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Why Social Security Is Broken

Joe Economist

Council Member
The President recently put forward a budget that would change the way benefits in Social Security are calculated. That change acknowledges what the Trustees have said for years. Social Security is in trouble. The President's proposal and the critic’s response pretty clearly demonstrate that Washington does not understand the problem with Social Security nor its size.

The experts in Washington express the problem facing the Social Security system in terms of cashflow. It is true that Social Security expects to draw in less money than it spends. The corresponding insolvency is however the outcome rather than the core problem – much like a fever is an outcome of the flu. The fact that Social Security is running out of money is the visible outcome. The disease is the fact that Social Security is a terrible investment.

The question of solvency is simply the unavoidable outcome of the poor economic returns of Social Security. It should surprise no one that a terrible investment runs out of money. People avoid bad investments whether it is on Wall Street or in Washington. It is a matter of economic gravity that poor returns drive people out of any financial system.

Economic returns are what you get for what you contribute, and they are terrible particularly for younger workers. According to the Social Security Administration, some younger workers can expect to get back as little as 40 cents on the dollar on a pre-tax basis. That means that Social Security isn’t terribly different than spending quarters to buy dimes.

Experts argue that raising taxes and lowering benefits for future generations are the only two solutions. Comically enough, their cure treats the symptom and feeds the disease. We are going to fix poor returns by making them worse. As returns drop, so does participation. As participation drops, the system will see greater and greater cash shortfalls.

Washington will tell you that payroll taxes are mandatory – which is true. The problem is that wages are not mandatory. People can stop working. People can shift wages into benefits which are not captured by payroll taxes. Businesses can shift wages into stock options which are not part of the payroll tax equation. This is not evasion. It is the sound of people fleeing a failing system.

The experts do not believe in economic gravity. In their world, no one retires earlier because of lower compensation. No one acts in their own self interest to avoid the tax. And no one loses a job because of the higher cost of employment. In the mind of Washington experts, the economy is a frictionless system where rising costs have no consequence.

The problem is that Social Security is spending quarters to buy dimes. The experts would tell you that the solution to this problem is to get people to spend quarters to buy nickels. This is lunacy. These solutions make the system less appealing to the working generation – without whom the system fails in spectacular fashion.

In general the problem with Social Security is the economic returns. Today SS is like spending a quarter to buy a dime. DC's solution is for us to agree that our children will spend a quarter to buy a nickel. Raising taxes and cutting benefits is a placebo will work until it doesn't, at which point you will have an implosion.
 

OldGaffer

Governor
Get another topic, you have worn this one out, no one except Worldly agrees with you that social security needs to be cut or eliminated to "save the children". We get it, you dont like SS.
 

ITALIA

Mayor
SS is an insurance policy. If you pay life, auto, home insurance all your life and never make a claim was it a bad investment and money thrown away? With SS insurance you do receive a safety net. Depending on how long you live it can be a very good investment.
 

Joe Economist

Council Member
SS is an insurance policy. If you pay life, auto, home insurance all your life and never make a claim was it a bad investment and money thrown away? With SS insurance you do receive a safety net. Depending on how long you live it can be a very good investment.
First, Social Security is not a safety-net. It does not pay a penny based on need.

Second, the measure of insurance (and you are right it is insurance - over priced insurance) is the present value of expected benefits vs the present value of past contributions. The Social Security Administration provides this information in the moneys-worth studies.

Third, Social Security is never an investment. It is insurance which manages risk. When I talk about economic returns, it is the price of the insurance not what you get paid over time. The cost of Social Security is astoundingly high. Someone born in 1970 (making 2/3rds median income or 34K in 2010), will lose about $600,000 of savings with their SS contributions. The figures that I have seen say that Social Security insurance is worth about $300,000 at retirement - these are not from SSA of course.
 

EatTheRich

President
Social security is a program that pays benefits to the elderly, disabled, and widows. There is absolutely no necessary connection between the benefits received under the program and the taxes that pay for it, any more than is the case with the taxes that go to pay for, say, F-15 aircraft. I might say that an F-15 aircraft is a horrible "return" on my "investment" because I will never use it, but that is rather beside the point. The point is, it's not an investment at all. Taxes represent wealth that is taken from me or others by force, and they WILL be going up whether the government spends the money on F-15s, social security, or paying down its debt.

Given that fact, do I believe that the government should provide a minimum salary for the elderly, disabled, and widowed? Yes, I do.
 

Joe Economist

Council Member
Social security is a program that pays benefits to the elderly, disabled, and widows.
That is factually wrong. It pays people who have worked and contributed. There are millions of Americans who aren't eligible many of which are elderly, disabled, or widows. Yes, some beneficiaries are in these groups but it is dishonest to say to suggest that SS pays the elderly, disabled, or widows when the formulas actually allocate the highest level of benefits to someone like Pete Stark who is wealthy by Congressional standards.

There is absolutely no necessary connection between the benefits received under the program and the taxes that pay for it, any more than is the case with the taxes that go to pay for, say, F-15 aircraft. I might say that an F-15 aircraft is a horrible "return" on my "investment" because I will never use it.
Factually wrong. There is a connection between the expected benefits and the taxes. It is called the benefit formula which uses past contributions to compute your benefits. And actually the return on the F-15 is when you don't have to use it.


The point is, it's not an investment at all. Taxes represent wealth that is taken from me or others by force, and they WILL be going up whether the government spends the money on F-15s, social security, or paying down its debt. Given that fact, do I believe that the government should provide a minimum salary for the elderly, disabled, and widowed? Yes, I do.
It is difficult to call something a tax when it creates a dedicated revenue stream for the payor. Yes SS is collected under the power to tax, but the revenue is used in a way that makes calling it a tax absurd.

It is roughly insurance which is an investment in managing risk. For most Americans it is the largest investment that they make in retirement planning because it is so expensive. The problem is that it loses money. It is like using an anchor as a life boat.

I understand that you would like to pay people a minimum salary for being old and all the rest. And you hate SS as it is because it does almost the opposite.
 

ITALIA

Mayor
First, Social Security is not a safety-net. It does not pay a penny based on need.

Second, the measure of insurance (and you are right it is insurance - over priced insurance) is the present value of expected benefits vs the present value of past contributions. The Social Security Administration provides this information in the moneys-worth studies.

Third, Social Security is never an investment. It is insurance which manages risk. When I talk about economic returns, it is the price of the insurance not what you get paid over time. The cost of Social Security is astoundingly high. Someone born in 1970 (making 2/3rds median income or 34K in 2010), will lose about $600,000 of savings with their SS contributions. The figures that I have seen say that Social Security insurance is worth about $300,000 at retirement - these are not from SSA of course.
Many reach old age with no other income except SS. For them it is a need and without it would be receiving a "safety net" from Government. SS covers many conditions that would not be covered by ordinary insurance. Think SSI, widows, children. Ordinary insurance would likely cover only death by accident so trying to compare them to SS as to value is not valid. As to your "$600,000 of savings" many, many reach old age having pissed that all away and have nothing but with SS they have something worth $300,000 according to you.
 

Joe Economist

Council Member
Many reach old age with no other income except SS. For them it is a need and without it would be receiving a "safety net" from Government.
I sense that you want SS to be a safety-net, but it isn't whether they have no income or not. It is old-age insurance which enables workers to retire with some confidence that they will not outlive their assets.

SS covers many conditions that would not be covered by ordinary insurance. Think SSI, widows, children. Ordinary insurance would likely cover only death by accident so trying to compare them to SS as to value is not valid.
I am not comparing Social Security to other insurance. The measure is present value of expected benefits versus present value of past contributions. If the number is less than 1, it is a bad deal.

. As to your "$600,000 of savings" many, many reach old age having pissed that all away and have nothing but with SS they have something worth $300,000 according to you
It is actually a lot higher than $600,000 because I used conservative numbers. That point aside. The $300,000 is from the Urban Institute which use less conservative estimates. I would have to dig-up the article where I found it.

I get it. You want Social Security to be something that it isn't. There are many welfare programs, and only one old-age insurance. Talking about Social Security is no different than saying a hammer is a screw driver. Just start you argument with "Social Security needs to be changed to be a welfare program". It is honest even if it doesn't get you very far.
 

EatTheRich

President
That is factually wrong. It pays people who have worked and contributed.
Are you denying that widows of those who have worked and contributed--even if they never worked--are eligible for Social Security? Or are you factually wrong?

Factually wrong. There is a connection between the expected benefits and the taxes.
There is a connection because Congress and the Social Security Administration insist on one. I said that there is no NECESSARY connection. Social Security needs to be changed into a welfare program.
 

Joe Economist

Council Member
Are you denying that widows of those who have worked and contributed--even if they never worked--are eligible for Social Security? Or are you factually wrong?
Widows can collect but only based on their spouses' contribution. There are millions of widows and orphans who can't collect a penny. Social Security pays contributors based on contribution. The fact that they are widows or orphans is not material. The government pays people lottery winnings who happen to be widows and orphans, that doesn't make it a welfare program.

There is a connection because Congress and the Social Security Administration insist on one. I said that there is no NECESSARY connection. Social Security needs to be changed into a welfare program.
I may not agree but you are being honest.
 

OldGaffer

Governor
Here is your problem with doing anything to eliminate or cut social security, and these folks are voters and not going away.
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fairsheet

Senator
Social Security currently consumes 5.7% of GDP. That number is expected to PEAK at 6.2% in the 30's, and then go back down from there. Holy SHI T! Say it ain't so? Social Security is going to consume at most, an addtional .5% of GDP? Oh, the humanity!

On a sidenote, if we can't find that .5% in current defense spending over the next 20 years, we deserve to have our economy collapse.
 

RedCloud

Mayor
Social Security currently consumes 5.7% of GDP. That number is expected to PEAK at 6.2% in the 30's, and then go back down from there. Holy SHI T! Say it ain't so? Social Security is going to consume at most, an addtional .5% of GDP? Oh, the humanity!

On a sidenote, if we can't find that .5% in current defense spending over the next 20 years, we deserve to have our economy collapse.
Good post, Fair! A certain political party had rather see families living under bridges than to cut corporate welfare. Their goal seems to be elimination of ALL social welfare programs.

The SOBs should enact laws that benefit the people and let the corporations fend for themselves. I know that might be hard since corporations are now people per the SCOTUS. I saw one down at the Red Cross blood bank the other day-couldn't see the logo but believe it was Exxon.
 

fairsheet

Senator
Good post, Fair! A certain political party had rather see families living under bridges than to cut corporate welfare. Their goal seems to be elimination of ALL social welfare programs.

The SOBs should enact laws that benefit the people and let the corporations fend for themselves. I know that might be hard since corporations are now people per the SCOTUS. I saw one down at the Red Cross blood bank the other day-couldn't see the logo but believe it was Exxon.
I've noted this in the past and I really DO hate to say it, but I think the current Fox/GOPistry has moved well beyond the question of efficiency in terms of helping the less fortunate. These days, the central theme for all too many of them, is that they really don't WANT for the less fortunate to get any help. Shoot...there are all sort of examples of their willingness to actually pay MORE, in order to make sure some get less.
 

RedCloud

Mayor
I've noted this in the past and I really DO hate to say it, but I think the current Fox/GOPistry has moved well beyond the question of efficiency in terms of helping the less fortunate. These days, the central theme for all too many of them, is that they really don't WANT for the less fortunate to get any help. Shoot...there are all sort of examples of their willingness to actually pay MORE, in order to make sure some get less.
What amazes me is how anyone can be so uncaring as to want to reduce aid to needy people. I know some are riding the system but I say let them ride until detected rather than cut aid to the truly needy.

What is even more amazing to me is how these yahoos get reelected. They have to be getting votes from the very people who are most in need of assistance.
 

EatTheRich

President
Good post, Fair! A certain political party had rather see families living under bridges than to cut corporate welfare. Their goal seems to be elimination of ALL social welfare programs.

The SOBs should enact laws that benefit the people and let the corporations fend for themselves. I know that might be hard since corporations are now people per the SCOTUS. I saw one down at the Red Cross blood bank the other day-couldn't see the logo but believe it was Exxon.
Corporate personhood is less of an obstacle than the weakening of the unions. Something that the strikes by mine workers in West Virginia and Utah and electrical workers in Utah could help reverse.
 

RedCloud

Mayor
Corporate personhood is less of an obstacle than the weakening of the unions. Something that the strikes by mine workers in West Virginia and Utah and electrical workers in Utah could help reverse.
I think Corporate personhood as defined by the SCOTUS is the worst decision made by them in many years, and will eventually be overturned. This decision permits foreign countries to influence our elections without revealing their doing so.

My "shoot from the hip" opinion of unions is that they overreached and have been reined in. A corporation can't pay an assembly line worker the same wages as their CEO and still sell their widgets at an affordable price. Having said that, I will further acknowledge that I'm for the unions.
 

fairsheet

Senator
I think Corporate personhood as defined by the SCOTUS is the worst decision made by them in many years, and will eventually be overturned. This decision permits foreign countries to influence our elections without revealing their doing so.

My "shoot from the hip" opinion of unions is that they overreached and have been reined in. A corporation can't pay an assembly line worker the same wages as their CEO and still sell their widgets at an affordable price. Having said that, I will further acknowledge that I'm for the unions.
My experience with trade unions has been mixed. I've found some, like the IBEW, to be terrific to work with. Others, not so much. It seems like the members of some of these unions have forgotten that it's a two-way street. The employer pays just compensation AND the union supplies a superior product.
 

MaryAnne

Governor
I think Corporate personhood as defined by the SCOTUS is the worst decision made by them in many years, and will eventually be overturned. This decision permits foreign countries to influence our elections without revealing their doing so.

My "shoot from the hip" opinion of unions is that they overreached and have been reined in. A corporation can't pay an assembly line worker the same wages as their CEO and still sell their widgets at an affordable price. Having said that, I will further acknowledge that I'm for the unions.

Oh,I can not let that one go! Union members never made what the CEO's did! Not
in a million years!

While Union members were accepting huge cuts in wages and benefits Wagoner was collecting 23 million a year,while GM never made a profit after 2004. Yet people still Blane the Unions for ignorant decisions and short term profit.

The destruction of Unions is what is giving us stagnating wages,while the CEO makes more than ever!

Sorry,Red Cloud,that is my territory!
 

MaryAnne

Governor
My experience with trade unions has been mixed. I've found some, like the IBEW, to be terrific to work with. Others, not so much. It seems like the members of some of these unions have forgotten that it's a two-way street. The employer pays just compensation AND the union supplies a superior product.

Do you know who forced workers to ship shoddy products out the door to increase profit? I heard the complaints every day from Employees!
 
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