confuse the two concepts. It is a very simple principle that the working poor have always understood but I never hear anyone mention, mainly because those with individual security rarely stop to consider how many working people are not in their club.
(end rant)
Posted by: John Ballard | February 12, 2009 at 02:26 PM
Tom Geoghegan is running for Rahm Emanuel's seat in Congress on a platform of substantially increasing Social Security benefits, so they constitute a real pension rather than a partial one, especially for people whose retirement incomes have been devastated by the economic disaster. It's important for that kind of progressive view to be heard, not only for its own merits, but because it adjusts the playing field on which compromise and consensus will be debated.
Posted by: tkd | February 12, 2009 at 03:18 PM
Obama, Social Security, and the Diamond Orzag Plan ...Jane Hamsher of Firedoglake, a trustworthy source
Lots of material, facts, direct quotes, and links. Peter Orzag is now of course, Obama's Budget Director. The Diamond Orzag Plan ...page with link to pdf
Then there is the Fiscal Responsibility Summit
...WapoPosted by: bob mcmanus | February 12, 2009 at 03:32 PM
Here's Bruce Webb, pretty much the blogosphere Social Security authority, on raising the cap.
Posted by: bob mcmanus | February 12, 2009 at 03:40 PM
ThatLeftTurnInABQ,
I'm not talking about moves to the center made in the original bill, but about the moves the Administration made/supported/accepted to its own bill, e.g., calling House leadership to get family planning funding cut as a sop to the Right, and encouraging the Senate to roll over on anything the "moderates" (or even what some of the Republicans that wouldn't vote for it) wanted.
bob macmanus,
That's exactly why I'm concerned with being reactive rather than proactive.
Posted by: argo0 | February 12, 2009 at 03:59 PM
Here's Larry Lindsay on Obama's proposal to raise the cap. Lindsay has a different speculation about Obama's covert intent.
...LLEnough. I actually feel this is insulting, because neither Obama or hilzoy are stupid or ignorant, and it is safe to assume that both know & understand the arguments against raising the cap, which go back to FDR.
We must look for other explanations as to why they would advocate this change.
Posted by: bob mcmanus | February 12, 2009 at 04:11 PM
bob mcmanus: Is the problem with raising the cap (to a higher wage rate), or with eliminating the cap altogether?
Posted by: Hogan | February 12, 2009 at 05:11 PM
bob: Not having a problem with something (which I would not myself propose) is advocating it?
Posted by: hilzoy | February 12, 2009 at 05:29 PM
hilzoy, "not having a problem (with something [you] would not [yourself] propose"
may be too subtle for me. Are we in Thomas More territory?
I could imagine, as a Texas congressperson, neither opposing not proposing a particular bridge project in Oregon, and not even having to defend my indifference; but I cannot really imagine bringing up the subject of the bridge in conversation save as a form of support or mild advocacy.
"I will not oppose the Sunstein appointment" says what it says, but is helpful and does imply a Yes vote in committee and on the floor. Is this what you had in mind?
Posted by: bob mcmanus | February 12, 2009 at 06:36 PM
Is the problem with raising the cap (to a higher wage rate), or with eliminating the cap altogether?
I think the explanations already posted should be adequate, unless further arguments arise.
The idea is that those paying more in contributions than they can reasonably expect to receive in benefits will become disinvested in or disenchanted with the program.
Posted by: bob mcmanus | February 12, 2009 at 06:47 PM
On topic (since it ties into social security), Sharon Astyk makes what seems to me to be a very astute distinction between savings and investment and the consequences of confusing them either accidentally or perforce: down the rabbit hole
Posted by: ThatLeftTurnInABQ | February 12, 2009 at 06:54 PM
Of course there is "no crisis with Social Security."
Social Security, as implemented, is simply a Ponzi scheme. Having been forced to pay into it for over 40 years, I continue in the believe that I held at 14 when I first had to:
I am never going to see a dime back from this. It isn't a retirement plan, it's just another tax.
That being the case (and I defy anyone to demonstrate to the contrary), there isn't a crisis with Social Security. Merely a (crisis of confidence perhaps?) discovery by a lot of people that the scheme they were basing their retirement plans on simply does not exist. Better they should have invested with Madoff -- at least then they might have gotten some return over the years, even if the principal has disappeared.
Posted by: wj | February 12, 2009 at 11:19 PM
"The idea is that those paying more in contributions than they can reasonably expect to receive in benefits will become disinvested in or disenchanted with the program."
Bob,
How is this different from how those who disdain social security see it now? Every one contributes, but it only provides a safety net to a certain point--raise that level, perhaps, to above poverty level?
Posted by: Fraud Guy | February 13, 2009 at 12:29 AM
wj - Why do you believe you won't see any money back from Social Security?
I don't know any other government programs that are self-funding and solvent for at least the next thirty years (under the most pessemistic estimate I've seen - although that was before this recession), and this is meant to be a crisis?
Even assuming there is a payment shortfall due to the baby boomers (which is what we're talking about, right?) By it's nature it must be a transient issue. Just work out some bridging funds, get over the hump and everythings rosy.
Unless of course you're just hostile to the program, and looking for a reason to cut it.
Posted by: Shane | February 13, 2009 at 12:58 AM
hilzoy and others - I think Politico is actually catching on the keyword 'reform', which has been so overloaded as a synonym for "cut" (see welfare reform) that any other reading simply doesn't occur. Not "improvement" and certainly not "expansion".
Whether Obama reads it differently? I'm waiting to see.
Posted by: Shane | February 13, 2009 at 01:04 AM
Atrios has a simpler explanation: Ben Smith is trolling.
Posted by: Johnny Pez | February 13, 2009 at 06:30 AM
I hate the term entitlement. If you paid for it in advance its not an *entitlement* its a *purchase.*
Normally, when I purchase something it comes with some kind of guarantee.
Do you count on SS in your retirement planning? I certainly do not. I assume that I’ll never see a dime of the money I paid in, especially after this boondoggle of a stimulus gets passed. Hell, the interest alone could wipe out SS…
I take some solace in the fact that my mother can begin collecting soon. At least that’s what I tell myself when I look at the FICA line on my paystub.
The idea is that those paying more in contributions than they can reasonably expect to receive in benefits will become disinvested in or disenchanted with the program.
Yup. ponzi scheme comes to mind...
Posted by: OCSteve | February 13, 2009 at 07:00 AM
"under the most pessimistic estimate I've seen - although that was before this recession"
Last I heard, the "most pessimistic estimates" of the social security administration were pretty darned optimistic.
Posted by: Brett Bellmore | February 13, 2009 at 07:25 AM
"They're taking my money and giving it to that guy over there".
The battle cry of the American conservative.
Posted by: russell | February 13, 2009 at 07:54 AM
As always, anyone who uses the phrase "ponzi scheme" to refer to Social Security -- in this case, OCSteve and wj -- can simply be ignored out of the discussion, as they simply don't know what they're talking about.
Posted by: Phil | February 13, 2009 at 08:07 AM
Repeating what I said earlier...
Please,
Let;s not use the term "SOCIAL SECURITY" when speaking of "INDIVIDUAL SECURITY".
Roths, pensions, IRA's, 401-K's and the like are INDIVIDUAL arrangements.
Payroll taxes are collected for SOCIAL security.
It is important not to confuse the two. It is a very simple principle that the working poor have always understood. Better compensated workers who can afford individual security rarely stop to consider how many others are not in their club.
ROI does not apply when speaking of payroll taxes. The only "return" on that "investment" is the safety net our society/economy provides those who do not or cannot care for themselves.
Posted by: John Ballard | February 13, 2009 at 09:12 AM
This is why this article has no credibility:
"I am not silent because I am prepared to let Obama do things I would have criticized had Bush attempted them."
Obama = sweetness and unicorns; Bush = evil
Posted by: Patricia | February 13, 2009 at 04:12 PM
As always, anyone who uses the phrase "ponzi scheme" to refer to Social Security -- in this case, OCSteve and wj -- can simply be ignored out of the discussion, as they simply don't know what they're talking about.
Hell, Phil – save time and just look for the “Posted by: OCSteve” then you can just discount the whole thing as wing nut ramblings without wasting time reading the comment…
Here’s Merriam-Webster:
an investment swindle in which some early investors are paid off with money put up by later ones in order to encourage more and bigger risks
That works for me as a definition of SS. To repeat my question – do you personally believe that SS will be there for you – enough that you actually include it in your retirement financial planning? You may be young enough that you are not thinking about that yet, that’s cool. But I’d suggest that anyone who is banking on that money rethink things. What just happened to our 401(k)’s? Do you really think SS is that much more secure? I get my quarterly (?) statements from them. I chuckle and run them through the shredder.
As a safety-net I think it’s a great thing. As a long term concern – I have no faith in it whatsoever. Obviously YMMV.
Posted by: OCSteve | February 13, 2009 at 07:38 PM
You need to reread, Patricia. hilzoy is saying that she is not prepared to let Obama do things that she would have criticized Bush for doing.
Posted by: Slartibartfast | February 13, 2009 at 07:57 PM
Every time a wealthy white man talks about the need to reign in "entitlements" my eyes cross and steam comes out my ears.
"Entitlement" is bankers telling Congress they can't possibly keep good people (almost all white men, what an *amazing* coincidence) on a mere $500K/year.
"Entitlement" is when you think you deserve more than other people, because you're just that special.
Social Security and Medicare are *not* entitlement programs. They are *safety net* programs, they are "basic human decency" programs, they are "no one should have to fall farther than this" programs. They are the very *opposite* of entitlements.
What good reason is there for even considering cutting back on safety net programs right now, when people need them most? The only reason I can think it's even being brought up is that people who've been soaking in their privilege can't stand to see the gap between rich and poor narrow, so if the rich get poorer by gum the poor better get poorer, too. It's only fair, after all.
Posted by: Doctor Science | February 13, 2009 at 08:10 PM
Phil,
The hallmark of a ponzi scheme is that it takes money from later contributors and uses it to pay to those who got in earlier. Which is precisely what Social Security does: Those who got in early paid small amounts; they have (if they lived long enough) gotten back far more than they ever paid in -- especially as benefits have been increased frequently over the years.
Those who got in late have paid a lot of money in. But there is simply no way that they will get back what they contributed. The demographics simply won't support it.
All of this follows from the way Social Security was designed.
So, if you say that Social Security is nothing like a Ponzi scheme, what characteristics of such a scheme does it lack? As far as I can see, the only significant difference is that the books are available for inspection. Almost nobody reads them, and those who point out the problems are denounced, but the financial situation is there to see. But other than that, how is it different?
Or do you just recommend ignoring anyone who points out that the emperor has no clothes so you won't have to deal with an unpleasant reality? After all, maybe you will get lucky and be gone before the truth can no longer be denied.
Posted by: wj | February 13, 2009 at 08:11 PM
That's a key difference. The other difference is that it's open-ended. New contributors are being born into it all the time. That's cannot be the case with Ponzi schemes.
Posted by: gwangung | February 13, 2009 at 08:18 PM
I remember from when I was a child a number of people expressing the same sentiment OCSteve does regarding Social Security. Many of them retired and collected Social Security for many years before passing away.
I also remember people in the 1970s saying SS would be bankrupt in 10 years, people in the 1980s saying SS would be bankrupt in 10 years, people in the 1990s saying SS would be bankrupt in 10 years.
Anyone who thinks SS is a ponzi scheme might do well to consider how many ponzi schemes last 8 decades. They might also do well to consider whether a ponzi scheme whose predicted demise 75 years in the future can be avoided by slightly increasing the age benefits kick in, slightly increasing productivity growth for the economy, or slightly increasing funding is really a ponzi scheme.
Presumably people who consider SS a fraud would never purchase health or disability insurance since they are obviously fraudulent. Or perhaps they imagine the insurance companies have a big vault with enough money sitting in it to cover their worst case scenarios.
More likely, many of those who cast aspersions on SS are ideologically opposed to paying taxes to decrease poverty among the elderly or disabled.
Posted by: now_what | February 13, 2009 at 08:23 PM
Phil: "As always, anyone who uses the phrase "ponzi scheme" to refer to Social Security -- in this case, OCSteve and wj -- can simply be ignored out of the discussion, as they simply don't know what they're talking about."
Answer their points if you feel like it. If you don't, don't say anything. But don't just belittle them and move on.
OCSteve: glad you're back.
Posted by: hilzoy | February 13, 2009 at 08:56 PM
Hilzoy, the only possible answer to the "point" that SS fits the definition of a Ponzi scheme is that the point is vaccuous. It is vaccuous because the same definition fits the system we call "family": people supporting their aged parents and being supported by their children in their turn. When commenters, however esteemed, make vaccuous points, are we required to pretend they do know what they're talking about?
--TP
Posted by: Tony P. | February 13, 2009 at 09:27 PM
Hilzoy, if someone now takes the time, in a patient and civil way, to explain for the umpty-umth time why Social Security is not a Ponzi scheme, can we all be excused from doing so ever again? And may we in future refer commenters who do so to this thread?
Because at some point a refusal to acknowledge the basics indicates bad faith or wilful ignorance.
Posted by: Nell | February 13, 2009 at 09:35 PM
These are not all the same people involved as in other times.
Posted by: gwangung | February 13, 2009 at 10:07 PM
There is a key element in the calculation of the value of Social Security that is rarely mentioned, including these comments as I skimmed them.
The money that workers are paying into Social Security is paid collectively to their parents and grandparents. In times before this system was set up, there was significantly more that children paid to help support their parents.
With an age difference of almost 40 years in my personal case, I did not mind the expense of Social Security largely because I knew that I still would be paying to the older generation with or without it.
Posted by: Tsam | February 13, 2009 at 10:44 PM
People who call Social Security a Ponzi scheme are connoting that it is fraudulent. This is false.
Social Security is a partial pension plan that is not voluntary. It is not a "scheme" for quick riches that ivolves persuading people of all ages to choose to join. It also is sustainable. (Brett, the SSI report's assumptions are made by actuaries, who have been getting this sort of thing right for decades and centuries.)
It is a transfer of wealth between generations. It stores its financial reserves in a low-risk and low-return institution. It replaces intra-family transfers between generations. This is not a fradulent Ponzi investment, but a reasonable basis for the lowest-risk component of retirement plans. People who want to depend on their own investment skills are fallable to varying degrees. I am very thankful that we have this system.
The politicians who use and promote the "Ponzi scheme" label are the ones who are fradulent. Many of them want to use the trust fund reserves to cover up their irresponsibilities. Bush pushing for private accounts fits this description.
The ordinary folk who repeat "Ponzi scheme" and their fears are being used by such politicians. OCSteve, wj, and all who have these fears will get back their pay-in when they retire. It will not have grown at rates that high-growth/high-risk investments offer, but it is a secure complement for them.
Posted by: Tsam | February 13, 2009 at 11:08 PM
If SS is a Ponzi scheme, then, by extension, wouldn't the schemes in every other country for pensions that are financed by younger citizens all be Ponzi schemes? Perhaps I'm not burrowing deeply enough into the vernacular here, but in Japan, this never seems to be brought up as a complaint.
Tsam also points to another interesting difference. When the stock market was going great guns, the argument was that money taken from people should have been returned to them so that they could get a higher return. While one could argue that a Ponzi scheme occurs in both instances, it seems a bit contradictory if you argue in both a bull and a bear market.
Posted by: liberal japonicus | February 14, 2009 at 12:37 AM
wj: The hallmark of a ponzi scheme is that it takes money from later contributors and uses it to pay to those who got in earlier.
That's not quite right, and the omission is crucial. The hallmark of a ponzi scheme is that it takes money from later contributors and uses it to pay earlier contributors without any sustainable flow of capital other than the induction of new contributors. If it's sustainable, it's not a Ponzi scheme, it's a form of wealth transfer -- in this case, as Tsam correctly notes, between generations.
I'll give you another example. I was recruited to "work" as part of a phone company which operated in a highly unusual way: rather than having a marketing division, they had a word-of-mouth ad/recruitment campaign. You could sign up either as a pure customer -- in which case you'd have an ordinary, maybe even slightly more expensive, phone bill -- or you could pay an additional hunk of money ($250, I think it was) to sign up as an "associate". As an associate, your job was to go out and recruit others as customers; and, as incentive, you got a cut (1-6%, I think it was) of their phone bill.
The question I had, immediately upon being approached, was: why is this not a Ponzi scheme? And the answer is simple: because there's a continual income flow into the system. In this case, the flow is based on the fact that, associate or no, everyone in the scheme still has to pay their phone bill every month. It's true that not everyone can be an associate, and that ultimately those who are non-associates had a worse deal than those were, but that doesn't affect the legitimacy of the scheme, only whether it was a good idea to participate.
[And for me, incidentally, it wasn't.]
Here's the thing about Social Security: if the money that was being paid out were simply disappearing, you'd be absolutely right that it was a Ponzi scheme. But that money doesn't disappear. Those payments get spent, and in their spending flow back into the system. Specifically, the recipients of Social Security purchase goods and services from other members of the system, thus putting money back in their pockets and infusing the system with a fresh infusion of capital.
It's not a perfectly closed system, of course. Every time someone spends some of their Social Security of the country, a little bit of the money leaves the system; but then again, every time someone who doesn't pay Social Security spends money in the country, a little bit more money enters the system. On balance, this seems to work out OK. In a nutshell, then, Social Security is not a Ponzi scheme at all, but a vast slow-moving circle of money that operates on a time-scale bigger than most of us can comprehend. You can object to it on many grounds -- foolishly in my opinion, though YMMV -- but not on those.
Posted by: Anarch | February 14, 2009 at 01:22 AM
[Social Security] is a transfer of wealth between generations.
Inheritance is a transfer of wealth between generations. Social Security is not.
It's not even fair to call SS a transfer of income between generations, if the implication is that it's the only form of such transfer.
Retired people consume some fraction of the GDP which working people produce, every year. This would be true even if SS did not exist, and retired people were all living on dividends from private investments, or on direct subsidies from their working children.
One can (and conservatives do) imagine a world in which workers save for their own retirement, say by accumulating stock in dividend-paying corporations. When those stockholding workers retire, the corporations carry on, employing the next generation of workers. They pay those workers an income; they pay the retirees dividends. Everybody eats. But note that the corporations would have more money to pay their workers if they were not paying dividends to the retirees. In effect, the corporations are "transfering income" from the younger generation to the older one. As long as everybody eats, but some people are retired, the workers eat less than they produce -- even in the conservatives' ideal world.
The only way to avoid the transfer of income across generations is to abolish retirement, not to abolish Social Security.
--TP
Posted by: Tony P. | February 14, 2009 at 02:40 AM
Actually, I think it WOULD be a Ponzi scheme if there were no future generations to add into the system, and the human race stopped RIGHT NOW.
Then again, a Ponzi scheme would be the least of our problems.
Posted by: gwangung | February 14, 2009 at 02:41 AM
I don't think it's very telling that Medicare's costs have increased less than private insurance. Medicare has kept down its costs not through any efficient operation, but through artificially keeping doctor's fees very low (haven't raised signficantly in 25 years). That's not sustainable. Right now, doctors cost-shift to privately insured. But if privately insured people fell under the Medicare umbrella, the only way to keep costs down would be denying care (i.e., rationing).
Posted by: Mike | February 14, 2009 at 08:10 AM
It's a good thing no one's ever denied care under the present system, Mike.
Posted by: KCinDC | February 14, 2009 at 08:24 AM
That works for me as a definition of SS. To repeat my question – do you personally believe that SS will be there for you
Yes, I do.
enough that you actually include it in your retirement financial planning?
What does "enough" mean? My retirement planning is based on my wife's and my 401k plans. Whatever we get from SS will just be icing.
You may be young enough that you are not thinking about that yet, that’s cool.
I believe I'm the same age you are, +/- 2 years.
What just happened to our 401(k)’s? Do you really think SS is that much more secure?
You realize this is an argument against privatizing SS, right?
Posted by: Phil | February 14, 2009 at 08:49 AM
Answer their points if you feel like it. If you don't, don't say anything. But don't just belittle them and move on.
But it's been done already, hilzoy. Here and here and here and in dozens of other places if one searches ObWi for the word "Ponzi."
And while I can't speak for wj, I know that OCSteve has read some of these, because he's in the threads. So knows the salient differences even if he refuses to understand or acknowledge them -- key among them being "intent to defraud." It's nothing but another Republican easily-regurgitated talking point, and one that indicates that the person using it is simply not interested in truly discussing the issue, so why not indulge them and not discuss it with them?
Posted by: Phil | February 14, 2009 at 09:01 AM
Let's put it this way, OCSteve: SS is completely secure to the extent that we continue to properly fund it via employer/employee FICA contributions.
Our 401k plans are completely secure to the extent that fund managers and few large FIRE corporations don't play extremely dangerous games with our money and try to perform magic.
Which of those sounds more secure to you?
Posted by: Phil | February 14, 2009 at 09:04 AM
WJ is apparently 54 years old but doesn't expect to get a dime from Social Security? That would require an economic/governmental collapse in the next few years so horrendous that Social Security would be the least of our worries.
Posted by: KCinDC | February 14, 2009 at 11:01 AM
To repeat my question – do you personally believe that SS will be there for you
Yes, unless the program is "privatized", or unless the funds allocated to SS are spent on other things. If SS is left alone to operate as planned, yes.
enough that you actually include it in your retirement financial planning?
Yes, with the key word being "include". I don't plan to retire solely on SS, it's just a part.
I think this comment by Doctor Science is apt:
They are *safety net* programs, they are "basic human decency" programs, they are "no one should have to fall farther than this" programs.
Or, as Hootsbuddy notes, it's not individual security, it's social security.
The comments from Tsam, LJ, and Anarch on the substantive differences between SS and Ponzi schemes were, IMO, right on. Thanks for those.
Answer their points if you feel like it. If you don't, don't say anything. But don't just belittle them and move on.
This is a good point, and it's worth reminding us all to stick to the posting rules and maintain the general level of civility that makes ObWi such a great place.
I will say, though, that I share Phil's frustration.
These same points have been raised, and addressed, and raised, and addressed, and raised, and addressed, over and over again, often by the very same people, for the last 5 or 6 years. Probably longer.
At a certain point you have to wonder if the discussion is being conducted with, not necessarily a lack of good faith, but maybe a lack of willingness to actually hear what's being said.
SS is a program that provides a modest but useful level of social insurance, at the cost of 12.4% of gross income, shared between workers and employers, on the first $102K of income. The funds are held in low risk, low return vehicles to maximize the "security" part of "social security".
It's efficiently run, and with minor adjustments will be solvent for the next 75 years.
If there are, other than maybe the endowment of Harvard University or Warren Buffet's personal checking account, any other financial programs or institutions for which the same claim can be made, I'll be amazed.
Posted by: russell | February 14, 2009 at 11:20 AM
Phil: Whatever we get from SS will just be icing.
Well, that is exactly my plan. If I ever see a dime I’ll call it gravy and be happy. We’re in the same place. Our only difference (besides gravy vs. icing) is that you have faith it will be there and I do not…
You realize this is an argument against privatizing SS, right?
I don’t want to privatize it – I just want the option to opt out, and invest my money as I like. (Yes, had I had that option a few years ago I would have gotten hurt in this mess.)
Posted by: OCSteve | February 14, 2009 at 10:03 PM
One step at a time, repeat, take another.
http://angrybear.blogspot.com/2009/02/social-security-in-time-of-recession.html
There are 66 posts to answer questions, including answering questions from Andrew Biggs (former SS commissioner) and Diane Lim-Rogers (Concord Coalition).
Any argument without some reference to the Trustees report and numbers tends to be moot...ie the ponzi proposal.
http://angrybear.blogspot.com/2009/02/looting-social-security-basics.html
See sidebar for a link to all SS posts at Angry Bear.
Posted by: rdan | February 15, 2009 at 07:58 AM
"Speaking for my personal corner of The Left: I am not silent because I am prepared to let Obama do things I would have criticized had Bush attempted them. "
How's that follow up post on renditions and torture coming along?
You could be the first lefty to link to this NYT article, currently very lonely on memeorandum...
http://www.memeorandum.com/090217/p171#a090217p171
Posted by: psy | February 18, 2009 at 04:44 AM
"You could be the first lefty to link to this NYT article"
Doesn't seem to have much significantly new information; perhaps you could quote sentences or 'graphs you feel are new info?
Posted by: Gary Farber | February 18, 2009 at 06:36 AM