The Social Security system is now cash-negative, as reported today in the Washington Post. The shortfall will henceforward steepen sharply, as hordes of my own demographic cohort enter the twilight decades of unproductive geezerdom.
Rick Perry was bastinadoed in the press for calling Social Security a “Ponzi scheme”, but it’s hard to see in what meaningful sense he was wrong to say so. Walter Russell Meade elaborates.
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Meade is completely wrong. A Ponzi scheme is a doomed investment based on fraud. Social Security is neither fraudulent nor doomed.
Its audited financials are available to anyone with an Internet connection.
Americans live much longer than when it was passed in the 1930’s, and the elderly are a larger part of the population. Social Security could easily be recalibrated to our changing demography by raising premiums, reducing benefits, and increasing the flow of immigrants so a larger percentage of the population is in its working years. If you really wanted to goose up the trust fund, you would admit more illegal immigrants, who often pay into the system and get nothing in return.
Social Security can be changed to be solvent in perpetuity, and the means to do so are obvious. The obstacles to doing so are an inability to have a national consensus on how much we as a society are willing to pay for benefits to the elderly, as well as the political will to effect the changes which are necessary.
Peter, that’s willfully obtuse. The point isn’t the fraud, but the pyramidal nature of the funding of the system.
A Ponzi scheme is adjusted in exactly the same way you recommend – get more people paying in at the bottom.
Great plan: let’s bring in more illegal immigrants, when we already have 9% unemployment among our own citizens.
Hell, let’s not have any immigration policy at all!
And yeah, let’s raise those compulsory premiums, too. That’ll be a real shot in the arm for those struggling working-class families.
In other words, this is how Ponzi schemes always work – as they run out of money, they have to resort to more and more far-reaching and desperate measures to get people paying in at the bottom. Your own recommendations — bleeding more money out of the working class, and dragging in illegal immigrants — are good examples.
A pyramidal system like Social Security depends on two things: a growing base of workers paying in, and sufficient social cohesion for people to be willing to pay more and more to support a lot of old geezers. It’s one thing if those old geezers are your own grandma and grandpa, or members of some community that you can in some natural way feel is your extended family. It is quite another when the society becomes a Balkanized tossed salad of competing ethnies and cultural factions, all elbowing each other aside for their piece of a dwindling pie.
The only similarity between Social Security and a Ponzi scheme is that they are both based on inverted pyramids. However, while the money in a Ponzi scheme goes in the pocket of its promoter, the money from Social Security is distributed to its beneficiaries. Social Security has been an outstanding success since its inception almost eighty years ago, while a Ponzi scheme quickly collapses. Social Security is solvent until 2037, and only requires minor adjustments to reverse its inversion. We have an older society, and adjusting Social Security to match the changed demographics fixes the problem, while a Ponzi scheme will always end in failure and insolvency. Social Security is fixable, and a Ponzi scheme is not. The comparison is absurd.
I’m not recommending bringing in illegal immigrants to add to the base. I strongly favor bringing in lots of legal immigrants, especially those with skills. However, the presence of illegals does, in fact, boost Social Security reserves. I’m just sayin’.
As for raising premiums: either you raise premiums, lower benefits, or raise the eligibility date by a few years. The fact that you cannot fix Social Security without causing pain is not a reason to maintain the status quo. The obvious solution is to spread the pain equitably while making the changes gradual. Moreover, because there is a 26 year time horizon, the adjustments which need to be made are relatively minor and painless.
I finally understand why the Tea Party keeps demanding to take our country back. They want to take it back to the Hoover administration.
No, not at all. As long as the base keeps growing, everyone in a Ponzi scheme does fine. Lots of people, for example, took home nifty returns from Bernie Madoff’s little operation.
Social Security did well, too, as long as the contours of the pyramid were favorable. With the boomers retiring, they no longer are.
To say that the system is “solvent until 2037” ignores the fact that it is already cash-negative, and that it has made itself “solvent” simply by taking IOUs from other parts of the Federal government. It is simply an accounting fiction. They system is now a net liability to the public fisc.
Yes, of course there is a need for a painful discussion about what to do. But first we need to be frank about where matters stand.
That is not quite accurate. Since the 1980’s, Social Security has had greater inflows than outflows, and the excess revenue is used to buy Treasury notes. The balance currently stands at around $2.5 trillion. Now that we are reaching the tipping point where outflows are greater than inflows, the 2037 date is when the $2.5 trillion is projected to reach zero. It will then be able to pay a projected 75% of the current benefit level.
In other words, the government snatched the excess, used it for the general fund, and replaced it with Treasury IOUs.
Yes, but that is not a systemic fault of Social Security – it is a systemic fault of government tax and spending policy. Had we not invaded Iraq or reduced taxes to the lowest rates since the Truman administration, the surplus from Social Security would be sitting in the bank.
Comparing Social Security to a Ponzi scheme is a fig leaf for dismembering a successful program which is disliked by conservatives, when there is nothing structurally wrong with it which cannot easily be fixed.
Ponzi, Schmonzi. It’s all semantics. Serious people understand what Social Security was originally intended to accomplish; why the original parameters were selected; and why they succeeded as originally intended — until the demographics outgrew the original parameters.
There is still a perceived need for SS, and there are a variety of ways it can be re-parameterized to balance the books.
The political controversies, which have so far stymied a solution, involve major differences between the two dominant worldviews that can not find any common ground.
No, I do not have any fresh ideas. In my opinion, these ideological differences are insurmountable.
The one thing I do know about Social Security is that the system has been badly mismanaged. I don’t know if good management could have avoided all the problems it currently faces, but it surely would have mitigated them. To renege on promises to the working stiffs who financed the system in good faith should be a last resort. I don’t think we’re there, yet.
bk,
To my knowledge, there are no serious proposals that include any form of reneging on promises made. Nevertheless, even though I am already an SS recipient, if a last resort, as you have defined it, were necessary for a comprehensive solution, I would not oppose it, unless I felt I simply could not make ends meet if it was implemented as specified.
Agreed. Whatever the money was used for, that’s some mighty shady policy, to swipe those funds from the Social Security cookie jar and just leave chits for government debt.
But that doesn’t make Social Security itself any less of a pyramid game. It’s all good as long as the fat end of the pyramid is the one paying in, but it isn’t any more, and that’s now going to be yet another big problem.