1. BunEBear - Jan. 25, 1999 - 8:04 AM PT
My first first post?
2. IrvingSnodgrass - Jan. 25, 1999 - 8:06 AM PT
President Clinton's State of the Union address last week has brought Social Security back to the forefront of the national debate. Of particular note is his proposal to invest some of the budget surplus in the stock market, which has been opposed by Alan Greenspan, among others.
The debate over this topic has been very interesting in the News of the Day thread. If you're just joining us, have a look there and then jump in here in this thread.
3. thoughtful - Jan. 25, 1999 - 1:22 PM PT
From News of the Day:
2053. pseudoerasmus - Jan. 25, 1999 - 9:15 AM PT
thoughtful (Message #2032)
(1) No shit interest rates are obviously an important part
of capital costs, but it remains nonetheless true that it is
one of many determinants, ceteris paribas, of the cost of
capital. The 1980s -- constant capital costs despite
soaring real interest rates -- are inexplicable without my
earlier analysis.
(2) Kinsley's reasoning is not wrong, but his flaw is that
he mistakenly assumes that savings determine the rental
cost of capital.
-----------------
PseuE,
First, perhaps some are impressed with your extensive vocabulary in four-letter words, but I am not one of them and see no reason for their deployment in our discussion.
Second, if you understand that interest costs are part of capital costs then why are you arguing that higher interest rates, ceteris parabis, don't result in higher capital costs?
Third, I was mistaken to think I was mistaken and I'm taking it back. I am absolutely correct. All else being equal, increased government borrowing will raise the cost of capital by a) raising interest costs and b) lowering the stock market. This can further damage long run potential output by suppressing domestic demand which would discourage investment spending.
You can get short-term blips in stock prices due to the inflow of cash to the market, but the long run value of stocks is based on the discounted cash flow of future returns. Those returns will not go up without a net addition to productive capacity, but they can go down when the discount factor rises.
Fourth, ownership of assets changes nothing in this equation, including ownership by foreigners. The only way an open economy such as the US could grow faster in this regard would be if foreign activity freed up domestic resources or added addtional resources, e.g., when Honda builds a plant in the US.
Fifth, Dave Cook'
4. thoughtful - Jan. 25, 1999 - 1:34 PM PT
Fifth, Dave Cook's mistake is confusing a move along the demand curve with a shift in the demand curve.
5. pseudoerasmus - Jan. 25, 1999 - 1:36 PM PT
Thoughtful: If you read better I might not have to resort to four-letter words.
"...if you understand that interest costs are part of capital costs then why are you arguing that higher interest rates, ceteris parabis, don't result in higher capital costs?"
I said no such thing. The point is that higher interest costs raise the cost of capital, _ceteris paribas_. That means there can be forces which offset the higher interest rates, such as a booming stock market or lower prices of capital goods.
"All else being equal, increased government borrowing will raise the cost of capital by a) raising interest costs and b) lowering the stock market."
But all else is not equal in our scenario. I ask for the nth time: how else to explain the bloody 1980s, where the real interest rate soared even though the cost of capital stayed constant? For an estimate of the cost of capital in the 1980s, see Barry Bosworth, "Taxes and the Investment Recovery", Brookings Papers on Economic Activity 1985:1.
6. pseudoerasmus - Jan. 25, 1999 - 1:42 PM PT
Look, if the social security trust fund put money in the stock market, all that means is that the fund would have fewer bonds and more stocks, while the private sector will own fewer shares and more bonds. The only reason the net effect is not zero (i.e., there will be slightly higher stock prices) is because there are other assets besides U.S. equities and U.S. treasury bonds.
7. thoughtful - Jan. 25, 1999 - 2:30 PM PT
PseuE, Do you beat your dog too? It must be helpful knowing it's his fault that you have to beat him.
Of course, all else isn't equal -- nothing ever is. Duh. The Fed could monetize the debt, the US could suffer an external shock which puts it in deep recession, Congress could effect new depreciation rules, etc., etc. But that has nothing to do with this analysis. I never said interest rates alone determined capital costs.
The point I was making was that the net effect on the aggregate economy of a shift in soc. sec. funds from bonds to stocks was *at best* zero, and that there are reasons to believe, due to potential misallocation of capital, that such a shift could be detrimental.
"The only reason the net effect is not zero (i.e., there will be slightly higher stock prices) is because there are other assets besides U.S. equities and U.S. treasury bonds."
OK, call me idiot if it makes you feel better, but how will a swap in public and private ownership of stocks and bonds raise the return to stocks?
(Please don't argue that it would raise stock prices without raising returns.)
8. FreeToChoose - Jan. 25, 1999 - 2:31 PM PT
PE
Time out. Your statement in Message #6 is equivalent to stating that the private sectors' choice of investment mix between stocks and bonds will shift dollar for dollar if the federal government decides to change it's mix of stocks and bonds. While it may be that this has to happen, it doesn't have to happen without changing the necessary rates on bonds.
I don't know the exact mixes, so let's do it with algebra. Assume that private asset holdings are X% stock and Y% bonds. By definition, the private sector is comfortable with the respective returns on the asset classes and the mix.
Now the federal government comes along and buys up a pile of stocks. The feds now own more stocks and fewer bonds, so the private sector must sell stocks and buy bonds. But why would the private sector accept the prior rate of return on bonds? I contend that bond rates would have to increase to make the private sector comfortable with (X-delta)% in stocks and (Y+delta)% in bonds.
(This problem may even be exacerbated by the increased demand for stocks, as it may drive up the price of stocks a bit, causing them to be appear more attractive than bonds, and requiring an even larger premium to induce the private sector to increase its bondholdings, but I am less certain of this last effect)
9. cigarlaw - Jan. 25, 1999 - 2:34 PM PT
TYPICAL CLINTON BS. 'SAVE SS' BY SETTING ASIDE 60 PERCENT OF SURPLUS WHEN 80% OF SURPLUS 'IS' SOC. SEC. NICE SAVE, BUBBA..
10. pseudoerasmus - Jan. 25, 1999 - 2:46 PM PT
FTC (Message #8)
"Your statement in Message #6 is equivalent to stating that the private sectors' choice of investment mix between stocks and bonds will shift dollar for dollar if the federal government decides to change it's mix of stocks and bonds."
ON THE CONTRARY, my conclusion that stock prices must rise if ever so slightly after the SSA purchase of stocks is predicated on the assumption that the private sector mix of stocks and bonds will NOT shift dollar for dollar.
11. ChristiPeters - Jan. 25, 1999 - 3:14 PM PT
Well, I have not taken any economics classes and couldn't even quite understand "Personal Finance for Dummies". So, while I lurked my way through your discussion about this in NOTD, I didn't understand much.
So, if I haven't much to contribute, why am I wasting space posting on this thread?
Well, I thought you might be interested in this Soccer Mom's immediate gut reaction to hearing any plans to put SS funds in the stock market.
It sounds risky and scary and I don't like it.
No, I don't have anything solid to base this fear on. However, having gotten this off my chest, I will now go back to lurking here to try and figure out if I should stay scared or feel reassured by all your learned debating.
(BTW, hearing that Greenspan doesn't like it either tends to reinforce my fears.)
12. pseudoerasmus - Jan. 25, 1999 - 3:30 PM PT
Oops, I forgot to finish Message #10
The SSA sells $50 billion of U.S. treasury bonds and buys an equivalent amount of stocks. The higher returns on bonds that the Treasury must offer will attract an inflow into the U.S. treasury bond market from other markets. But the outflow from U.S. equities would not match the initial inflow into U.S. equities because investors will be selling off many other assets besides U.S. equities. Therefore, in the end, there should be at least a small rise in the price of U.S. stocks.
13. DaveCook - Jan. 25, 1999 - 6:14 PM PT
Free to Choose is right when he says that the expected return on government bonds (and in fact on all assets except US stocks) would rise and expected short term returns on stocks would fall in order to get private investors to hold a portfolio with smaller weightings in stocsk.
I think Thoughtful's conceptual problem is that she is using the formula
Price of Equity = The sum from t = Today to Infinitely far in the future of {Dividend paid at time t * Discount Rate of Dividend Payment}.
Simplistic models equate the inverse of {the interest rate between today and time t} with the Discount rate. If you then equate the "interest rate" with {the return on government bonds between today and time t} it becomes clear that (given an exogenous dividend stream) government bond interest rates cannot rise without necessitating a fall in stock prices. The simplistic model does offer some insight in that lost bond returns are an opportunity cost of holding equity and thus the discount rate must be in some way like and related to bond returns.
However, all assets have different types of risk and transactions costs so, in fact, bonds and stocks are imperfect substitutes. Thus, bond returns cannot be exactly equal to the opportunit cost of holding equity. Thus, the relative returns of the two assets could and do shift and would definitely shift if a major player like the "Trust Fund" shifted its portfolio weightings.
14. DaveCook - Jan. 25, 1999 - 6:20 PM PT
Empirically, the Hong Kong Monetary Authority last summer made a major shift in its portfolio holdings away from US treasuries and toward Hong Kong listed stocks. Needless to say, the price of equity in Hong Kong rose substantially.
15. DaveCook - Jan. 25, 1999 - 6:30 PM PT
Of course, the whole "plan" is just a Clinton sentence (Clintence?) and not a real policy at all. I hope, though, it doesn't die so fast that Robert Rubin doesn't have to appear before Congress and say what a really good idea it is.
16. stostosto - Jan. 26, 1999 - 2:15 AM PT
I think Mr Greenspan's concern had nothing to do with any effects of a different mix of portfolio between the public and private sector. This, as far as I can see, and the debate here hasn't convinced me otherwise, is a zero sum game. Ceteris paribus. But what bothers Greenspan is that a huge public social security trust fund will not be a good investor in the stockmarket. It will not be a good steward of the investor capital which is available to it. The risk is it will be subject to political pressure. It might be leaned upon to prop up failing businesses and low growth employment intensive sectors or to act on behalf of some grand national economic strategy, or whatever. In short: It is liable to consider other objectives than merely maximizing return on investment. So reckons Greenspan. And therefore, he says, it is better to limit its statutes to plain, simple and non-exciting bonds. It's a question of investor incentives, not mix of ownership per se.
17. DaveCook - Jan. 26, 1999 - 3:45 AM PT
I sort of think that Greenspan's real objection is that he thinks there is a bubble in the US stock market and his biggest policy problem is how to deflate the bubble without sending the economy into a recession and the last thing he wants is more money flowing into the stock market.
Many US states operate large pension systems for public employees [CALPERS probably has a portfolio larger than the net wealth of Denmark]. If Mississippi can do it, probably the Federal government could do it (given a sufficiently large staff of overpaid research economists).
18. thoughtful - Jan. 26, 1999 - 5:59 AM PT
What Greenspan said was he can't think of a rational reason for investing funds into the stock market as at best it is a zero sum for the aggregate economy, and risks being worse than that due to politicization and misallocation of capital. He also pointed out that empirically state run pension funds have performed measurably worse than privately run pension funds.
19. stostosto - Jan. 26, 1999 - 6:21 AM PT
DaveC
You are probably right. I just said what I thought Greenspan said was his concern. Which I also think is a valid point to make. But which doesn't mean he didn't have other concerns as well, such as the one you plausibly suggest. (The net wealth of Denmark, btw, is negative, since we have a net foreign debt amounting to some 30% of GDP. (That's financial wealth, of course, I hasten to add, lest someone in here might point out that this borrowing presumably has been used, at least partly, to finance various kinds of investments. You can never be too careful of what you say in the Fray).
You mention pension schemes for state employees and you seem to stipulate that these have been managed well. I have no doubt that this would be the case in general, but aren't there any examples of economically dubious, politically tainted ventures by such entities? Greenspan pointed to research showing that politically influenced trust funds did worse than other kinds of investment funds. Would such conclusion by any chance be drawn from research of the behaviour of funds like the ones you mention? I don't know, I just speculate.
Here in Dk, we have our share of public and quasi-public trust funds, and they are invariably called to the rescue when major private companies are on the verge of disaster...
And this is not to say I am vehemently opposed to the Clinton idea. What I think it has going for it is that it would alleviate the present discrimination against social security savings. Them being shut out from the stock market in all probability lowers their return on investment. Ceteris paribus. Is that fair to the future ss recipients, one could ask.
20. thoughtful - Jan. 26, 1999 - 6:52 AM PT
DaveC, I would post the chart if I had the ability, but I don't so let me describe it to you. Do an x-y scatter plot quarterly with the 10-year bond yield on the y axis (my scale is from 2 to 16) and the S&P500 PE ratio on the x axis (my scale is from 5 to 30). My chart is plotted from 1981 to the present. Yes there are short-run variations, e.g., 87:Q3 before the 4thQ correction is clearly an outlier. But the chart roughly illustrates the relationship.
21. stostosto - Jan. 26, 1999 - 7:23 AM PT
thoughtful
I missed your #18, sorry. I see I wouldn't have had to bother with much of what I said in #19.
I don't really get the point of your #20, however. I can't picture it, and I don't have a good idea of what you are talking about.
22. thoughtful - Jan. 26, 1999 - 10:31 AM PT
sto3, the chart illustrates that as interest rates rise, PE ratios fall and vice versa.
Re your question of mismanagement, there was Orange County California which ended up in bankruptcy after their finance manager foolishly overinvested county funds in derivatives. It was great while he was making money, but when the market turned, the tax payers ended up paying. (I'm sure one of the Californians in these threads know more about this story than I.)
23. FreeToChoose - Jan. 26, 1999 - 4:07 PM PT
PE
The point of my argument in Message #8 was that the government decision to purchase stocks for the SS trust fund would result in an increase in the required interest rates on government bonds. I see that you agree with me in Message #13.
The next step, as suggested by thoughtful, wherein a higher interest rate would create a lower stock price, is not as convincing. While I can accept the price of a stock as the discounted future dividends, I think it can be shown empirically that changes in treasury bond yield do not translate into changes in stock prices over short periods of time, so I would not conclude that the increase in interest rates would immediately manifest itself in reduced stock prices. I am sure other forces would be more important in the short run.
24. pseudoerasmus - Jan. 26, 1999 - 4:24 PM PT
Thoughtful (Message #22)
Have you thought of taking the chart back earlier? In the second half of the 1970s, the real bond rate (AAA corp bond rate minus GNP deflator) averaged near zero per cent. In 1980, it was nearly 4%, in 1981 near 7%. The S&P 500 index was certainly affected, but not by as much as one might suppose from looking at a chart for 1981-present. The point: based on a naive observation, the real bond rate and the S&P 500 index may be negatively correlated, but not strongly correlated.
25. thoughtful - Jan. 27, 1999 - 5:50 AM PT
FTC, yes, my argument is a long run argument. In the short run, anything can happen.
26. FreeToChoose - Jan. 27, 1999 - 7:09 AM PT
Hmmm, there is far more agreement going on than I am used to. Makes me nervous.
27. thoughtful - Jan. 27, 1999 - 7:56 AM PT
PseuE, Why would you look at a real return? Certainly dividend yields and PE ratios are nominal indicators.
28. pseudoerasmus - Jan. 27, 1999 - 8:04 AM PT
But we had also been talking about the cost of capital, and it is the real interest rate, not the nominal rate, that is an important determinant of the cost of capital for firms.
29. FreeToChoose - Jan. 27, 1999 - 8:46 AM PT
But the forces that would raise the nominal yields on bonds (should the government go ahead with its plan) wouldn't have any impact on inflation, would they? If so, then increases in nominal yields translate into increases in real yields.
30. thoughtful - Jan. 27, 1999 - 10:12 AM PT
PseuE,
I think we're mixing arguments.
If you run a regression of E/P ratio (1/PE)on the 10-year govt bond from 80:Q1 to present, you'll get a corrected r² of .84. Granted, it's a lousy equation because of serial correlation, but then again, it doesn't include any proxy for expected earnings. However, the relationship is statistically significant and positive. Oil price shocks, inflation volatility, poor earnings expectations, etc. etc. may have all played a part in what happened in the 70s. I don't know. But the relationship over essentially the last 2 decades has been reasonably consistent -- consistent enough that it negates any argument that higher interest rates, ceteris parabis, would lead to higher stock prices. For this purpose, nominal interest rates are appropriate as PEs are nominal.
I then made an additional argument that these higher interest rates could squelch domestic demand which is a key driver of investment spending. Additionally higher interest rates, ceteris parabis, would raise capital costs as they are an important element of it. Here, real interest rates are appropriate.
I'm a simple person with a simple mind. I don't understand what we are arguing about, especially since nothing I've said is, in my view, especially extraordinary or brilliant. (Now there's a point I'd love to hear refuted!)
31. thoughtful - Jan. 27, 1999 - 1:06 PM PT
FTC, in my view, higher interest rates squelch demand and thus could be a deflationary force, but this unnecessarily complicates the argument.
32. FreeToChoose - Jan. 27, 1999 - 3:56 PM PT
For those interested in SS info check here:
Social Security Info
AS CG would say BIAS ALERT – this site was put together by CATO.
The calculator was done by KPMG, and some might consider them reputable.
An except from the site:
In Tuesday's Wall Street Journal, Nobel Prize-winning economist Milton Friedman calls President Clinton's proposals to allow the federal government to invest the Social Security Trust Fund in private capital markets a recipe for "Social Security Socialism."
33. thoughtful - Jan. 28, 1999 - 6:09 AM PT
Greenspan again speaks out on social security this a.m. For his testimony, see here.
34. Jonesatlaw - Jan. 28, 1999 - 7:32 AM PT
Thoughtful- thanks for the link. Greenspan seems to tailor his arguments to those not well versed in economic theory, which for me is quite useful. I believe he explained the points some more sophisticated Fraysters were discussing in technical language. Now I would ask that someone provide a similar service for the proposal by Kerry and others that some of social security taxes be set aside for personal investment or savings by the taxpayer. Does this run into similar problems of displacement, etc. as outlined by Greenspan?
35. thoughtful - Jan. 28, 1999 - 11:48 AM PT
JonesAL,
Fundamentally, when it comes to social security, there are 3 choices: raise taxes, lower benefits, or grow the economy. If you don't want to do the first two, that leaves the third choice:
The social security burden, like any financial burden, gets easier to bear with greater income. Greenspan's point is that, without an increase in savings, the economy can't generate more income. Any program that increases national savings will be helpful -- any program that does not increase national savings will not be helpful. The problem is, economists don't understand what drives savings very well. In Greenspan's view, drawing down national debt is a good way to increase savings and is preferable to investing funds in the stock market which, as has been said here before, is a zero-sum game at best, and possibly detrimental to long-run growth.
You can apply this analysis to any proposal put forth. If the proposal results in what is basically a swap in ownership of assets, then it results in no increased savings and thus can't grow the economy. Even if the program calls for additional mandatory savings accounts there's little to prevent people from cutting back on other forms of savings, so national savings in total may not increase.
36. thoughtful - Jan. 28, 1999 - 11:51 AM PT
For a review of several social security plan proposals, see here, and select "Should We Retire Social Security," by Henry J. Aaron and Robert D. Resichauer. It's in .pdf format.
37. BoomerJeff - Jan. 28, 1999 - 1:07 PM PT
The first step is to identify the purpose of Social Security. Is it suppose to be enough for one to live on in retirement? If not, what is it's purpose? Is it suppose to be half-enough??
Historical reality: The purpose of social security is to transfer SOME money from the young to the old so that Democrats can count on a high % of elderly voters by claiming that their opponents would cut or end benefits.
The government has an obligation to us. If we are to be forced to paricipate in this program the government should, at minimum, come up with a purpose/mission and a vision. There won't be universal agreement but at least a specified purpose, universally understood would be a vast improvement.
38. Ronski - Jan. 28, 1999 - 2:48 PM PT
Boomer,
I find the rationale for social security similarly confusing, though I may be easily confused. You hear everyone say that no one can afford to retire on social security alone, which should be obvious. Yet its defenders say that it is necessary to ease the burden of retirement. If it only eases it, then presumably the retiree being helped has prepared for his or her retirement in other ways. If so, why can't you expect that he or she can save enough for retirement without the social security program? As I understand it, social security was originally envisioned as a plan to help destitute widows in the midst of the Depression, but was fairly quickly expanded to the universal but inadequate entitlement it is today. What is it supposed to do, and why?
39. elliot803 - Jan. 28, 1999 - 3:12 PM PT
Ronski:
"You hear everyone say that no one can afford to retire on social security alone, which should be obvious. Yet its defenders say that it is necessary to ease the burden of retirement. If it only eases it, then presumably the retiree being helped has prepared for his or her retirement in other ways. If so, why can't you expect that he or she can save enough for retirement without the social security program?"
Well, of course there are lots of elderly people for whom Social Security is their only regular source of income. When people say that "no one can afford to retire on SS" what they mean is that SS doesn't really provide much more than a subsistence level income, not that it is literally impossible to retire with SS alone. And the reason we need SS is that if it didn't exist many people wouldn't save for their retirement at all, or would blow their retirement savings in risky investments or con schemes, and be left destitute.
To which your response, I'm sure, is something along the lines of "Well, that's THEIR problem, not mine."
40. elliot803 - Jan. 28, 1999 - 3:30 PM PT
Ronski:
By the way, what is the position of the Libertarian Party on Social Security? Does it believe that SS should merely be reformed, perhaps along the lines of diverting some portion of SS taxes into individually-managed accounts, or does it advocate the complete elimination of any kind of mandatory retirement savings program? Is the LP position also your position?
41. FreeToChoose - Jan. 28, 1999 - 5:32 PM PT
In Message #35 thoughtful says:
“ Fundamentally, when it comes to social security, there are 3 choices: raise taxes, lower benefits, or grow the economy.”
A couple of minor quibbles.
One, we could alleviate a substantial portion of the burden if we encouraged more immigration (obviously, this would be targeted, not general). I am sure someone has proposed this, but I don't recall reading anything about it.
Second, you are correct that a major subset of proposals falls under the term “lower benefits”, but it is useful to comment at least briefly on some of these possibilities, as some people (not economists) might not think of them as falling in this category. One such example is means testing, so that most recipients wouldn't see their benefits reduced a single penny, and the only reduction would occur among the wealthy. I suspect that most people would call this “lowering benefits” but I can imagine a person claiming they didn't want to see benefits lowered, yet supportive of means testing. More importantly, if the original architects had been smarter, they might have built-in an increase in the age eligibility. There is a very tiny one built-in now, but it is not yet too late to increase the eligibility age without materially impacting anyone's current plans for retirement.
42. FreeToChoose - Jan. 28, 1999 - 5:37 PM PT
Ronski
What SS is supposed to do is create votes for the Democratic Party. It has succeeded tremendously.
However, proponents of the plan realized they didn't want to explain their real agenda, so they came up with some other plausible sounding argument. I haven't paid a lot of attention to it, as it is of only secondary importance, but I suppose I could find out what propaganda was issued at the time, if you are interested.
43. FreeToChoose - Jan. 28, 1999 - 5:41 PM PT
elliot803
I can't, and won't speak for all Libertarians, but I suspect many would start by noting that creating a Ponzi scheme is a bad idea (even though it may secure votes). However, once one starts a Ponzi scheme it is difficult, perhaps impossible, to eliminate it.
One difficulty of a political platform based upon (or intended to be based upon) moral principles, is that it is easier to articulate the types of situations one should avoid. The approaches are less adequate at finding good exits from bad policy.
44. DaveCook - Jan. 28, 1999 - 6:12 PM PT
Thoughtful: No one argued that "higher interest rates, ceteris parabis, would lead to higher stock prices". You just seem to be having a conceptual difficulty in understanding why an exogenous change in the government portfolio could lead to higher bond rates and higher stock prices.
45. arkymalarky - Jan. 28, 1999 - 6:27 PM PT
What Social Security does is enable those who would never be able otherwise to retire, to supplement the fixed incomes of other retirees, and at the same time open up jobs for younger workers who have families to support. If it were means tested then maybe some of you wouldn't feel like it was such a useless program. Is that what bugs you about it, BJ?
46. FreeToChoose - Jan. 28, 1999 - 6:38 PM PT
arkymalarky
Very interesting point. I had forgotten that one consequence of SS is encouraging retirement, thereby “opening” up jobs for younger people.
47. aldavis - Jan. 28, 1999 - 6:56 PM PT
While there is some truth to many of the statements made, the main thing to keep in mind is that SS is nothing more than a tax to enable the government to distribute money.
I collect SS in spite of the fact that I don't need it, which is pure nonsense. I pay about $450 a month for medical insurance and yet I am forced to have Medicare, which becomes the 1st provider, like it or not.
Not only should SS be means tested, it should be fazed out, and if seniors do not provide for retirement, let them die early. Just kidding, just kidding. Let the government provide for them out of the General Fund.
When I was younger, I paid so little into SS I never gave it a thought. But now, you worker bees are getting squeezed good, and it is only going to get worse, because Pols are far to gutless to deal with this problem, especially Dems.
And do not worry, SS is ample to live on........As long as your rich.
48. rondiaherlihy - Jan. 28, 1999 - 8:03 PM PT
Index funding is great but not as safe as Treasury Bills. T-Bills are rock solid unless our government collapsed and if that happened nothing you had money in would matter!
Shame on the Republicans scaring young workers telling us the SS fund is going broke. Typical scare tactics this party uses to divvied people!
SS will only have to make minor adjustment for future retirees!
I like Index funding for some of the money but most should go into T-Bills," slow but sure!" Have no fear citizens and stop listening to the party of doom and gloom, " Republicraps!'
49. Ronski - Jan. 29, 1999 - 7:00 AM PT
Elliot,
I'll thank you not to put words in my mouth. Your gratuitous "Your response will be it's their problem not mine" is both offensive and idiotic.
It's why trying to have a discussion with you is pointless.
What is the matter with you, anyway? Can you be civil to no one?
50. Ronski - Jan. 29, 1999 - 7:45 AM PT
arky,
Thank you for that post. I understand the notion that providing at least subsistence level payments to a retiree is better than having the elderly or infirm on the streets (remembering the words of Anatole France, who in an earlier century said, "The government, in its wisdom, prohibits sleeping under bridges by the rich and the poor alike"), but that still does not answer the question if we can expect people to save to live beyond subsistence, why can't we expect them to save more? One answer might be that they cannot save more because they are paying into social security.
In defense of social security (or some new version of it), one would want to know what to do about those who are poor or ill or of marginal skills all their lives, and therefore do not even pay much into social security, and cannot be expected to save much under any present circumstances. I think most libertarians would say that --- in a libertarian world, with a more vigorous economy --- even they would do better financially during their lives and there would be more money available to charity to help them. But we do not have a libertarian society, so practically speaking, what do we do now? Probably try to salvage some kind of system that also gives young workers the chance to opt out early; I suspect some would, and other would stay in it.
Anyway, interesting stuff to ponder.
51. elliot803 - Jan. 29, 1999 - 7:54 AM PT
FreeToChoose:
"I can't, and won't speak for all Libertarians, but I suspect many would start by noting that creating a Ponzi scheme is a bad idea (even though it may secure votes). However, once one starts a Ponzi scheme it is difficult, perhaps impossible, to eliminate it.
One difficulty of a political platform based upon (or intended to be based upon) moral principles, is that it is easier to articulate the types of situations one should avoid. The approaches are less adequate at finding good exits from bad policy."
I asked for the position of the Libertarian Party on Social Security. Do you know what it is? Are you a member of the LP?
52. elliot803 - Jan. 29, 1999 - 7:57 AM PT
Ronski:
"Elliot, I'll thank you not to put words in my mouth. Your gratuitous "Your response will be it's their problem not mine" is both offensive and idiotic."
Whatever. So what *is* your position on Social Security? I thought you believed that the only legitimate action of government is to prevent force and fraud. If so, that would seem to rule out any kind of mandatory retirement savings program (or any type of social welfare, period).
53. elliot803 - Jan. 29, 1999 - 8:13 AM PT
Ronski:
"...but that still does not answer the question if we can expect people to save to live beyond subsistence, why can't we expect them to save more? One answer might be that they cannot save more because they are paying into social security."
But if we eliminate Social Security, as I have already explained, some people will save nothing, or will blow their savings on risky investments. That is one reason why we need a mandatory retirement savings program.
"In defense of social security (or some new version of it), one would want to know what to do about those who are poor or ill or of marginal skills all their lives, and therefore do not even pay much into social security, and cannot be expected to save much under any present circumstances."
Subsidize their retirement with the SS contributions of others.
"I think most libertarians would say that --- in a libertarian world, with a more vigorous economy --- even they would do better financially during their lives and there would be more money available to charity to help them."
Charity has not been an effective solution to the problem of poverty amoung the elderly in the past, or in fact to any social welfare problem. That's why the government had to step in.
"But we do not have a libertarian society, so practically speaking, what do we do now? Probably try to salvage some kind of system that also gives young workers the chance to opt out early; I suspect some would, and other would stay in it."
Many of the workers who opt out would be the richer ones, whose taxes are needed to subsidize the retirement of poorer workers. Many of those who opt out will save nothing, or will blow their savings on risky investments.
Again, what happens to people who reach 65 and have nothing saved for retirement, in your libertarian world? Just let them fend for themselves? Eat at the Salvation Army food kitchen?
54. Ronski - Jan. 29, 1999 - 8:24 AM PT
Elliot,
As I have tried to explain before (perhaps you were not around for the posts), I believe as a moral and philosophical tenet that government should ideally only prohibit force and fraud, but fully recognize that we do not live in such a society. I prefer to remain part of society, rather than live a cave, and so I look for policy solutions that increase personal freedom and do no harm to people within current, realistic constructs. I also recognize the value of democracy, or republican government, and can accept the will of the majority on many issues, hoping to slowly persuade others about the value of individual freedom in the meantime.
I'll give you a different example: In S.E. NY, as most elsewhere, water is controlled by the government. Had there been developed a system of private property underlying the supplying of water, things might be different, and better, but since that is not the case, and since water is necessary for life, I can accept the State buying up watershed land and even using limited eminent domain, if necessary, to prevent the possible pollution of the water supply.
Social security is like the issue of public schools for me. I think a totally free system would indeed work better in both areas, but it is unrealistic to expect that will happen anytime soon, if ever. Therefore, let's explore ways of making things better. That's why I supported the various local attempts to revamp schools. As for social security, I don't know what will work better, but I do want to see a new system that at least gives some people the option of controlling their own retirement money themselves. Some people currently have trouble putting any money aside because of high payroll taxes, so I think the system should change.
55. Ronski - Jan. 29, 1999 - 8:29 AM PT
As for your earlier, post, No, I do not think that private charity failed in the past. I think it worked well enough given the degree of development of sociey at the time, and I think it would work well again in the future. I think the government stepped in more for political gain on the part of officials than for the genuine well-being of the people, but I understand that most people disagree with me and I do not question their motives in doing so.
56. Ronski - Jan. 29, 1999 - 8:32 AM PT
Elliot,
As for your "Whatever," I appreciate that we are back to a simple discussion, but we have been over this a few times and please remember that I feel very uncomfortable dealing with anger. I'd love to continue talking to you about these issues, however, although at the moment I have to disappear for a while. I will return, of course.
57. elliot803 - Jan. 29, 1999 - 9:19 AM PT
Ronski:
The first paragraph is your #54 is characteristically evasive. You don't need to keep telling me, for the umpteenth time, that you "fully recognize" that we don't live in the kind of society you consider ideal. I understand that. I'm asking you what kind of society and policies you advocate. Do you in fact advocate a society in which government action is restricted to the prevention of force and fraud, or don't you? If you do, I do not see how you can support Social Security or any other kind of social welfare program at all, except perhaps temporarily as a transition measure on the way to the kind of "force and fraud prevention only" government you support. And if you do support the ultimate elimination of SS and all social welfare, then I think you need to address the kind of problems I have been raising (or is "private charity" your full and final answer?)
"As for social security, I don't know what will work better, but I do want to see a new system that at least gives some people the option of controlling their own retirement money themselves."
Which people would you allow the option of controlling their own retirement money (by which I assume you mean the choice of opting out of mandatory retirement savings) and which would you deny that option, and why? How do you address the problems of such a policy that I have mentioned?
58. Ronski - Jan. 29, 1999 - 9:28 AM PT
Elliot,
I don't understand what you find evasive. You seem to understand at the same time that I advocate a transition period toward a freer society, which is precisely what I have said umpteen times, to use your word.
I think your main point is what to do about people who will not save (there will be few people that irresponsible) or who blow their money on bad investments (there will be few people that stupid). And the answer is, as I have intimated before, that I do believe private charity
-- in a genuinely libertarian world --- would be able to provide the help they need to live out their lives. Would you allow someone to freeze to death or die of hunger in front of your eyes? No, neither would I, nor would anyone I know.
59. Ronski - Jan. 29, 1999 - 9:30 AM PT
As for "which" people, I thought you would know better to ask that of a libertarian, for the answer is anyone who wants to.
60. elliot803 - Jan. 29, 1999 - 9:31 AM PT
Ronski:
"As for your earlier, post, No, I do not think that private charity failed in the past. I think it worked well enough given the degree of development of sociey at the time, and I think it would work well again in the future."
This is exactly the kind of statement that in my view shows your callous attitude to the poor and needy. The whole reason we have Social Security is because the economic conditions in which the elderly lived prior to its enactment were considered intolerable. And yet you are now defending those conditions as "good enough" for that time. Well, the American people disagreed with you on that. The conditions weren't good enough. You are simply willing to accept a level of poverty and deprivation amoung the elderly--in the name of your libertarian "principles"--that most people are not willing to accept, including me. That's what makes your political philosophy cruel and cold-hearted, in my opinion.
61. elliot803 - Jan. 29, 1999 - 9:48 AM PT
Ronski:
"I don't understand what you find evasive. You seem to understand at the same time that I advocate a transition period toward a freer society, which is precisely what I have said umpteen times, to use your word."
The "freer" society being what? One in which the government is restricted to the prevention of "force and fraud" only, or one in which the government does more than that (and if so, what)? You have never provided anything like a clear answer to this question, as far as I can tell.
"I think your main point is what to do about people who will not save (there will be few people that irresponsible) or who blow their money on bad investments (there will be few people that stupid). And the answer is, as I have intimated before, that I do believe private charity -- in a genuinely libertarian world --- would be able to provide the help they need to live out their lives."
So I guess "private charity" is your full answer. I assume you also believe private charity will compensate for the loss of the redistributive aspects of the current SS system (subsidizing the retirement income of poorer Americans with the taxes of richer Americans). Again I say, private charity was an ABJECT FAILURE in addressing the problem of poverty amoung the elderly prior to the passage of Social Security. If you think otherwise, it can only be because you are willing to tolerate conditions of deprivation amoung the elderly that most Americans were not willing to tolerate.
62. elliot803 - Jan. 29, 1999 - 9:53 AM PT
Ronski:
"As for "which" people, I thought you would know better to ask that of a libertarian, for the answer is anyone who wants to."
I can only respond to what you say, and since you seem think I am making unfair assumptions about your motives and values (a charge I deny, of course), I am trying to assume as little as possible. You said "I do want to see a new system that at least gives some people the option of controlling their own retirement money themselves." If your new system gives only "some people" the option, then it must deny that option to other people. Hence my question. But it now appears you meant giving the option to everyone, rather than just "some people"--in other words, eliminating any system of mandatory retirement savings. Right?
63. Ronski - Jan. 29, 1999 - 10:16 AM PT
Elliot,
This is why I find talking to you so objectionable: You say you are not going to make assumptions about my motives (thank you) and then you conclude that the only reason I could possibly think charity is an ultimate answer is because I must be willing to accept "abject" living conditions for retirees. If you said that you disagreed with me over the ultimate result and that you thought it would end up with the poor living in abject conditions, that I could accept. We would simply disagree like civilized men and move on. But you don't. You assume, and attack. Quite viciously, quite often. I don't care for it.
Where the hell do you get this attitude, anyway? No, don't bother answering.
64. elliot803 - Jan. 29, 1999 - 10:29 AM PT
Ronski:
" that the only reason I could possibly think charity is an ultimate answer is because I must be willing to accept "abject" living conditions for retirees."
No, because you felt that charity for the elderly before SS was "good enough." If most Americans had felt that charity was a good enough solution for poverty amoung the elderly, there never would have been a Social Security system in the first place. Since you disagree, it can only be because you are willing to accept a level of poverty amoung the elderly that most Americans consider unjust and unacceptable.
"If you said that you disagreed with me over the ultimate result and that you thought it would end up with the poor living in abject conditions, that I could accept."
I do.
"We would simply disagree like civilized men and move on. But you don't. You assume, and attack."
I didn't assume. YOU misread.
65. Ronski - Jan. 29, 1999 - 10:53 AM PT
Nonsense, as usual. I misread nothing. You did not say anything about the level of poverty that most Americans found objectionable in the 30s. If you had, we could have discussed the special conditions of the Great Depression and the role which the Government, primarily through the Fed's mismanagement, had in creating those awful conditions. You are just trying to cover your tracks.
No, Elliot, saying you must be willing to accept abject poverty is not the same thing as saying that abject poverty will be the result of such policy, and therefore unwise or unacceptable.
You consistently attack my character and I'm tired of it. Good bye.
66. thoughtful - Jan. 29, 1999 - 11:30 AM PT
FTC, Greenspan mentioned immigration in his House testimony, but work done by Lawrence Kotlikoff at BU suggests that even high estimates of immigration won't solve the problem. Under my 3 options scenario, I would consider immigration as a way to grow the economy.
67. FreeToChoose - Jan. 29, 1999 - 12:57 PM PT
thoughtful
I wouldn't argue for a second that immigration alone would solve the problem. But it should be considered in the mix.
Again, I can agree that an economist would include immigration under the rubric of “growing the economy”, but it is sufficiently different from what people normally mean by that phrase, that I believe it is useful to identify specifically.
68. FreeToChoose - Jan. 29, 1999 - 1:01 PM PT
elliot803
“I asked for the position of the Libertarian Party on Social Security. Do you know what it is?”
I don't know what it is.
“Are you a member of the LP?”
I don't know for sure. Nor do I care.
69. FreeToChoose - Jan. 29, 1999 - 1:10 PM PT
elliot803
“The whole reason we have Social Security is because the economic conditions in which the elderly lived prior to its enactment were considered intolerable.”
You clearly have bought into the romantic view of history, as espoused by the liberals. If I had seen a single post in which facts had swayed you, I might be motivated to research some history to show you how naïve your view is. But you haven't, so I probably won't.
70. elliot803 - Jan. 29, 1999 - 1:31 PM PT
Ronski:
"Nonsense, as usual. I misread nothing. You did not say anything about the level of poverty that most Americans found objectionable in the 30s."
What are you talking about? No, I wasn't talking about the "30s," I was talking about the level of poverty that existed amoung the elderly before Social Security was enacted, to which you responded: "No, I do not think that private charity failed in the past. I think it worked well enough given the degree of development of sociey at the time, and I think it would work well again in the future." If you feel that charity worked "well enough" in the past in addressing the needs of the indigent elderly, and was "not a failure," it is hard to see how this can mean anything other than that you consider the pre-Social Security levels of poverty in America to have been acceptable.
71. FreeToChoose - Jan. 29, 1999 - 1:36 PM PT
elliot803
“What are you talking about? No, I wasn't talking about the "30s," I was talking about the level of poverty that existed amoung the elderly before Social Security was enacted”
I'll bite. When do you think SS was enacted?
72. elliot803 - Jan. 29, 1999 - 1:37 PM PT
FTC:
"I don't know for sure. Nor do I care."
You don't know whether you're a member of the Libertarian Party? Um, okay.
"You clearly have bought into the romantic view of history, as espoused by the liberals. If I had seen a single post in which facts had swayed you, I might be motivated to research some history to show you how naïve your view is. But you haven't, so I probably won't."
This is nonsense. The fundamental rationale for Social Security is and always has been social welfare, a mechanism for protecting Americans against extreme economic deprivation in their old age.
73. FreeToChoose - Jan. 29, 1999 - 1:39 PM PT
elliot803
“You don't know whether you're a member of the Libertarian Party? Um, okay.”
Thanks. I'm glad it's OK with you. I was worried sick.
“The fundamental rationale for Social Security is and always has been social welfare, a mechanism for protecting Americans against extreme economic deprivation in their old age.”
Nope. The fundamental rationale for SS was a way to secure votes.
74. elliot803 - Jan. 29, 1999 - 2:36 PM PT
FTC:
I don't know if Social Security "secured" any votes, but it certainly was and remains very popular. Americans like the idea of a mandatory retirement savings program, and they don't want to go back to the old system in which many elderly people ended up in poverty or dependent on family or charity.
75. arkymalarky - Jan. 29, 1999 - 4:00 PM PT
"Nope. The fundamental rationale for SS was a way to secure votes."
You can make that argument for any popular program. It doesn't change the purpose and the value of the SS program.
76. BoomerJeff - Jan. 29, 1999 - 4:35 PM PT
The "fundamental purpose" of the SS depends on who you ask. Clearly, the Democrats consider SS to be a wonderful propaganda tool. Using the same kind of ugly language employed by Elliot in above posts, they flog their political adversaries with warnings that if Democrats lose control Grandma will lose her monthly check.
The reality is that if you ask 20 average citizens what the purpose of Social Security is, one or two will answer "a way for Democrats to buy votes with other peoples' money." The remaining 18 or 19 will likely come up with 18 or 19 different answers. This is true because Democrats, who are SS's big defenders/promoters, have never wanted to clarify the purpose because it's a more effective propaganda tool with a "fluid" purpose.
77. FreeToChoose - Jan. 29, 1999 - 4:38 PM PT
elliot803
“What are you talking about? No, I wasn't talking about the "30s," I was talking about the level of poverty that existed amoung the elderly before Social Security was enacted”
I'll bite. When do you think SS was enacted?
78. BoomerJeff - Jan. 29, 1999 - 4:39 PM PT
Elliot
The liberal/socialist response to ANY Libertarian proposal is always "what about the poor/unfortunate? Without a nanny government they will be lost."
So, if the purpose of Social Security is to protect only a few folks who through sloth or bad luck arrive at age 65 broke, why is it universal? Why is there not some sort of government run institution where such folks can live at tax payer expense? Why must EVERYONE pay in and everyone collect, even those who could get by without help?
79. FreeToChoose - Jan. 29, 1999 - 4:44 PM PT
arkymalarky
I agree with you.
Nor does the fact that many Americans have lived a more comfortable retirement than they would have without SS change the fact that it is a Ponzi scheme, “sold” to Americans with very deceptive arguments, and now an expensive drag on taxpayers with no reasonable hope of delivering anything like the original promises.
Perhaps Americans would have voluntarily diverted a large part of their incomes to provide older Americans with a more comfortable lifestyle, even if they hadn't been lied to about an insurance type mechanism paying for their own retirement. Who knows? We'll never find out. Because the democrats that sold us this fraud weren't willing to trust Americans with the truth.
80. pseudoerasmus - Jan. 29, 1999 - 4:46 PM PT
"Perhaps Americans would have voluntarily diverted a large part of their incomes to provide older Americans with a more comfortable lifestyle, even if they hadn't been lied to about an insurance type mechanism paying for their own retirement."
And I had been labouring under the assumption that there was some, minor intellectual difference between you and BoomBoom. I see now I was wrong.
81. FreeToChoose - Jan. 29, 1999 - 4:54 PM PT
pseudoerasmus
Apparently you haven't done much historical reading.
82. arkymalarky - Jan. 29, 1999 - 4:59 PM PT
Do you people live in the world? Can it be possible that you don't know anyone for whom a SS check is extremely important?
BJ,
Your "sloth or bad luck" remark is inexcusable. Most of the people who depend on SS in retirement are hard working respectable people who deserve to retire whether their working wages were enough to enable them to or not. Most of the jobs that pay the least and carry the fewest benefits are those that people like you wouldn't do for any pay.
To me the following statement is belaboring the obvious, but after reading some of the posts, maybe it isn't to a lot of people. A society which resents caring for its elderly and its children by providing a minimum standard of existence for them is less civilized than one which values all its citizens.
83. elliot803 - Jan. 29, 1999 - 5:18 PM PT
Boomerjeff:
"The reality is that if you ask 20 average citizens what the purpose of Social Security is..."
The relevant fact is that Social Security is overwhelmingly popular amoung voters. You think that's because they're all stupid and gullible. I think you believe that about them because you're stupid and gullible.
"So, if the purpose of Social Security is to protect only a few folks who through sloth or bad luck arrive at age 65 broke, why is it universal?"
The purpose of Social Security is not only to protect a few folks.
"Why must EVERYONE pay in and everyone collect, even those who could get by without help?"
Because we don't know you will and who won't need "help" when they retire. Because we need some people to subsidize the benefits of others.
84. elliot803 - Jan. 29, 1999 - 5:26 PM PT
FTC:
"Nor does the fact that many Americans have lived a more comfortable retirement than they would have without SS change the fact that it is a Ponzi scheme, “sold” to Americans with very deceptive arguments, and now an expensive drag on taxpayers with no reasonable hope of delivering anything like the original promises."
It is a Ponzi scheme, which is why the system needs to be reformed to ensure its long-term solvency. It will always be expensive, however. It's in the nature of the beast.
"Perhaps Americans would have voluntarily diverted a large part of their incomes to provide older Americans with a more comfortable lifestyle, even if they hadn't been lied to about an insurance type mechanism paying for their own retirement. Who knows?"
Social Security is an insurance-type mechanism that pays a basic retirement income. Charity was not an effective solution to the problem of elderly poverty before SS and I see no reason for thinking that it would be any more effective an answer today.
85. BoomerJeff - Jan. 29, 1999 - 5:34 PM PT
Elliot
"Social Security is an insurance- type program.."
I'll defer to FreeToChoose who is an insurance expert if he disagrees.
But as I understand the law it would be illegal for an insurance company to attempt to sell a scheme like social security to the public. Anyone who tried would be jubject to criminal prosecution and imprisonment.
86. elliot803 - Jan. 29, 1999 - 5:38 PM PT
Boomerjeff:
"But as I understand the law it would be illegal for an insurance company to attempt to sell a scheme like social security to the public. Anyone who tried would be jubject to criminal prosecution and imprisonment."
What law would they be breaking? Anyway, even if it were illegal for an insurance company to attempt to sell a scheme like social security to the public, so what? I'm sure it would be illegal to try to sell private versions of many government programs and policies.
87. arkymalarky - Jan. 29, 1999 - 5:43 PM PT
That whole statement is ridiculous. An insurance company wouldn't offer something similar because it wouldn't make them any money. Many insurance companies offer retirement savings programs like TSAs, however.
88. rondiaherlihy - Jan. 29, 1999 - 6:03 PM PT
All you clowns that think Social Security is a bad idea,refuse it when your time comes to collect it!
You should have walked the streets in the 30s watching elderly people,"mothers and fathers,"asking for help just to eat!Children refused to help their own parents in need!
I know it broke my heart to walk by my folks and look the other way!
89. wonkers2 - Jan. 30, 1999 - 11:43 AM PT
FreetoChoose Re your Message #42
"The purpose of SS is go get votes for the Democrats. It has been very successful."
We DEMS are happy to have you give us credit for SS. Actually, leaders of both parties have supported Social Security as a necessary social safety net to assure that average citizens in this rich country don't have to trip over starving elderly poor, orphans, widows and incapacitated citizens in the streets as if we were in Bangladesh.
90. BoomerJeff - Jan. 30, 1999 - 3:38 PM PT
As Wonkers and Arky demonstrate, the liberal/socialist mind considers only one side of the equasion, that being the benefit side. If someone benefits from a government program then that program is justified, and the use of government power and force is also justified.
Some folks have gotten more out of SS than they put in. Therefore the program is justified. It matters not that other folks get a lot less out than they put in, that some folks never get a dime back out, that the government must use force to make the program work. None of those factors merit attention because someone benefits.
91. wonkers2 - Jan. 30, 1999 - 5:35 PM PT
Society benefits from SS, the people who don't have to deal with beggars in the street as well as the recipients of the benefits. Not everybody uses the public schools or the interstate highways, but everybody benefits. The same goes for Social Security.
Clinton has proposed a sensible fix for SS which addresses your problem, to some extent, but it doesn't go far enough, in my opinion. The long-term objective of Social Security reform should be to segregate its funds from the rest of the budget, fund the program on an actuarially sound basis and invest the money under the oversight of a politically insulated board in a way that will provide a higher return but not disrupt equity and bond markets. This should permit lower taxes and/or higher benefits. It would also eliminate the criticism arising out of budget bookkeeping fictions. I know our resident economists are skeptical of this, but I am unable to follow their arcane debates. And there are plenty of economists who think Clinton's program is a step in the right direction, even if his eminence Mr. Greenspan doesn't. He's not Pope yet. Some people just think he is.
92. aldavis - Jan. 30, 1999 - 5:36 PM PT
Would it be a reasonable point that many government workers, I believe, are not in SS.
I taught for 8 years, and while that is only quasi governmental, I was exempt from SS.
Government pension plans allow one to retire with a reasonable income.
93. wonkers2 - Jan. 30, 1999 - 6:00 PM PT
I believe all federal government workers who entered federal service after a certain date are covered by Social Security, federal pensions (smaller than those for employees who entered service before the magic date) and a government 401k-type savings plan (more generous than provided for employees who entered service befoe the specified date). State and local government workers are also now covered by SS, I believe. I think the original exemptions from SS coverage have just about all disappeared.
From my layman's viewpoint the main problems with SS are that the funds are dumped into general revenues and used for purposes unrelated to SS and the regressive payroll taxes have gotten about as steep as the public will bear. Segregating the payroll tax receipts from general revenues and investing them in equities and corporate bonds would produce a higher return and meet some of the criticism by providing greater transparency. Of course the segregated SS money could not then be counted toward general federal debt reduction. Some say Clinton is trying to have it both ways, i.e., claiming he is fixing SS AND using the same money to reduce the national debt, double counting the funds, if I understand them correctly.
94. FreeToChoose - Jan. 30, 1999 - 6:00 PM PT
In Message #84 elliot803 says:
“It is a Ponzi scheme, which is why the system needs to be reformed to ensure its long-term solvency.”
Let's mark this day down. You actually agreed with something I said.
95. FreeToChoose - Jan. 30, 1999 - 6:09 PM PT
BoomerJeff
“But as I understand the law it would be illegal for an insurance company to attempt to sell a scheme like social security to the public. Anyone who tried would be jubject to criminal prosecution and imprisonment.”
Many insurance companies have been shut down by insurance departments over time. I am familiar with many of those companies shut-down over the past couple decades. Many, if not most, had a financial condition stronger than that of the SS plan. (Subject to a technical argument on whether the ability of a government to tax can be treated as an asset.)
In many cases, insurance executives whose insurance companies financial statements resembled the SS fund would simply be fired for mismanagement. There could also be civil prosecution. Criminal prosecution is a higher hurdle, but I believe if the insurance executives made promises on paper similar to those issued by the SS fund, they could be criminally prosecuted for fraud. However, I am not a lawyer, so I would defer to the legal experts. Largely, it is a moot point, because insurance companies have to file rates and policy forms with insurance departments, and they would never get authority to issue anything like SS. I do remember a company that attempted to set up a “pay-as-you-go” form of coverage, but it never got off the ground.
96. FreeToChoose - Jan. 30, 1999 - 6:13 PM PT
elliot803
“Anyway, even if it were illegal for an insurance company to attempt to sell a scheme like social security to the public, so what? I'm sure it would be illegal to try to sell private versions of many government programs and policies.”
Excellent point. The Social security program isn't the only program that would violate all kinds of laws, regulations, and basic accounting conventions, if they weren't sponsored by government. Isn't it great to make the rules? You get to tell others to follow the rules, but you can ignore them with impunity.
As an aside, why don't people fall over laughing at the thought of the federal government taking people to court over monopolies. The world's biggest monopoly doesn't like it when others follow suit?
97. kkate235 - Jan. 30, 1999 - 7:26 PM PT
maybe ss and other programs wouldn't be in the hole if there were honest people using it. The fact that Linda Tripp has a job in the pentagon and makes over $90,000 a yr and sits at home doing nothing. Her job description would hold down $30,000 to $50,000 in any otherplace than the goverment.
98. FreeToChoose - Jan. 30, 1999 - 9:25 PM PT
kkate235
Can you really complete your thought, or was this just a strained way to take a shot at Linda while attempting to tie it into the thread subject?
By the way, I don't recall seeing you here before. If you are new, welcome.
99. Jonesatlaw - Feb. 1, 1999 - 10:34 AM PT
A dying thread now that Pseudo, et al have given it the dismal science treatment.
100. Jonesatlaw - Feb. 1, 1999 - 10:35 AM PT
I'll agree with Wonkers and take the century.
101. loopy76 - Feb. 1, 1999 - 1:03 PM PT
Social Security a ponzi scheme? Give me a break.
Sure times are good right now. Social Security and a host of other government programs were developed during truly dire economic times. In fact, if the government had not stepped in during the Great Depression, we'd probably be marching goose-step or battling our way through the Balkanization of the West. All said and done, government programs such as Social Security saved the United States from economic catastrophe.
What really bothers me about the ongoing dismantlement of those hard-won government programs is that times will not always be so good. Developing a strong social understructure or safety net, conversely, was a far-sighted program intended to protect millions of people across the country in lieu of economic disaster. The fact the so-called fiscal conservatives are so hell-bent in their pursuit of the destruction of those programs is proof positive of their short-sighted and Pollyannaish foolishness.
Imagine for a moment what would happen if what we now call the East Asia Economic Crisis suddenly bolted westward, sweeping both Western Europe and the United States into a vortex of crashing stock markets, devalued currency, worthless bank accounts, and ultimately, breadlines, large-scale homelessness, social and political chaos and possibly even revolution. Considering the fact that we are fast destroying the very measures intended to protect us should such a scenerio become a reality, all of the above effects of economic collapsed would be amplified, not diminished.
Not only would the poor be victimized by bad times, the rich would get torn to pieces. Corporations would collapse like houses of cards. The ties that bind us all would be untied.
Therefore, I cannot help but find myself bewildered when someone calls Social Security a ponzi scheme. I realize that it was more or less a sarcastic remark, but at least try next time to look a the larger picture,
102. FreeToChoose - Feb. 2, 1999 - 8:11 AM PT
loopy76
“Therefore, I cannot help but find myself bewildered when someone calls Social Security a ponzi scheme. I realize that it was more or less a sarcastic remark,”
It wasn't sarcastic, it was serious.
You had several interesting things to say, but I don't follow your “therefore”. Nothing in your preceding paragraphs even attempted to refute the fact that SS is a Ponzi scheme.
BTW, you excoriated the “ongoing dismantlement of those hard-won government programs”. Which programs are these that have been dismantled?
103. wonkers2 - Feb. 2, 1999 - 11:02 AM PT
Loopy76 is correct. Social Security is not a Ponzi scheme. It is one of the most important and basic social safety nets established by Roosevelt and since supported by both parties. It should be strengthened by independent actuarially sound funding and investment in a broad portfolio of equities and bonds overseen by an independent body insulated from political influence (as is the pension fund for Federal Reserve employees, the Thrift Savings Plan for other Federal employees and many other retirement plans, private and public.)
104. wonkers2 - Feb. 2, 1999 - 11:12 AM PT
Loopy76, Feel free to disregard FreetoChoose. He is a fringe character who believes that nearly all government functions should be abolished or privatized. He is a hard core libertarian. He is a fine fellow but, on most subjects, arguing with him is not a productive way to spend your time.
105. lazygeorge - Feb. 2, 1999 - 11:33 AM PT
Social Security is not a Ponzi Scheme till the government defaults on its promise to pay Social Security benefits. If it defaults, Social Security will become a Ponzi Scheme.
106. wonkers2 - Feb. 2, 1999 - 11:38 AM PT
The government will never default on its SS payment obligations.
107. BTerry - Feb. 2, 1999 - 5:58 PM PT
Well, since this thread is dying, I'll post my two cents:
Social Security MUST be terminated. The best thing it did is make people realize that they have to save for their retirement or for other hard times. Now that we know that, let's sunset this !@#$ program before it drains us of our productivity by forcing the young to finance the elderly. Let me take the 6% of my pay that I put into social security and put it in my 401k. With my current 5%, I'd be putting 11% of my income into a retirment acount. Let me do this until I retire, and I'll be OK.
And for you people who tell me that if I hate social security so much I can give back my benefits, I'll say that absolutely I'd do that provided I don't have to pay social security tax anymore.
108. wonkers2 - Feb. 2, 1999 - 8:33 PM PT
BTerry, Why don't you send your suggestion that SS be terminated in to the GOP platform committee? I hope they buy the idea.
109. loopy76 - Feb. 3, 1999 - 10:47 AM PT
FreeToChoose--102--
I can't help but laugh at your insistence Social Security is a Ponzi Scheme in which fraudulent "first investors" reap returns provided by the investment of investors who come into the scheme later.
In a Ponzi Scheme, the key word, FreeToChoose, is fraudulent. Although the first investors to Social Security did indeed reap their benefits through the support of people who were still working and actively contributing to the Social Security Fund, the fund itself was not fraudulent, as evidenced by the millions of checks that go out to a variety of "investors" on the first of each month.
If the Social Security fund was a fraudlent fund, the so-called first investors would have merely announced that the fund existed, along with the typical Ponzi Scheme promises that big bucks were in the offing to any "latter investors" who chose to invest in the albeit nonexistent fund. For example, a classic Ponzi Scheme was illustrated in an episode of Seinfeld when George Costanza sent out bogus Christmas announcements that a certain amount of money had been donated by the recpient of the cards to the wholly fictional Human Fund. When Costanza's boss innocently donated $10,000 to the non-existent fund (which Costanza fabricated in order to avoid the expenditure of his money for gifts to coworkers), Costanza had indeed crossed the line into fraud.
In fact, I entertained the idea of opening my own Human Fund myself.
But I was joking.
Social Security, having been legally established according to guidelines set down during the Roosevelt administration, has never been fraudulent, and is therefore not a Ponzi Scheme.
Regardless of the technicalities I felt impelled to point out in order to contradict your faulty reasoning (read me: I did not say "fraudulent" reasoning!), I enjoyed your response.
110. loopy76 - Feb. 3, 1999 - 11:18 AM PT
Wonkers2--103, 104--
Regardless of the possibility that FreeToChoose is a fringe character who wants to privatize everything, I agree with you--especially insofar as your having almost no difficulty making the distinction between private enterprise and public enterprise.
Texas, the state in which I live, is going through the throes of a privatization mania. And it's having some really strange effects. I would imagine that we've all heard about the potential for injustice implicit in managed healthcare programs--you know, the ones that have been accused of being more profit-oriented than service-oriented. But when you look at the problem of privatization from the viewpoint of private versus public enterprise, the flaws in for profit systems of public service become pretty self-evident.
Privatization requires that what was once operated by the government be turned over to private corporations. But this hides a serious ethical problem. Public enterprise, such as the U.S. government itself, exists and remains in place in order to ensure order, equity and democracy. Private enterprise, when you really take a good look at it, operates under a completely different set of prerequisites--self-perpetuation in a competitive arena, profit and expansion as primary principles, and above all, efficiency. In other words, the move from public to private requires a change in ethical systems. You can't call apples oranges, or vice versa.
Proponents of privatization, despite the fact that their hearts are in the right place, often fail to realize that privatization represents a move of the safety net I was describing from the hands of the American people to the realm of the corporation, an entity that enjoys a greater degree of soverignty than the people do--at least in respect to the responsibilities of governing.
111. loopy76 - Feb. 3, 1999 - 11:29 AM PT
Wonkers2--103,104 (continued)--
In other words, we as individuals keep forgetting that we are the government. The government is not some soi distant mechanism hostile to our private selves. I think part of the confusion in this area exists because we have allowed the business community and all its interests to interpose itself between the American people and the functioning set of organizations that have come to be known as "the government."
One of the things we keep forgetting about our role as "governors" of the government has to do with responsibility. Most of us seem to be far too busy to concern ourselves with the responsibilities implicit within our roles as citizens.
Furthermore, when we speak of privatizing the system of public enterprise, we are moving into pretty dangerous territory that has a lot to do with responsibility. Corporations, like the military, are based upon efficiency in the accomplishment of palpable objectives. In order to maintain this important dimension, both the military and the corporation have to remain free to some extent from the responsibilities we associate with public enterprise. Need an example? Think of the number of times you have felt the need to hold your tongue when your corporation starts doing things you find unethical--polluting the environment, for example. Are proponents of privatization, in this light, asking the American people to deliver themselves to a system of ethics that has more in common with totalitarianism than democracy? I honestly don't think many people have seen these potential consequences of privatization.
112. wonkers2 - Feb. 3, 1999 - 11:43 AM PT
I agree although in my opinion it's hard to generalize about privatization. For example, mowing the lawns on government property or providing cafeteria service to government employees are activities that might be privatized with good results, but I question the trends toward privatizing prisons and public education.
113. lazygeorge - Feb. 3, 1999 - 11:53 AM PT
I think people who claim Social Security is a Ponzi Scheme are trying to say it is not actuarily sound. But, I am not aware of anyone demanding that Social Security become actuarily sound.
114. loopy76 - Feb. 3, 1999 - 12:23 PM PT
Wonkers2--112--
I agree with you completely. I think it is important to make the distinction between human welfare and human conveneince. Business, or so it seems, is a tool we have which helps make life easier to live. Government is a tool we have which protects human welfare. But the two do intersect--although I don't think anybody other than Martha Stewart and her jackbooted hordes would suffer if we, the people, allowed the White House lawn to go to seed. In fact, some of us just might enjoy "a more natural look."
In contrast, giving concerns devoted to the preservation of human welfare--you know, freedom from suffering--"a more natural look" might in the end result in disaster. All this prattle about the immutability of the marketplace. Marketplace this, marketplace that. Those kind of people--the ones who literally worship Adam Smith's "Invisible Hand"--want to use that hand on the U. S. Government in the same way that Monica Lewinsky allegedly used hers on the President.
Relying on market dynamics to preserve the public welfare is like letting a chimpanzee pilot a 747. The market goes up when it does--nobody has ever gotten to the bottom line as to why--and then it goes down. Whichever way the wind blows, so the market goes. And, buddy I'll tell you, that's one hell of a way to preserve order in a society.
I suspect that the real debate depends upon the tacit desire of multinationals to get the government off their backs. They see no reason at all they should be regulated--and of course they don't.
Imagine a Social Security system dominated by market forces. Imagine a Social Security system that decides to disinvest and downsize. Imagine a Social Security being used by business to discipline dissenters who stray from the desired corporate profile. Imagine a chimpanzee piloting a 747.
115. BTerry - Feb. 4, 1999 - 8:18 AM PT
wonkers2, Re Message #108:
I really wish they would. But, I'd settle for allowing optional participation in social security. That is, those who don't want to pay, don't; and, thus, don't collect. What are we afraid of, then? Are we afraid that the people who want social security are the same people who don't want to take care of themselves? What do you say to the people who want to take care of themselves? Sorry, we're taking your money for your own good whether you like it or not?
As for privatization, if you be patient and stop clamoring about your "right" to be healthy, you'd realize the dream of cheap healthcare. But, you're just concerned that in the short team, the prosperous will be able to buy expensive healthcare while the poor will not - never mind that *nowhere* is cheap healthcare guaranteed by any of our doctrines.
116. FreeToChoose - Feb. 4, 1999 - 9:28 AM PT
lazygeorge
“Social Security is not a Ponzi Scheme till the government defaults on its promise to pay Social Security benefits. If it defaults, Social Security will become a Ponzi Scheme.”
Does this mean that the original Ponzi scheme wasn't a Ponzi scheme until Charles first was unable to make a payment?
117. FreeToChoose - Feb. 4, 1999 - 9:38 AM PT
In Message #109 loopy76 says:
“In a Ponzi Scheme, the key word, FreeToChoose, is fraudulent.”
I disagree. Is this merely your opinion (as is my belief) or is there some controlling legal authority to back you up?
If you have definitive supporting evidence, please share it. If it is merely your opinion, then tell me whether you have anything to back it up other than the remaining words in your posts, and I will be happy to try to make a case for my position.
118. FreeToChoose - Feb. 4, 1999 - 9:46 AM PT
In Message #104 wonkers2 says:
“Loopy76, Feel free to disregard FreetoChoose. He is a fringe character who believes that nearly all government functions should be abolished or privatized. He is a hard core libertarian. He is a fine fellow but, on most subjects, arguing with him is not a productive way to spend your time.”
I doubt that loopy needed your permission to disregard me, but if loopy felt under some constraint to give undue weight to my opinions, I join you in your opening sentence.
Do you think I am a fringe character because of your characterization of my belief, or is your opinion of me based upon other evidence?
Do you consider Jefferson, Madison and Washington to be fringe characters?
If arguing with me is not productive, can you tell me why (so I might improve). Can you tell me who is worth arguing with?
119. TabouliJones - Feb. 4, 1999 - 10:00 AM PT
"“In a Ponzi Scheme, the key word, FreeToChoose, is fraudulent.”
I disagree. Is this merely your opinion (as is my belief) or is there some controlling legal authority to back you up?"
FTC:
I am guessing but, I think that Loopy is essentially correct. Ponzi Scheme's are illegal because they are *deemed* to involve a misrepresentation of the credit worthiness of the schemer. IOW, Ponzi scheme's are deemed to be illegal because they make it near impossible
for a lender to accurately assess the risks involved in lending to any given individual. In the case of financing Social Security, the situation is different because it is taken to be a given that the U.S Gov't is credit worthy.
120. TabouliJones - Feb. 4, 1999 - 10:02 AM PT
Remember, I said that I was guessing.
121. FreeToChoose - Feb. 4, 1999 - 10:11 AM PT
TabouliJones
I'm not interested in why Ponzi Schemes are illegal. I'm interested in why they are a bad idea.
I think they are bad because they cannot be sustained. This may or may not be a good argument for making them illegal. You may have a better argument for explaining why they were made illegal. But I really don't care.
I made the analogy between Ponzi schemes and SS to explain why SS is a fraud in the ordinary sense of the word, not the legal sense. I made the analogy to show that, like a Ponzi scheme, SS promised benefits in excess of contributions (adjusted for interest) that were sustainable in the short run, not in the long run.
The specific instance of the first Ponzi scheme collapsed in a relatively short time. Had Ponzi been clever enough to offer an above-market, but less-absurd return, his scheme would have lasted much longer.
122. loopy76 - Feb. 4, 1999 - 10:14 AM PT
FreeToChoose--117--
After I finished laughing at your use of the phrase, Ponzi Scheme, to describe Social Security--I was having visions of the kinds of things that happen in movies like "Goodfellas"--I looked up the phrase in the Oxford English Dictionary, a multi-volume set conveniently located only a few steps away from where I sit in the Dallas Public Library in downtown Dallas. If you choose to look it up, you'll see that the operative word is indeed fraudulent. In fact, after devoting a few lines to the historic nature of the phrase, the Oxford has even illustrated the fraudulent nature of a Ponzi Scheme.
I might also suggest using Black's Law Dictionary. Further investigation in any law library will also show you the development of the precedents which arm the law against this fraudulent practice.
By the way, I'll be willing to bet Wonker2 was only kidding when he/she warned me about the fringe nature of your character. Although I do have strong feelings against privatization (or, I must add, full privatization) of public enterprises like Social Security, I also realize you probably have equally strong feelings in favor of it, as do many.
What scares me, here in Texas, is that our governor, George W. Bush, has allowed the privatization of the states Mental Health/Mental Retardation services. In fact, the whole shebang has been awarded to an HMO. I have visions of market forecasters for the HMO declaring that this patient is putting a drag on profitability and needs to be divested of all his obligations to the HMO, and that this other patient doesn't seem to be improving, a factor that makes the HMO's market profile look bad, etc. Hopefully, it won't happen.
123. FreeToChoose - Feb. 4, 1999 - 10:17 AM PT
TabouliJones
As an aside, your argument for making Ponzi schemes illegal is intriguing, although one I have never heard before in connection with Ponzi schemes. Do you have an historical evidence that this concept played a part in the law, or is this just your personal hypothesis.
(In my post above I said I wasn't interested in why they were made illegal. That was correct. I wasn't. I now am interested, if you have relevant facts, although I am still far more interested in whether the analogy is a good one, and if not, why not.)
124. FreeToChoose - Feb. 4, 1999 - 10:23 AM PT
wonkers2
“The government will never default on its SS payment obligations.”
I don't doubt this, although they almost certainly will default on their implicit obligations, if you think that people paying in now have an implicit expectation that they will receive the same benefits as others who have paid in at the same rates.
However, governments have a big advantage over you and I. If I promise to pay you $100 in ten years, then I am in legal trouble if I fail to make that payment. OTOH, a government can tell people to have faith in the SS system, and plan their lives accordingly, then change the rules later. And they will. But they won't be in violation of the law, because they will change the law.
125. FreeToChoose - Feb. 4, 1999 - 10:29 AM PT
loopy76
I checked my OED; it goes from pony to pooah. I even checked the supplement to see if it had been added.
I am puzzled that your version has the word, and mine doesn't.
126. FreeToChoose - Feb. 4, 1999 - 10:36 AM PT
loopy76
I don't have easy access to Black's but I will see what I can do. However, as noted above, I am less interested in why Ponzi schemes might have been declared illegal. That having been said, it may provide useful historical insight.
I don't recall ever proposing that SS should be privatized. I haven't done the math, but I suspect it is too late. We were conned, and we have to do the best we can with a bad situation. I doubt that privatization is a feasible option.
127. TabouliJones - Feb. 4, 1999 - 10:40 AM PT
FTC:
I think I was speaking out of turn based on an incomplete idea of what a Ponzi scheme is. I always understood it to be a case in which someone borrows money from numerous lenders and pays the interest owing to one lender, or group of lenders, by borrowing anew and so on. I also believed (perhaps erroneously) that Ponzi schemes are not classified as strightforward fruad per se but are simply *deemed* to be such by the law independant of the alleged schemer's original intentions. That is why I suggested that Ponzi schemes are deemed to be illegal because they mess up the lending market by making it difficult for lenders to appropriately assess the risks involved in lending. That is, Ponzi schemes are *deemed* to be illegal because they function to cause lenders to "throw good money after bad". Thus, I guessed that Ponzi schemes are different from SS financing because it is taken as a given that the U.S Gov't is credit worthy -- i.e. that SS contributions will not equal a case of "throwing good money after bad."
128. loopy76 - Feb. 4, 1999 - 10:47 AM PT
FreeToChoose--124
Naw...the government isn't going to purposely default on Social Security. For one thing, if you think the government is above the law, you ought to take a look through a law library and take note of the number of times private citizens have sued the government--state, local, national, whatever--and won.
This is not to say I don't understand your fears that when you get old, all the money you paid into the Social Security fund will be gone. From the viewpoint of that potential reality, what you're telling us about Social Security's allegedly fraudulent nature seem true. If, however, the Social Security fund did run dry due to an excessive number of draws upon its account, it's not as if we haven't been warned. A Ponzi schemer would be telling us, "No...no...the money's coming in! It'll be in tomorrow...!"
In other words, yes, the system is in danger of collapsing in the near future. One of the things that really bugs me about Congress is that our senators seem to have no trouble at all borrowing from a number of recently-controversial funds in order to fund other projects (and possibly even to give those funds financial reputations a good old black eye for future consideration and debate). When we look at the deficit that has been created because the government isn't returning what it has borrowed--I mean, how many Stealth Bombers do we really need right now? How often do we need to change the patterns of White House china? How many big banquets? How many congressional junkets to Cozumel? Why pay for Kenneth Starr's attack-dog tactics with Social Security money?--we see that deficit spending indeed could collapse in a domino effect.
Of course, fiscal irresponsibility, as I alluded earlier, can be politically advantageous.
Another thing I don't like about the deficit, and how the defict can and probably will affect Social Security as a viable aspect of the national safety net, is that the U.S
129. TabouliJones - Feb. 4, 1999 - 10:52 AM PT
Re. Ponzi:
Circuit Judge Anderson explained: "His scheme was simply the old fraud of paying the earlier comers out of the contributions of the later comers" [Lowell v. Brown, 280 F. 193, 196 (1922)].
130. FreeToChoose - Feb. 4, 1999 - 11:01 AM PT
TabouliJones
“Re. Ponzi:
Circuit Judge Anderson explained: "His scheme was simply the old fraud of paying the earlier comers out of the contributions of the later comers" [Lowell v. Brown, 280 F. 193, 196 (1922)].”
I fully agree. Would you agree that this is an accurate description of Social Security?
131. loopy76 - Feb. 4, 1999 - 11:02 AM PT
FreeToChoose--125--
Regarding your puzzlement about this dictionary descrepancy deal, well, here's the dope on Ponzi Schemes, right out of the Oxford horse's mouth:
On page 101, in Volume 12 of the 2nd Editon of the Oxford, the listing labeled Ponzi Scheme reads as follows:
"PONZI SCHEME--U.S. (from the name of Charles Ponzi, who perpetrated such a fraud 1919-1920) A form of fraud in which belief in the success of a fictive enterprise is fostered by payment of quick returns to first investors from money invested by others.
"1957--Beginning in December, 1919, Ponzi produced a scheme involving the purchase of International Postal Reply coupons in countries where the exchange was low, trading them in for postage stamps at their face value in a country where the rate was high, and then selling the stamps at a great profit...The slogan of the swindle was '40% in 90 days'...Actually, Ponzi made no purchase whatever of International Postal Reply coupons.
"1973--'The indictments allege that Mackell's staff invested in what is called a Ponzi scheme, a confidence game named after a famous Italian.'
"1976--(from the Billings, Montana Gazette)--'The Home-Stake scandal is a form of the Ponzi scheme, named for a self-educated, slight but dapper Italian immigrant named Charles Ponzi whose intricate schemes in the 1920s were front-page stuff.'
"1976--(from the National Observer, 10 July)--'He was operating a Ponzi scheme, says Michael Mustokoff, chief of the unit. The first few investors were paid "dividends" out of the money invested by people who came in later, and word spread that the club was raking in the bucks.' "
132. FreeToChoose - Feb. 4, 1999 - 11:11 AM PT
loopy76 Your Message #128 may well set a record for resposes to things I never said, and outright inaccuracies. I can't promise to catch them all; let's just go for the highlights:
“Naw...the government isn't going to purposely default on Social Security.”
Of course not. Who says they will? (Surely you understood what I meant by implicit obligations?)
“For one thing, if you think the government is above the law, you ought to take a look through a law library and take note of the number of times private citizens have sued the government--state, local, national, whatever--and won.”
Why would you bring this up? Whoever said that the government is above the law. I daresay I have looked at far more situations when a citizen has sued the government and won than you have. By a factor of 100.
“This is not to say I don't understand your fears that when you get old, all the money you paid into the Social Security fund will be gone.”
I haven't expressed such a fear. I know, as it appears that your do not, that almost all the money I paid “into” SS is already gone, and the rest will be gone long before I retire. Are you truly unaware of this?
“From the viewpoint of that potential reality, what you're telling us about Social Security's allegedly fraudulent nature seem true.”
I'm not sure I can parse this sentence, but it sounds like you are agreeing with me, so I won't work hard to find fault (g)
“If, however, the Social Security fund did run dry due to an excessive number of draws upon its account, it's not as if we haven't been warned.”
It won't. The fund is a fiction, in any event.
“In other words, yes, the system is in danger of collapsing in the near future.”
No, it isn't
133. lazygeorge - Feb. 4, 1999 - 11:14 AM PT
Free to Choose,
The Social Security System is backed up by the US Government's promise to pay. That is all that backs up a US Government Treasury Bond. It is the power to tax or inflate the currency that makes it believable.
134. FreeToChoose - Feb. 4, 1999 - 11:17 AM PT
loopy76
Thanks for the excerpt from the OED. Which part of:
“"PONZI SCHEME--U.S. (from the name of Charles Ponzi, who perpetrated such a fraud 1919-1920) A form of fraud in which belief in the success of a fictive enterprise is fostered by payment of quick returns to first investors from money invested by others. “
Do you think is inapplicable to SS? Do you want to make the distinction between fraud in the legal sense from fraud in the broad sense?
135. TabouliJones - Feb. 4, 1999 - 11:20 AM PT
FTC:
I tossed out Judge Anderson's quote to show that my original understanding of a Ponzi scheme was not entirely idiotic. Honestly, I haven't read this thread very closely. Also, in Canada, the SS issue isn't as controversial; at least, not yet. So, I should probably refrain from commenting.
However, I will say that your Ponzi scheme analogy strikes me as an overstatement. IMHO, Ponzi schemes are problematic because they: a) usually involve blatant fraud and b) evan if they don't always involve fraud, they function to distort private markets by compelling people to "throw good money after bad money". SS financing stikes me as being fundamentally different. It doesn't involve people being compelled or duped into throwing their money into a leaky or unseaworthy boat. People can generally be confident about the long term solvency of the U.S. Gov't.
I am probably out of my depth here. I will go back and read this thread from the beginning.
136. FreeToChoose - Feb. 4, 1999 - 11:21 AM PT
lazygeorge
A Treasury Bond includes a specific promise to pay a specific sequence of cash flows at specified times. The bond contains no guarantees, implicit of explicit, that the source of the repayment will come from any particular place.
Can you tell me what specific payments are promised under the SS program?
137. FreeToChoose - Feb. 4, 1999 - 11:30 AM PT
TabouliJones
The analogy to Ponzi is an overstatement to make a point. I don't mean to suggest that the details are precisely the same. However, most people I talk to are unaware of the basic way in which SS works. Some are still under the delusion that their money goes into an earmarked fund for their retirement. Thankfully, fewer, and fewer people are this deluded. But using a Ponzi scheme is a useful way of illustrating a key concept: the program was initially very successful because they used the same *basic* (not exact) concept as Ponzi; pay out to early contributors far more than they could have earned in any legitimate investment, and count on new participants to pay the next group. In the case of the original Ponzi scheme, in short order, the incoming funds were insufficient to pay the promises, and the scheme collapsed. Here, the analogy is less than perfect. In SS the incoming funds are insufficient to pay as much as they had paid before, so the implied return drops, until it becomes negative. However, the SS fund has an advantage, that it can supplement the incoming funds with general tax revenues, or change the rules for payout, without violating the law.
I think it is a useful and illuminating, albeit imperfect analogy.
138. loopy76 - Feb. 4, 1999 - 11:36 AM PT
FreeToChoose--132--
How on earth can you think that the Social Security fund is a fiction?
I've seen the checks! I've even helped old ladies cash them! Do you think that Santa Claus is sending retirees "little gifts"? Maybe the money gets deposited by a kind of Tooth Fairy who dresses in a Postal Service uniform? Perhaps it's in a general sense that you have decided that all of world culture is essentially a construct, and therefore a fiction? More general than that, FTC, maybe everything we see and do on this planet is fictional, some daydream of some wayward diety? Maybe that diety is the daydream of a more distant diety. Hell, how far do we have to go?
More to the point, FTC, have you seen any pink elephants lately?
Just kidding. But that one statement I made you were having trouble decoding, well, perhaps I can clarify. In the alleged Ponzi Scheme you're describing, the one called Social Security, you are one of the latter investors hoping to reap the benefits proposed by the framers of the Social Security Act, libelous little confidence men who have set up a fictive entity designed to literally pick-pocket money from your paycheck based upon the promise that it is going into a fund that will give you financial security when you're too old to work. If the money isn't there when you get ready to buy the farm, well, it certainly seems like you've been snookered.
Yes, you've been snookered--just like all those investors who deposited their money into legally protected Savings & Loan institutions in the 1980s that, as a chorus of failures, nearly uprooted another totally fictional institution, the Federal Deposit Insurance Commission (remember Jeb Bush? A former President's son?). I can't help but think of that little old lady, jabbing at Michael Keating's leg after he was all but exonerated of defrauding her of her life savings. But after all, that court proceeding was also fictive, and is therefore to be
139. FreeToChoose - Feb. 4, 1999 - 11:40 AM PT
lazygeorge
Sorry, that should have been "implict OR explicit"
140. loopy76 - Feb. 4, 1999 - 12:35 PM PT
FreeToChoose--134
The part of the Ponzi Scheme definition I provided that is inapplicable to Social Security is that, in a Ponzi Scheme, the true recipients of the promised benefits are those who promised the benefits in the first place, not the slated recipients of those benefits in accordance to the promise.
Say, for example, that I offer to mow your yard for twenty-five dollars. Instead of first providing the service, however, I ask for the money up front. Then I use the twenty five dollars to buy myself a bus out of town, despite the fact that my promise of service has not been enacted. Your lawn is still an overgrown mess, but worse, you've been cheated out of twenty-five dollars. What I've managed to do to you, buddy boy, is called fraud.
Now, if Social Security promises to provide a certain sum of monthly financial payments to you when you retire, provided you "contribute" small portions of your salary each month for a number of years before your retirement, the Social Security Administration is only committing fraud if it can be proven that the promise itself was bogus and that the Social Security Administration had motive to forfiet beforehand. The fact that the Social Security Administration has been making payments to beneficiaries for over seventy years would be proof positive to people of sanity that it isn't a Ponzi Scheme, yet you continue to insist that these facts are fictions.
In a Ponzi Scheme, Ponzi schemes to enrich himself by promising a good or service to a recipient, knowing full well he's going to provide neither the good nor the service. If the Social Security Administration is enacting a Ponzi Scheme on the retired people of America, FTC, then the people who are running the Social Security Administration are the most inept criminals I have ever seen.
141. wonkers2 - Feb. 5, 1999 - 6:47 AM PT
Dipping Into the SS Bank by Ernest F. Hollings NYT 2-5
Everyone in Wash. has been aruging over what to do with the supposed budget surplus. Pres. Clinton is calling for savng SS; the GOP are pushing for a tax cut. Unfortunately, the surplus is a hoax.
The last time the Fed. Govt had a surplus was under Lyndon Johnson. Pres Clinton's proposed budget, which he ways accounts for a $117 bullion surplus, in reality calls for spending $136 billion more than we take in.
How can that be? The answer to that is that the surplus everyone talks about belongs to SS already. In 1983, the Greenspan commission proposed a payroll tax to build up a reserve to take care of the baby boomers when they retired. To make certain this reserve would not be spent, the commission recommended that SS be accounted for outside of the annual budget. Despite current law, Congress has already spent the SS reserves for other things. As a result, the SS account is $730 billion in the red.
According to the Congressional Budget Office, the SS trust fund will grow each year by these amounts:
1999...$126billion
2000...$137billion
2001...$144billion
2002...$153
2003...$161
2004...$171
2005...$183
2006...$193
2007...$204
2008...$212
2009...$217
We should have a $3.2 trillion reserve in 2012, when payments to retiring baby boomers will start to exceed revenue. But because we will have already spent the money for other things, we will have to raise taxes or cut bebefits to pay SS recipients. [cont'd]
142. wonkers2 - Feb. 5, 1999 - 6:51 AM PT
SS continued
To save SS, we must first stop looting it for spending programs or tax cuts. Last week Alan Greenspan suggested that the "surpluses" shoulde be used to pay down the Federal debt. The first debt paid should be that of SS. Once that iiis done, then we can legitimately debagte the relative merits of keeping a reserve or cutting the payroll tax and putting SS on a pay-as-you-go basis.
We should freeze the budget and leave the "surplus" where it belongs. That in itself would help to pay down the debt, which would lower pressure on interest rates, stabilize the capital markets, add to the nation's savings and promote economic growth.
FTC, What think ye of Sen. Hollings's analysis? Makes a lot of sense to me.
143. thoughtful - Feb. 5, 1999 - 9:46 AM PT
At the risk of copping a "frayse" from a well-known fraygrant, Hollings is an idiot. He needs to get some accounting training so he'll learn the difference between capital accounting and cash accounting.
Again, for one and all, the US Government operates on a cash basis: More money in than out, then there's a surplus; more money out than in, then there's a deficit. That's it. When the government puts up a building, it pays *cash*. There is no capital account with the building as an asset which gets depreciated over the next 25 years. In the same way, there is *no* trust fund--no asset account earmarked "social security". There is no soc. sec. surplus. The only reason why some refer to it as such is because payroll taxes are identified separately to support soc. sec. We don't talk about a defense deficit or a FHA deficit or any other kind of deficit because we don't earmark specific tax receipts to support any one program. But it's all one big cash budget.
Rather than Hollings, read Herb Stein's Op-Ed piece in the NY Times earlier this week -- Stein knows whereof he speaks.