Progressives question Obama's bona fides

I kind of wish "liberal orthodoxy" understood how Ponzi schemes work. Social security is going to fail, no matter what Obama or Hilary Clinton or anyone else does. Alan Greenspan has/had this right. Having people hoodwinked into thinking it is going to be there for them 30 or 40 years from now, does them a disservice, because people can't plan properly now. The program has promised something our economy can't deliver. It's not insurance. It relies on the payments of young workers to pay the benefits of retired workers. As birth rates have declined, the amount collected through taxes hasn't kept up with the value of the payments. It is not only a recipe for ruin, it has all kinds of bad consequences that never get discussed rationally. It gives wrong incentives and mismanages wealth--huge disservices to society as a whole. But it is a political third rail, because people never want to face realities. They love that "liberal orthodoxy," which promises things that would get laughed at by most people who are street smart enough to understand that someone promising to turn a quarter into a dollar is full of shit.

The program hurts us overall, because of all the inefficiencies and waste (not to mention its coming failure). Social security payments never earn interest or grow over time, the way investment should. They are immediately paid out to current beneficiaries. When I retire, though, if it really WAS insurance, I should collect benefits that have been adjusted upward because of interest earned over the years. Social security can not do this. It can't even keep up with non-interest adjusted payments because the promises made exceed the tax base trying to currently meet them. Another huge issue is that payroll tax deductions are more harmful for more people than consumption taxes (Not even going to try to explain this, but hopefully someone here took Econ 101). The program even unintentionally screws minorities and the poor, because they have lower life expectancies. They spend their whole life paying in (and in relative terms, it is a percentage of their pay they could use more in life than someone wealthier, who doesn't miss the money as much), and get fewer benefits collected because they don't live as long. There are other side issues related to this. Poor people have a disproportionate amount of their life savings tied to the program, which limits wealth transfers across generations. You can't pass along your social security savings as an inheritance. Not to mention that access to funds is limited to retirement, unlike other types of savings. If you lose your job, you can't just reach into your social security "savings" to pay for education or daycare expenses while you look for work or to stem the tide. The overall result is that the program is not only ridiculous from a common sense economics perspective, it has done things antithetical to "liberal" or progressive ideals, yet people who consider themselves progressive still embrace it. It actually helps prevent class movement for minorities and the poor. It's a paradox that never gets talked about, perhaps understandably, because it is hard enough to get people to talk about the fact that it is just plain unsustainable and inefficient and on a course for failure (like all Ponzi schemes). The money coming in doesn't add up to the promised benefits, no matter how you slice it in political terms.

 

Point, They were right in FDR's day. And it isn't rhetoric. It's just fact. SS is a pay-as-you-go program, exactly as I stated. Like a Ponzi scheme, it would have died in the 80s. I give Daniel Patrick Moynihan some credit for figuring out a band-aid approach to a political problem, but he didn't "fix" it. He yanked the rug out from under people who had been made ridiculous promises, and changed the rules. People were promised one thing, and because the program is a failure, their promises ended up being reneged on.

The trust fund was created by that change of rules (i.e. -- they increased taxes, but didn't increase benefits). They made a promise and then reneged on the promise by raising the taxes. If I say to you, "Give me a dime every week for the next 20 years, and after 20 years, I'll pay you back the dime plus a below-market-rate of interest (what SS is)," forget the fact that I am ripping you off because you could have gotten a market rate on your own if I hadn't coerced your wages from you. What if after 10 or 15 years of that, I say, "Nah, I can't do what I promised you. It is going to take 15 cents every week instead of 10 cents, but the payout I am going to give you is going to stay the same." Explain to me how that is a good system that has done good things and explain how it is efficient and sustainable?

The trust fund is a miniscule amount in the grand scheme of things. That 2017 number is all BS. They have no idea exactly how long they can sustain the reserve fund, and they will tweak their projections accordingly to try to keep people from panicking. But it is inarguable that the end is near. Either way, it is 2008, and you are telling me we can keep a reserve fund for nine years (JUST nine more years left on the band aid they slapped on it 25 years agi), and the only reason we can is that they raised taxes (they reneged on their promise and changed the rules)? That is exactly where we are headed all over again. Your 2040-something number, again, is just a made up date, and all it means is that we will be back to a pay-as-you-go system without any reserves sometime before then. And by then, the promise will have been turned into complete bullshit, because people will be lucky if their payments are 60 to 70 percent of what they were being promised when they were paying in.

One of two things is going to happen if this monster survives. They will raise taxes again without increasing benefits--fairly soon, because you can't wait until the reserve fund they built runs dry. By then it is too late. Or they will decrease benefits substantially. And taking either of those courses is only a temporary band-aid--the same way it was in 1983. It also is proof that the program is a failure and doesn't work. When you have to keep increasing taxes without increasing benefits, or you have to decrease benefits while keeping taxes the same, you have something inefficient and unworkable on your hands.

Doing it, buys you what, another 25 years (like increasing taxes did in 1983)? And then we face the same set of problems--the problems you have when EVERY Ponzi scheme inevitably falls apart. Except by then, people will be paying enormous amounts in and getting way below market returns when they retire.

A pay-as-you-go system can not work, period. And it obviously can't compete with market-based returns actually INVESTING money gives people. Social security is just insane. The 12.4 percent in payroll taxes would be much better served in people's pockets. It's just more efficient. But even if you want a Nanny society, for Pete's sake, at least set something up in which instead of a pyramid scheme (which is illegal if anyone else tried to run one), in which you rob people of their money, sell government-backed bonds, and pay them amortized interest on par with treasury bonds as their "return."