Roosevelt would surely be proud of this, and yet he might also have reservations. Social Security has evolved into something he never intended and actively opposed.Social Security's shift from a kind of savings plan to outright generational theft took decades, starting from an override of FDR's veto over payroll taxes. The shift from Obamacare's always-specious claim of "budget neutrality" was far, far briefer.
It has become what was then called “the dole” and is now known as “welfare.” This forgotten history clarifies why America’s budget problems are so intractable.
Thursday, August 14, 2014
Thus always to entitlements
The Washington Post's Robert Samuelson has a great article about how Social Security has been gradually shifted over the years to the point where it now violates the principles that FDR once insisted upon: "Would Roosevelt recognize today's Social Security?"
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A "great" article would not make the claim that Social Security funds are not invested. All of the people who have bought Treasury bonds will be very surprised to learn that they are not receiving interest, and that their T-bonds are not an investment.
I believe the author referred to the Trust fund as "not invested" because the "investment" is simply the government's agreement to pay itself back for the money it takes from the Trust fund and uses for other purposes. This is different from an individual buying government bonds. The SS bonds are not marketable securities and can only be redeemed directly with the Treasury. I don't think you can call something an investment if it can't be traded or sold to a third party. Unlike an investor selling his bonds in the market, for SS to get its money back, Congress has to come up with that money from scratch through taxes or more debt. Which is exactly the situation that would exist if there had never been a Trust fund at all.
Would it be "investing" if I establish an education fund for myself, then spent the money in it for cars, home improvement, etc.,- but vowed that when needed for education I would scrape up the money even if it meant using credit cards and home equity loans?
Why, then, does a government issue bonds at all? Are corporate bonds a scam? When Exxon or Samsung or Apple sells bonds, uses all the money for expenses and investment, and then issues additional bonds when the first bonds come due, does that mean the companies are insolvent?
Which gets to why all the rhetoric about Social Security going broke, or being a Ponzi scheme, or blowing up the deficit is total B.S.
The problem isn't that Social Security is "broken" and "unsustainable," because it's not. The problem is that the current Congress is functionally paralyzed and ideologically opposed to addressing the math. The SS shortfall would vanish if the payroll tax were raised 80 cents. (This of course assumes that the money isn't then grabbed and spent on further wars and tax cuts. I'm ashamed I even brought it up.)
Or better, if much of the money that's been bled from the fund was reclaimed directly from those entities who've profited. This retrieval could be done incrementally, over the next thirty years. After all, we wouldn't want a class war.
Then there's option C: keep yelling about a "death spiral" and see if it makes a dent in the 89-90% public support for the program. Now that's a recipe for success.
A couple things:
"Why issue government bonds at all?" An excellent question: the SS Trust Fund is an accounting trick of "I'll borrow from this pocket and put it in this pocket." If the Trust Fund didn't exist, there would be no difference.
"Are corporate bonds a scam?" Why, no, because they represent a claim on a company that can be recouped. By contrast, the Supreme Court has ruled that Americans have NO claims on their Social Security benefits. Oh, the Trust Fund is broke? Too bad.
Which circles back to the "investment" part of Social Security: for the last decade or so, workers "investing" in SS will receive a negative return. They'll put in more $ than they'll get back. But they can't opt out of the system and can't sue when the Trust Fund runs dry. Sign me up!
And by "run dry" I mean that in 2032 or so, the Trust Fund will be exhausted and - BY LAW - SS can only pay out what it takes in, meaning an across-the-board reduction of 25% in benefits. Let's see how the poll numbers hole up when this happens.
I won't even go there on the dysfunctional Congress failing to address this problem. Democrats demagogued this issue to their benefit. Let them fix FDR's program.
Or better, if much of the money that's been bled from the fund was reclaimed directly from those entities who've profited. This retrieval could be done incrementally, over the next thirty years.
Most of "those entities who've profited" are other entitlement recipients. Good luck in reclaiming that money over 30 years or 30,000 years.
"Why issue government bonds at all?" An excellent question: the SS Trust Fund is an accounting trick of "I'll borrow from this pocket and put it in this pocket."
Which circles back to the "investment" part of Social Security: for the last decade or so, workers "investing" in SS will receive a negative return.
The government has typically used this money for public financing that has typically recouped more than the amount put in. But that return has indeed dropped in the last decade or so. The nearly $4 trillion spent on unfunded Middle East wars and the Bush tax cut had just a little something to do with it. That was moving the cash from pocket #2 to someone else's pants.
"Are corporate bonds a scam?" Why, no, because they represent a claim on a company that can be recouped.
That's why I shun T-bonds and keep my retirement nest egg in GM, Kodak, Lehman Bros, Delta, KMart, Hostess, United, Enron, Six Flags, Chrysler, Tribune, Bally, Marvel and Circuit City.
Will the United States of America be next on that list? Not until money stops flooding into the U.S. for bonds, equities and direct investment - despite offering lower rates of return for foreigners than equivalent overseas investments would bring them.
As corporate bonds are paid off, whether in interest dividends or when coming due, those payments require "taking away" money from a company's shareholders, whose return would be larger otherwise. There's never been any way around it. And so it is with Treasury bonds - including those in the Social Security fund.
And by "run dry" I mean that in 2032 or so, the Trust Fund will be exhausted and - BY LAW - SS can only pay out what it takes in, meaning an across-the-board reduction of 25% in benefits. Let's see how the poll numbers hold up when this happens.
Is Social Security a natural law, like the law of gravity? The list of politicians who will watch this happen, elections be damned:
I won't even go there on the dysfunctional Congress failing to address this problem. Democrats demagogued this issue to their benefit.
The Democratic demagoguery has been disgraceful and one-sided. If they support this unconstitutional deficit-busting Ponzi scheme that's going broke because it's not privatized, why, they should voluntarily pay extra.
Most of "those entities who've profited" are other entitlement recipients.
An interesting theory: Congresses raided the Social Security money, and used it to pay Social Security. The devils!
I understand why you'd want to use straw men since you can't defend the SS Trust Fund. But since we're going to dip into Booooosh! again, let's review: the eight years of Dubya's term - with all it's unfunded stuff - added $4 trillion to the federal deficit. That would be $4 trillion that Obama once called an "unpatriotic" burden on the American people. By all accounts, Obama - with tax hikes and disengagement - will double the national debt from $10 trillion to $20 trillion. That's SUPER patriotic!
By the way, a portion of this yawning deficit is used to recoup Social Security Trust Fund bonds, a debt that will only grow until the Trust Fund is dust.
As for corporate bonds: the difference is that investors, by their own free will, decided to roll the dice on faltering companies. Even when they failed (or were restructured) they earned pennies on the dollar. The American citizen's claim on SS bonds: zero.
Will the US be next on that list? Well, the first-ever downgrade of US T-bills came under this President because (see above) there's growing fear that the debt will ever be paid down.
Resolve yourself that there will be no consequences for a political party that defends a system that robs a generation of Americans.
Most of "those entities who've profited" are other entitlement recipients.
An interesting theory: Congresses raided the Social Security money, and used it to pay Social Security. The devils!
Careful...liberals usually take pains not to label Social Security as an "entitlement" (let alone the only entitlement, as you characterize it here). The reason being that once it is just another entitlement, it has to compete with all the other welfare programs for the shrinking pie.
Social Security and Medicare can both be described as "entitlements" without being the same as one another.
Are there different kinds of "taxes"? Are there different kinds of "votes"? Are there different kinds of "rights"?
I understand why you'd want to use straw men... But since we're going to dip into Booooosh! again
Our familiar old friend, the "waahh, blame Bush" dismissal; that didn’t take long. It gets a better reaction on certain message boards than it does with the electorate, O advocate for responsibility and enemy of straw men.
You want to focus on Social Security's bad investment status "for the last decade or so." Preferably without looking at some of the reasons why the last decade or so was different from the previous six decades or so.
let's review: the eight years of Dubya's term - with all its unfunded stuff - added $4 trillion to the federal deficit.
Try $5.85 trillion. The debt on September 30, 2001 (the last day under Bill Clinton's last budget) was $5.8 trillion. The debt on September 30, 2009 was $11.657 trillion. This figure does not include future costs from the Iraq War, which are estimated to be more than $2 trillion, nor does it include $5 trillion in assumed GSE debt from the Fannie and Freddie MAC takeover, which was deemed "temporary" and therefore off-budget in 2008. There's also the small matter of the respective economies each president was bequeathed, and the purposes to which added debt was targeted.
Even when [corporations] failed (or were restructured) they earned pennies on the dollar. The American citizen's claim on SS bonds: zero.
The chance that American citizens will ultimately get pennies on the dollar from Social Security: far less than zero.
Well, the first-ever downgrade of US T-bills came under this President because (see above) there's growing fear that the debt will ever be paid down.
The downgrade came in response to the Republicans' shutdown fight over the debt ceiling. S&P wasn't exactly coy about it: "The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy." S&P also explicitly cited lack of containment of entitlement costs and the lack of tax hikes... two great tastes that taste great together.
The immediate aftermath? As soon as the first-ever Obama downgrade came (from one major agency of the three), investment jumped sharply. Again, this despite the smaller U.S. profit margin, compared to equivalent investments elsewhere. As Bloomberg's editors put it, "The early response from the people who matter most seems to show a score of: U.S. 1, S&P 0." The whole world still thinks that U.S. T-bills are a good, safe deal, except for one outlier group here at home.
Why’d it happen that way? In part because investors immediately noticed that S&P's calculations contained a plus-$2 trillion assumption that was not shared by their rival ratings agencies. S&P also incorrectly predicted that the Bush tax cuts would be extended. Nevertheless, some people love to invoke the downgrade. One wonders when they will notice the downgrade's lack of impact. It's been three years.
I understand why you'd want to use straw men since you can't defend the SS Trust Fund.
...Aaaand there wasn't anything about the SS Trust Fund in the lengthy response. Good call.
Exactly.
And the reason SS has turned into a bad investment "for the last decade or so" is because long-known demographic trends have kneecapped future benefits.
Which is why the "pennies on the dollar" comparison is lunacy: Americans will make far less than if they just stuck their (forced) SS withdrawals under a mattress.
"Good call." "Exactly." Is this comedy?
Aaaand the trust fund is $2.8 trillion for the second quarter of this year. Aaaand the unfunded Iraq/Afghan War has cost more than $4 trillion thus far. Aaaand the Bush tax cuts cost $1.6 trillion, and created so much prosperity that national taxable income dropped $6.6 trillion over the 12 years the cuts were in effect. Medicare Part D has already added over half a trillion. All new debt, most of it optional.
Where oh where did the Social Security trust fund go? What terrible luck for it to have mysteriously dried up at the same time as those expenditures! What inexplicable irony for future SS benefits to have been kneecapped, at the same time a thousand soldiers happened to lose one or both kneecaps.
We were told St. Reagan fixed Social Security, too. They must not have had long-known demographic trends in 1983.
This isn't serious commentary, this is just polemics. This is the Monty Python "Argument" sketch.
You keep dragging in issues and programs that have NOTHING to do with Social Security's finances. You won't argue that, so you keep circling back to other issues, which is the definition of straw man argument.
Social Security will go broke because of shifting demographics and (circling back to my original point) politicians - since 1983 even! - are under constant pressure to expand benefits and minimize revenues. (Sound familiar?)
The insolvency of Social Security would have happened without the Iraq War, the Bush Tax Cuts, or Pluto's downgrade. The CBO, the Social Security Trustees, the GAO - virtually every green eyeshade has said the same thing. People will get LESS money than they put in because the trajectory of the Trust Fund indicates automatic benefit cuts are on the horizon.
But, by all means, tell us about the Tea Party downgrade again, Debbie Wasserman Schultz.
You keep dragging in issues and programs that have NOTHING to do with Social Security's finances. You won't argue that, so you keep circling back to other issues, which is the definition of straw man argument.
No, you keep wanting to treat Social Security as a context-free one-way street, forever hurting the budget, yet unable to be hurt by it. Kind of like your adult, straw-free solution: The unfixable SS crisis must be fixed exclusively by Democrats, because FDR, tough noogies, and only Democrats scare Grandma. (If it were even possible for Democrats to unilaterally rework Social Security, the Republican Party with its deep-rooted horror of demagoguery would never complain about the result "being shoved down their throats.")
Also, straw hater, YOU brought up the downgrade-- pardon me, "the downgrade under this president"-- as an attempted rhetorical point. It's not my fault that this line of attack gets scads of high fives and 'likes' on Hot Air, but yawns from the rest of the world.
Invoking the downgrade: "serious commentary." But debunking it is "straw man polemics."
More serious commentary followed: it's an off-topic absurdity to say Bush's unbudgeted expenditures had repercussions, because Pluto and Monty Python. Sheer coincidence that the SS fund suddenly started taking on water at the same time that $6 trillion in unique and optional debt suddenly appeared. (Not to mention $21 trillion+ in upcoming debt.) Mind repeating your fabulous fable about the pants pockets?
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