Politicians can’t reform Social Security because they can’t talk about it honestly, and they can’t talk about it honestly because the median voter doesn’t want to admit a basic fact: Grandpa is an embezzler.
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Samizdata quote of the dayApril 25th, 2012 |
 20 comments to Samizdata quote of the day |
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Don’t know about embezzler. More like grandpa got tricked into a pyramid scheme.
It’s a problem of course because state pensions have been used to wean pensioners off non-governmental means of support. Stop them tomorrow and there would be poverty.
Which is of course exactly how the government likes it. Support the big state or grandpa dies is hard to argue with.
Jaded Voluntaryist:
I think JV has it better than Peter A. Taylor, though Peter is a person here whose view I always read with careful appreciation.
For those who invest for their old age, we now have the ‘amusing’ arrangement (government inspired) of interest payments well below the rate of inflation: thus making a loss. For those who have failed to move all their money into ISA’s (UK tax-free interest accounts), one also pays tax on the loss.
It is also worth bearing in mind that the elderly can do nothing much about their current financial circumstances, except rely on what was previously contracted – where they have kept to their side of the bargain.
The not so elderly, fit and capable (and including many young adults) absorb vastly more of the welfare state than they need to. They can do something about this.
However, it is also the case that years of socialism have given expectations to the general populace that cannot be afforded in the longer term. This is through decades of insufficient work – and through decades of work of very limited worth, to those who paid for it.
The long term has now arrived. And it is politicians (and much of the educational establishment and MSM too), past and continuing, who should stand in the dock. Age alone is not evidence of guilt.
Best regards
Well, the Original Grandpas weren’t buying into a pyramid scheme – SS made some sort of financial sense when it was first established, and for about 30 years thereafter.
But the rest of what JV says is true – even as the financial sense of SS evaporated with the Baby Boom and the stunning increases in life expectancy, Grandpa and Grandma let politicians lead them to believe that SS still made sense – and that it was stable, and should be expanded. And so it has become the third rail of US politics. AARP has over 40 million members who have shown that they will ritually disembowel any candidate for Federal office who so much as breathes any idea that SS needs to be reformed.
In a sense, they do have a point – they simply want what was promised to them for their whole working lives. But it’s also true to say that those paying into SS should have realized that it’s a Ponzi scheme, and that it was being used to buy their votes. There’s nobody in this debate with clean hands.
It’s no surprise that AARP was founded right about at the time that the first inklings began to appear that maybe SS was unsustainable in the long run.
llater,
llamas
I do agree with NS above. We did not have a choice when I started work in 1950, I was in the NI scheme willy nilly. We had a contract with government which over time was altered to give extra under certain circumstances. Like most people then I was into working hard not into financial scheming. The engineering was enough for me, I enjoyed it. Unfortunately for us, the government is now breaking the contract and we can do damn all about it. Not content with that, they now steal whatever we did save from taxed earnings via inflation and deliberately hike prices of the essentials of living.
Of course this QOD was selected to see what juices would get flowing; but, it gives an excuse to slip back into those reactions from having read Law:
OED
So what have we here that is “embezzlement?” What has been placed in trust; by whom; for whom?
To whom do the funds being paid out, accepted (taken) belong? How are the “takings” determined; by the takers?
How have so many “grandpas” stolen or misappropriated so much? How do they continue to do so?
Surely inter-generational transfers are a great problem; but, by far the largest overall transfers in the U S are those made to provide for what passes for “education” of succeeding generations (unless, of course, you want to include feeding the young).
Basically, the FICA, as a tax, is Constitutional. Appropriations to a specific class of persons from the general Treasury funds should not be, unless for the functions of government – but, there you have it. The Constitution does not empower the federal government to act as a general medical insurer, collecting premiums and paying claims. It may regulate, but not engage in “commerce.” But both those two questionable activities are eroding the fiscal capacity of that government to perform its constitutionally mandated functions.
Embezzlement is a wrong accusation of the rightly identified beneficiaries of unconstitutional political determinations.
LLamas-
You have a romantic notion about the formation of AARP.
It was originated as a mass marketing program by the then officers of Colonial Penn Life, to create what we used to call “synthetic group.”
It was a way to circumvent, correctly and beneficially, restrictive regulations.
Today, AARP is still (income-wise) a marketing organization.
Derek:
I don’t want to get on your case, but it seems to me that this is a big part of the problem. Many people began to see way back around 1970 that the demographics necessary to make pay-as-you-go pension plans workable were not going to be sustained, in western countries. The issue of reforming Social Security in the U.S. has been continuously under debate since that time, and yet little, if anything, has been accomplished.
Derek, you’re an engineer, which means you are likely comfortably in the upper half of the IQ distribution, and probably in the upper quintile with respect to understanding the math connecting social security and demographics, and yet it sounds like you didn’t see this problem coming until it was too late. To me, that doesn’t damn you, it damns a whole system and approach to government that expects people to have far more foresight than they can realistically be expected to have. Too often, debates revolve around how things would be if the government does nothing as compared to how things might be if government invoked really smart policies to solve problems. But the reality is that we never get, and never will get, really smart policies. We get not very smart policies that, even when they become self-evidently dangerous, we still can’t fix.
I wasn’t tricked – I was FORCED to pay into SS with no recourse whatsoever along with my employer(s) who had to ‘contribute’ an equal amount on my behalf.
That ‘second part’ above in not widely ‘advertised’ and you’d be amazed at the number of people who have no idea it happens !!!
RRS – Oh, I’m well-aware of AARP’s devolution into an insurance-selling engine, and some of the reasons why – but that wasn’t actually my point. I was referring specifically to their lobbying and political activity, which is focussed (more than any other issue) on maintaining and expanding Social Security benefits for its members.
As the whole pyramid becomes more and more creaky, so AARP expands its membership to cover not only those who get SS now, but now to those who will get it 10, 15, even 20 years hence. This ensures a steady and renewing mass of voters for the status quo, which is the main reason for their (political) existence.
AARP was originally founded in the 1950s, just as the range and extent of benefits from SS was expanding rapidly and the post-war demographics were becoming clear. And, no sooner had some far-sighted demographer done the simple math and said ‘this is going to turn into a vast pyramid scheme if we keep going this way!’ than some other bright spark said ‘so we need to form an organization that will lobby to keep the system just the way it is, and even to expand it if we can!’. And here we are.
llater,
llamas
Every word I wrote = smite-controlled. A coincidence? Let’s see . . . .
llater,
llamas
The essential problem with Social Security is that it was designed to provide supplemental retirement income (hence the word “supplemental” in its very name), not to be one’s primary source of retirement income. People were expected to have their own savings and other pensions. It was later perverted into the monstrosity it has become, pushing the benefits up to a “living wage” which it was never intended to be. If it had been kept as originally intended it wouldn’t be the fiscal black hole it now is, and there would also be less opposition to changing it.
But llamas, even at the beginning it didn’t really make any sort of financial sense. The average life expectancy at the time was only about 66 years, so most people could expect to collect on SS for a very short time, probably not even long enough to recoup their “investment”. But those who beat the odds and exceeded the normal life expectancy could expect to receive far more than they ever contributed, even including some imputed interest rate. So in that sense it was a sort of mandatory national lottery, with a few winners and many losers. Not a very sensible approach to retirement planning.
And FWIW, I despise AARP and won’t have anything to do with the organization, even though I qualify (and could probably save some money through it).
Every word I wrote = smite-controlled.
To paraphrase Mary McCarthy, every word you write is smite-controlled, including “and” and “the”. 😉
Laird – you are right and I was unclear.
Original SS was not a good idea for the individual, as you describe. What I meant, but did not say, is that it was financially relatively-sound as a system – incomes exceeded outgoings and a ‘trust fund’ against future outgoings was actually financially feasible to accumulate, within that framework of incomes and outgoings.
Unlike now, where the ‘trust fund’ is a drawerful of IOUs from the Federal Gummint that it cannot pay & does not intend to, and outgoings will inexorably exceed incomes at (some point in the very-immediate future, let the CPAs argue about the exact date).
llater,
llamas
Agreed, llamas.
The original SS in the US was a very modest pension scheme, sold as a help to the aged and impoverished in hard times. If it had stayed that way, it wouldn’t even be controversial, except as a matter of principle.
However, over the course of several decades, and esp. in the 60’s with the creation of medicare and medicaid, the modest pension plan became a budget eating behemoth which simply cannot be sustained.
For quite some time, it has been a ponzi scheme with all the non-sustainable elements of that scam financial construction. As with many other state agencies and bureaus, if the SS administration was a private company, it would have been charged criminally and put out of business years ago.
It will take an enormous public information effort, and enormous political and moral courage, to wade through the swamp of political hysteria which will erupt if and when any serious attempt is made to restructure the program into something that will serve those who are past any chance to rearrange their pension plans, while phasing the forced ponzi elements out and into a private fund for younger people.
As an aside, I agree with the above commenters about AARP in that it is nothing more than an insurance peddling outfit with a thoroughly statist political advocacy program, and entirely undeserved influence as a purported representative of senior citizens.
For those getting smited:
As a slow typer (unqualified typist) I now type my entries into word, copy, then go to permalink on the samizdata.net item insread of comments.
I(n the comments box I paste the copy.
Bingo – NO smites.
Thank you again, Alisa
how anyone thought SS EVER made any sense is a matter of wonder for me…the funds were put direct into the Treasury within months of its startup so its always been an indirect gov funding source that later had to be repaid by other revenue…
what is comical to see here is the talking heads on CNN for example claim to be surprised that SS is bleeding red. Apparently none of them even realized Great Leader has had a temporary SS “contribution” rate cut in place never mind the demographics change
‘…not to be one’s primary source of retirement income..’
Until certain politicians started pushing it as the only pension you would need. – ‘Don’t worry about retirement, that’s what SS is for !!’
‘…financially relatively-sound as a system – incomes exceeded outgoings….’
If I remember correctly, originally, the ratio was about 7 ‘contributors’ to 1 ‘recipient’. Today that is closer to 2-3 to 1 !!! ( and the ‘contributions do not exceed the ‘outflow’ !
‘….the funds were put direct into the Treasury within months of its startup…’
This was done so the politicians could ‘get at’ the money easier and with ‘looser’ accounting procedures. How else do you think they were going to be able to use it to buy votes ?? ( Or scare people into voting a certain way by claiming the opposition was going to ‘steal SS’ from them. Happened as recently as ’96 )
‘…will serve those who are past any chance to rearrange their pension plans…’
My condition exactly!!
‘…I despise AARP….’ You and me both, especially for its, ah, political leanings !!
When Social Security started there was a ratio of 35 workers paying in for every person collecting. It is now about 2.5 to 1. Social Security eligibility was set at the average life expectancy so in other words people were supposed to save enough money on their own to retire on and S.S. would only supplement their savings if they outlived the average age of death. Of course that age has increased by about a decade and a half and not adjusted upwards to compensate. Social Security tax rates started at 1%. They doubled. Doubled again. And again.
The greedy geezers fought tooth and nail against every attempt to inject generational fairness and reality into the system. They started voting for the people who would send themselves more money every month. They got the benefits of all of the deficit spending on themselves and now run around expecting the young to beggar themselves trying to pay all of the bills. Every time I hear someone mention the “trust fund” I want to sock him or her in the jaw. Let me get this straight: you take all of the cash out of your wallet, spend it, take out your checkbook and write yourself a postdated check and then put that back into your wallet and that is the “trust fund” you are owed by the young?! There is only one possible sane response to that: “F.U.”.
I have been interested in this issue since I was in grade school in the late 1970’s and even then I figured out that it was a game of musical chairs and there was absolutely no way the young would be left with a seat when the music stopped. The “government” needs to keep up its end of the bargain because the seniors kept theirs?! B.S.
The average Social Security recipient collects everything he or she paid in plus interest in about 18 months. Just where do they think the money comes from to make up the difference? The Tooth Fairy? When the U.S. can no longer borrow money (probably within the year at the rate its going), and actually have to pay a real interest rate on all of the debt, the budget will have to be cut by HALF. Say farewell to Social Security, MediCare, MedicAid, Food Stamps, and Unemployment.
@ Nigel Sedgwick:
Thank you for your kinds words.
@RRS:
Social Security purports to be a forced retirement system. The government supposedly holds various workers’ retirement savings in trust. People who oppose reform often say things like, “You can’t touch Social Security–that’s my money!” This is only partly true. Social Security is also partly a peculiar type of government charity (for the benefit only of those poor who also happen to be old). But it is also partly an intergenerational transfer system; it is not means-tested. My grandparents’ generation hired politicians to force their neighbors’ children to intermingle their savings with the older generation’s, and then the older generation ran off with a disproportionate share of the money.
At least, that’s my understanding of Social Security. I don’t buy the argument that the older generation were innocent victims of a Ponzi scheme, like those of Bernie Madoff. It may be a Ponzi scheme in some sense, but I think the voters were always perfectly well aware that it was a pay-as-you-go system. The later participants may be unwilling victims, but a majority of the earlier generation willingly cooperated with the politicians. They are perpetrators, not victims.