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Mathematics of the Social Security "Crisis"
ScottyB writes "Here's a good start for reading into the economics and history of the much-discussed 'crisis' in Social Security. It's from the NY Times magazine, so you know the drill...'A Question of Numbers.'"
Regardless of the solvency or lack thereof in the system, I want out.
The real problem that I see is that my parents signed me up as a child. I don't want to be in. I don't want to have to be in to get a job.
I think that is the biggest problem. I don't have any choice in the matter, and unlike any other retirement scheme (IRA, Roth IRA, 401k, annuity), I can't get out if or when I want.
So much for Land of the Free.
$u(k 1t!!!!11!
No additional risk, and with some obvious added benefits. I'd welcome any extra freedom the government threw my way, even if I did not take advantage of it. Not that I personally would invest in US Treasury debt.
The idea that SS taxes shouldn't be applied to capital gains and other forms of income is basically a huge giveaway to the rich. Now I know that some /.'er is going to talk about how we are in an ownership society and lots of people who aren't rich own stock and blah, blah, fucking blah, but if you look at the numbers you'll see that the people who make most of the money from capital gains and the like are pretty damned wealthy. I see no reason why they should enjoy a separate tax system designed to shield their gains while those of us who take home a paycheck as our primary source of income have an entirely separate tax system.
cheap labor conservatives - they want to keep you hungry enough to be thankful for minimum wage.
Actually, those of us who are just a little over 35 are too.
The problem is that more and more people are drawing on the system because people are living longer. At the time it was passed, very few people lived much past the age of about 60, let alone 65. It was designed as a "pay as you go" system, so your money is not really put aside for you somewhere so that it can earn interest. Your money is used to pay the benefits of those currently collecting. Your benefits (assuming the system is around that long) will be paid by those who are paying into the system when you retire.
I've even tried to look into taking my parents onto my health policy, but federal law won't allow it for the reverse. After years of being on my dad's policy while growing up, I am legally not allowed to take him onto mine now that both he and mom are retired. Wouldn't it be nice to have an option to do something like "no medicare withholding because one or both over-65 parents are classified as dependents"? Sure, the health insurance companies would balk and probably start up all kinds of FUD and lobbying against it. Why? They've become more concerned with making money than doing what they're supposed to do... cover your health care expenses.
OCO is Loco
We aren't savages.
If we were, then the idea of privitizing Social Security would be no big deal. If someone misinvested by putting all his retirement money into Tyco or Enron stock, fine. We let him die broke and impoverished and that's that.
But we're not savages and we won't do that. If a person screws up and loses all their retirement we'll cover them some other way via state or local government instead of via the Feds. You'll still pay for that person's retirement, just not in a predictable way, and it'll be more expensive as more poverty retakes America's elderly.
Social Security is the SINGLE most effective government program ever. Elderly poverty was endemic in the 1930's and before. Unless you were really rich, you stood a really good chance of dying poor and dragging your children down with you. Now, that's much less prevelant.
You object because you want to invest in a free market? Great. Most investors lose money, but if you really want to invest outside of the SS program, what's stopping you? Go ahead. You just can't risk this small percentage of your earnings. That goes to make sure you won't be too much of a burden on the rest of us when you get old.
the major advances in civilization are processes which all but wreck the societies in which they occur - A.N. White
If we tax at 0%, revenue is $0.
If we tax at 100%, revenue is $A (where A > $0 - this is basically Communism)
If we tax at something in between, let's say 50% for the sake of argument, revenue is $B (where B > A - this is Capitalism).
Ok, now draw a single line connecting those points. Obviously you can't do it with a straight line, it has to be curved. And therein lies the heart of the matter.
If the tax rate is below a certain point, cutting taxes decreases revenue.
If the tax rate is above a certain point, cutting taxes increases revenue.
You cannot argue that cutting taxes always decreases revenue. You cannot argue that cutting taxes always increases revenue. What's arguable is whether we're currently above or below the point where it switches from one to the other.
> I wonder if your bank cleaned out your account, you would claim it was your own fault, because "I'm a sucker for trusting them with all that money."
You choose an interesting analogy.
If your bank statement said "By 2042, there won't be enough other depositors depositing checks with us to pay all of the balance owed to you. At that point, there will be enough money to pay only about 73 cents for each dollar you deposited with us", would you continue to bank with them?
Congress issued bonds against what was the big Social Security cash hoard a while back, no?
So those bonds (or loans, if I'm thinking incorrectly) will come calling sometime in the 2030's?
I think that is the point where many analysts are saying that SS will be calling for the replayment on that.
But who pays it?
The US Taxpayer. Somehow, somewhere, the $ to repay the $ which was taken against the social security funds will need to be repaid.
I think THIS is the bulk of the problem.
Solve this, and make it so that we can't pass expenditures that aren't already funded.... basically cut those government credit cards up.
http://slashdot.org/~tf23/journal
On the other hand the pro-"leave it as it is" crowd rarely mention the coming boom of retirees and the growth in the number of retirees combined with a shrinking work force. For example; if people live too 100 in stead of 80 because of better nutrition, care and medicine it could cause problem with much higher health care costs than previously though. And the existing solution fail to account for the the slackers that work far less than they could.
So I have come to the conclusion that something needs to be done with the system at a point. But, and there is this this big but, at the same time I don't think the proposed solution is a good one. It seems to create far more problems than it solves. It is basically a free market solution with an add on to solve some of the problems with the people allready "inside" the existing soulution. Since they need to be covered in the future even if their children ("we under 30") stops funding them, Mr Bush needs to visit the bank and borrow an awful lot of money. I don't remember the exact number but i belive it was around $3 Trillion.
Also the new system places a lot of faith on both the market as a mechanism to handle money effectly without waste and more importantly peoples ability to handle their own money on the market. Quite frankly I don't think people will be able to handle their pension. Even if they are forced to invest them somewhere under some program people will waste them on stupid funds, expensive stock and all sort of scams that will pop up. I have faith in Wall Streets ability to lobby the administrators that regulate this new solution but I also think that many folks will lose much or substantial parts of their investment. Just look at how many people today pay insane amounts on various fees and administartion costs on their index funds.
One might think that well that is those peoples problem and lets leave it to Darwin, but there is this problem about what all those partially broke people will do when they approach retirement. My guess is that all those retirees close to 40% of the population and maybe 50% of the voters will vote for a social security system anyway.
So allthough I belive that something needs to be done in the long term; I don't think Mr. Bush is the man to handle such a big reform. Of Bush 20 biggest contributors at least 15 of them, and all in the top 5, have serious finanial interests in this reform and I belive much of the money will eventually end up in their hands.
So as long as the system doesn't need to be changed now I see no reason to change it now with the risk of a failed reform.
Anyway; just my opinion.
Melius mori in libertate quam vivere in servitute.
In all honesty, I'd be more than happy if the government could help me live a decent life with me working less. I don't know why we have to work as much as we do; 40 hours a week doing a job is way too much time. There are so many other things I'd rather be doing with that time. I'm sure a lot of other people feel like this, too.
I don't understand why work is seen as a virtue. Just doin' a job for the sake of doin' a job sucks. I don't see how that makes you a good person.
"Why can't everyone just be straight with me?"
"Because we live in a bendy world, dear."
SS is not in crisis - not within any reasonable horizon, and probably not at all. The general budget deficit, our foreign debt, and our current accounts deficit are all very serious crises, right now. Crises that are already imparing the national security of the United States, and that run a real risk of substantially affecting our standard of living in the near future. Why can't we, for once, focus on actual problems and have real discussion about them, rather then descending into ideologically-driven drivel?
Funny thing about that "surplus" - while the deficit was (supposedly) negative, our National Debt was still increasing.
For historical purposes, here's the National Debt during Clinton's terms in office:
09/29/2000 - $5,674,178,209,886.86
09/30/1999 - $5,656,270,901,615.43
09/30/1998 - $5,526,193,008,897.62
09/30/1997 - $5,413,146,011,397.34
09/30/1996 - $5,224,810,939,135.73
09/29/1995 - $4,973,982,900,709.39
09/30/1994 - $4,692,749,910,013.32
09/30/1993 - $4,411,488,883,139.38
Notice that it got larger EVERY year, even the ones where we were running a "Surplus"?
"I do not agree with what you say, but I will defend to the death your right to say it"
The Nobel Prize for economics a couple of years ago went to Daniel Kahneman, who demonstrated that
Kahneman also demonstrated that the Heritage foundation's intuition is poorly suited to understanding the economics and statistics of the real world.
Kahneman showed that people often prefer to choose a pair of gambles that equate to
- 25% odds of winning $240 and
- 75% odds of losing $760
over an alternative pair that equate to- 25% odds of winning $250 and
- 75% odds of losing $750
which violates the fundamental postulates of economic rationality. Specifically, economic preferences are not rational: It is easy to set up choices where people consistently prefer a to b and c to d, but prefer (b+d) to (a+c) (see D. Kahneman and A. Tversky, Eds., Choices, Values, and Frames).Kahneman's colleague Colin Camerer also demonstrated that taxi drivers work longer hours on nights when they make less money per hour and knock off early when they make more money per hour. In other words, the supply of cab drivers increases when the demand decreases and vice-versa!
Camerer's results violate the Heritage Foundation's intuition and suggests that increasing taxes might well lead people to work harder because people often work until they earn a target, after which they decide to knock off early and enjoy their leisure.
In the real world, people's choices frequently violate in a fundamental manner the postulates of economic rationality and thus refute trite intuitive assumptions that people act to maximize their income, wealth, or other measures of utility.