Republican party dividing on Social Security as a "Ponzi scheme"

SAMEULSON QUOTE/Social security is squarely based on what has been called the eighth wonder of the world - compound interest. A growing nation is the greatest Ponzi game ever contrived. And that is a fact, not a paradox.
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He wrote that in 1967. I won't address whether it's a Ponzi scheme but doesn't this say a lot about sustainability? He assumes that the economy will always grow, in a growing population there will always be more (employed) young people and interest rates (compounded) will always yield abundant return.

Economies can contract, interest rates can drop, young people can be chronically unemployed and old people can live longer. The assumptions made in 1960s America were based on a view that has IMO become obsolete. Maybe this helps Perry, I don't know. Romney certainly knows more about finance, though, and I'm relieved to see a vigorous debate within the GOP.

In truth I have never understood the facts about SS.
 
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Random said:
If the demographics were stable, we could design a Social Security program that would last forever with no changes or adjustments.
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We could. But it would be very different from the Social Security program we actually have. What we have is not stable.
 
A good read.

Attacking Social Security By PAUL KRUGMAN

About that math: Legally, Social Security has its own, dedicated funding, via the payroll tax (“FICA” on your pay statement). But it’s also part of the broader federal budget. This dual accounting means that there are two ways Social Security could face financial problems. First, that dedicated funding could prove inadequate, forcing the program either to cut benefits or to turn to Congress for aid. Second, Social Security costs could prove unsupportable for the federal budget as a whole.

But neither of these potential problems is a clear and present danger. Social Security has been running surpluses for the last quarter-century, banking those surpluses in a special account, the so-called trust fund. The program won’t have to turn to Congress for help or cut benefits until or unless the trust fund is exhausted, which the program’s actuaries don’t expect to happen until 2037 — and there’s a significant chance, according to their estimates, that that day will never come.
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Minoosh said:
He wrote that in 1967. I won't address whether it's a Ponzi scheme but doesn't this say a lot about sustainability?
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What do you think it says?

Major changes to the program have already been required. Payroll tax rates have increased considerably, and the ratio of lifetime benefits to lifetime payments for an individual recipient has rapidly declined and will drop below 1 in the not too distant future. And those changes aren't enough. The assumptions he made are no longer valid. That didn't change overnight, but it did change. You may be able to save the program with enough further changes, but young people are going to get screwed over no matter what we do now. There's no possible way around that anymore. But since senior citizens vote more reliably than young people, and the people who will be most strongly affected aren't even voting age yet, well, the political incentive isn't to protect the young.
 
Ziggurat said:
What do you think it says?

Major changes to the program have already been required. Payroll tax rates have increased considerably, and the ratio of lifetime benefits to lifetime payments for an individual recipient has rapidly declined and will drop below 1 in the not too distant future. And those changes aren't enough. The assumptions he made are no longer valid. That didn't change overnight, but it did change. You may be able to save the program with enough further changes, but young people are going to get screwed over no matter what we do now. There's no possible way around that anymore. But since senior citizens vote more reliably than young people, and the people who will be most strongly affected aren't even voting age yet, well, the political incentive isn't to protect the young.
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There are all of these claims thrown around and yet a number of economists dispute them. Could you provide some quotes and data to back up your claim? I'd prefer something non-partisan if possible.
 
RandFan said:
There are all of these claims thrown around and yet a number of economists dispute them. Could you provide some quotes and data to back up your claim? I'd prefer something non-partisan if possible.
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There is no money, except money which is printed or borrowed, to fund SS. This house of cards collapses (in terms of received benefits) at any moment when there is a rapid inflation and the payments do not match the needs.

This has happened in dozens of countries and has been well studied, and is understood. The payments can always be made. But they will not be worth anything.
 
Minoosh said:
Economies can contract, interest rates can drop, young people can be chronically unemployed and old people can live longer. The assumptions made in 1960s America were based on a view that has IMO become obsolete. Maybe this helps Perry, I don't know. Romney certainly knows more about finance, though, and I'm relieved to see a vigorous debate within the GOP.

In truth I have never understood the facts about SS.
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Because obviously, those responsible for implementing Social Security just after the Great Depression - when unemployment rates were more than double what they currently are - and during a period of dramatic increases in life expectancy due to the application of germ theory, vaccines for things like tetanus, diptheria, TB (just after the discovery of penicillin as well, but that was just reaching clinical testing stages at the time) couldn't possibly have anticipated concerns like that.
 
mhaze said:
There is no money, except money which is printed or borrowed, to fund SS. This house of cards collapses (in terms of received benefits) at any moment when there is a rapid inflation and the payments do not match the needs.

This has happened in dozens of countries and has been well studied, and is understood. The payments can always be made. But they will not be worth anything.
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By your logic there is no money, no wealth. Thankfully their are economists that understand why your claims are wrong. Some day you need to read those books on economics. Wealth is a perception based on the ability of a society to provide goods and services. Money isn't simply printed. People work and create things. Instead of trading goods and services we use money to represent the goods and services. Employees work and use part of their remunerations to pay into trust fund as real as any certificate of deposit, bond or stock.

Now, it's not as if you don't have any point, you do. If we did in fact try to artificially create wealth by printing money in excess of our GDP, total assets and good will then we would have inflation.
 
RandFan said:
A good read.
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That is a good read, especially this part:
So where do claims of crisis come from? To a large extent they rely on bad-faith accounting. In particular, they rely on an exercise in three-card monte in which the surpluses Social Security has been running for a quarter-century don’t count — because hey, the program doesn’t have any independent existence; it’s just part of the general federal budget — while future Social Security deficits are unacceptable — because hey, the program has to stand on its own.
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It's the old Social Security Two-Step. Assume that Social Security is part of the overall Federal Budget one moment, assume that Social Security is separate and distinct from the Federal Budget the next. Repeat as needed in order to win the argument against Social Security and hope no one calls you on it. Keep it up long enough and no one will realize you are having two radically different conversations at the same time and otherwise intelligent Americans will walk away hopelessly confused about Social Security, but certain that Social Security is doomed.

If you treat Social Security as separate from the rest of the Federal Budget then Social Security is fine for decades. It has large financial reserves and even in the worst case scenarios, after that money runs out SS will still be bringing in enough to pay off 75% of what it owes. That is still more money than current retirees are making. And that is if we do absolutely nothing. Lifting the earnings cap fixes Social Security as far into the future as any economist is willing to look, and would only affect the top 2% of wage earners.

If you treat Social Security as part of the Federal Budget things look much worse financially, but the “Social Security can’t pay its bills” argument gets thrown out the window. If Social Security is just another government program like the US Army or the Federal Transportation Administration, why does it matter if it is profitable or not? And that is to say nothing of ignoring Social Security tax revenues when talking about Federal Income taxes.
 
mhaze said:
There is no money, except money which is printed or borrowed...
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BTW, there's a way for you to check, daily, for yourself to prove that you are wrong. Check the treasury bonds and futures market for US currency. If they start to plumet then you will know that our money supply has exceeded it's value. Got it?
 
Random said:
That is a good read, especially this part:

It's the old Social Security Two-Step. Assume that Social Security is part of the overall Federal Budget one moment, assume that Social Security is separate and distinct from the Federal Budget the next. Repeat as needed in order to win the argument against Social Security and hope no one calls you on it. Keep it up long enough and no one will realize you are having two radically different conversations at the same time and otherwise intelligent Americans will walk away hopelessly confused about Social Security, but certain that Social Security is doomed.

If you treat Social Security as separate from the rest of the Federal Budget then Social Security is fine for decades. It has large financial reserves and even in the worst case scenarios, after that money runs out SS will still be bringing in enough to pay off 75% of what it owes. That is still more money than current retirees are making. And that is if we do absolutely nothing. Lifting the earnings cap fixes Social Security as far into the future as any economist is willing to look, and would only affect the top 2% of wage earners.

If you treat Social Security as part of the Federal Budget things look much worse financially, but the “Social Security can’t pay its bills” argument gets thrown out the window. If Social Security is just another government program like the US Army or the Federal Transportation Administration, why does it matter if it is profitable or not? And that is to say nothing of ignoring Social Security tax revenues when talking about Federal Income taxes.
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Agreed.
 
RandFan said:
BTW, there's a way for you to check, daily, for yourself to prove that you are wrong. Check the treasury bonds and futures market for US currency. If they start to plumet then you will know that our money supply has exceeded it's value. Got it?
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This is a common misconception. Bond values do not predict inflation.

The chart is from a white paper on this subject 2003 European Central Bankers.

 
RandFan said:
There are all of these claims thrown around and yet a number of economists dispute them. Could you provide some quotes and data to back up your claim? I'd prefer something non-partisan if possible.
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Well, here's one source:
http://www.urban.org/UploadedPDF/social-security-medicare-benefits-over-lifetime.pdf

According to that source, if you are a single man and retired at 65 in 2010 after earning an average wage, your social security lifetime benefits will be $265,000, while your lifetime payments were $294,000. So for some people, the break-even point has already been passed. If you're married and only one spouse works, then you'll still get a net benefit for some time. But it used to be that pretty much everyone got a significant net benefit. The same person above who retired in 1960 at 65 would have gotten $113,000 in benefits, but only paid $18,000.

The above source also assumes that scheduled payments will be made regardless of what happens to the trust fund, so this crossover isn't an issue of payments having to be scaled back. If that happens (which is quite possible), it'll be even worse.
 
Ziggurat said:
Well, here's one source:
http://www.urban.org/UploadedPDF/social-security-medicare-benefits-over-lifetime.pdf

According to that source, if you are a single man and retired at 65 in 2010 after earning an average wage, your social security lifetime benefits will be $265,000, while your lifetime payments were $294,000. So for some people, the break-even point has already been passed. If you're married and only one spouse works, then you'll still get a net benefit for some time. But it used to be that pretty much everyone got a significant net benefit. The same person above who retired in 1960 at 65 would have gotten $113,000 in benefits, but only paid $18,000.

The above source also assumes that scheduled payments will be made regardless of what happens to the trust fund, so this crossover isn't an issue of payments having to be scaled back. If that happens (which is quite possible), it'll be even worse.
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And the net to the entire program factoring in the people who die before they ever collect and those who die before getting out all they pay in?
 
mhaze said:
This is a common misconception. Bond values do not predict inflation.
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It's not a leading indicator I'll concede but bond rates won't stay high for long if you are giving away the store. That it isn't happening is a good indicator that we haven't been printing money for some time as you assert. And the currency market?
 
Random said:
...If Social Security is just another government program like the US Army or the Federal Transportation Administration, why does it matter if it is profitable or not?....
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It really does not.

Put it in context: We spend 40% more than we take in, and the aggregate debt payment will exceed tax revenue any time that interest rates rise a couple points. If that doesn't happen, aggregate debt payments do the same thing a couple of years later. In either case, unpleasant corrections occur and spending is cut back to the level of revenues. Say within 10 years at the outer bounds.

That puts an end to the overall Ponzi scheme of the US government. The little Ponzi scheme of Social Security collapses earlier or at that time, what difference does it make?
 
RandFan said:
It's not a leading indicator I'll concede but bond rates won't stay high for long if you are giving away the store. That it isn't happening is a good indicator that we haven't been printing money for some time as you assert. And the currency market?
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It's not an indicator, and it does not matter what you concede or don't. The correlation between bond rates and inflation is in the mid 30%s. Which doesn't rate. The correlation between M2 and inflation is in the 90%s.

Your conclusion is wrong. Actually I can't identify any premises that it's even based on...

That it isn't happening is a good indicator that we haven't been printing money for some time as you assert.
 
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mhaze said:
It's not an indicator, and it does not matter what you concede or don't. The correlation between bond rates and inflation is in the mid 30%s. Which doesn't rate. The correlation between M2 and inflation is in the 90%s.
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mhaze, a nation that prints money to inflate it's wealth for a significant amount of time WILL GO BANKRUPT. There goes your bond rating.

That it isn't happening is a good indicator that we haven't been printing money for some time as you assert.
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Futures currency market? Don't lecture me when your proposition is easily falsified. If we were simply printing money our currency value would fall and eventually our rating would be downgraded and our bond value would got to hell.
 
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