Perry no longer thinks SS is a Ponzi scheme.

[Bri]

Lose the straw man. I said it is based on the money that is put in, which is stated in various ways throughout the statement. Most clearly "we estimated your benefit amounts using your average earnings...".

First of all, the taxes you put in are based on your income. The benefits you receive are also based on your income using a different formula. Since both are based on income, they are loosely related to each other.

You can certainly compare SS to an investment (just like you can compare SS to a Ponzi scheme) but the fact that there are some similarities doesn't make SS an investment because there are significant key differences.

The SS statement doesn't claim or even imply that SS is an investment.

And my 401k statement says that my estimated retirement benefit is based on market performance and could be changed at any time as well.

The return on your 401k is based on the market performance of investments -- not a formula defined by Congress. Your 401k isn't funded from taxes either, nor are you required to pay into it if you don't want to. Again, because you can make some vague comparisons between your 401k and Social Security doesn't make them equivalent.

-Bri

 

[JoeTheJuggler]

It is ignorant to call it a Ponzi Scheme. Nobody who has studied economics and understood it would do so if they were being honest.

It is a modified Tontine; http://en.wikipedia.org/wiki/Tontine

A Tontine is about the oldest form of life insurance.

I assume you're jesting, but it's not a Tontine either. It's a tax. You can join or not join a Tontine voluntarily. And with a Tontine, the only benefit goes to just one person. These are not characteristics of Social Security, which is a tax financed government safety net program for retirees and the disabled.

 

[JoeTheJuggler]

Lose the straw man. I said it is based on the money that is put in, which is stated in various ways throughout the statement. Most clearly "we estimated your benefit amounts using your average earnings...".



And my 401k statement says that my estimated retirement benefit is based on market performance and could be changed at any time as well.

Your 401K is not a government program. Social Security is. Your 401K is not financed by a tax. Social Security is. Your 401K is not a safety net for retirees and the disabled. Social Security is.

If someone sold you a 401K and misled you about it's value by skimming money from other investors, that would be a Ponzi Scheme. Social Security is not an investment, and there's nothing fraudulent about it. It is wrong to say Social Security is like a Ponzi Scheme. It is wrong to say they are structured the same.

ETA: And as for this, "I said it is based on the money that is put in, which is stated in various ways throughout the statement."
That's only partially true. Again, the first people who received checks in 1937 didn't put any money in. Many disabled don't put any money in. As for the statements you're talking about: it's not really about you getting back what you have invested in (or actually not at all), but that your estimated benefit is based on your earnings. Depending on how long you live, you might not get back what you put in or you might get back a whole lot more than you paid in. The point is, it's not an investment. It's a government program financed by a tax. And since it's not an investment, it can't be like a fraudulent investment. The key element of the fraud is deception to entice investors to buy a worthless product. There's nothing like that in Social Security. The tax is not voluntary.

 

[JoeTheJuggler]

And how could it be a "flawed" program if it has not ever failed in its 80-some year history and there's no reason to think it will fail in the future (unless people like Rick Perry have their way)?

 

[Drachasor]

I assume you're jesting, but it's not a Tontine either. It's a tax. You can join or not join a Tontine voluntarily. And with a Tontine, the only benefit goes to just one person. These are not characteristics of Social Security, which is a tax financed government safety net program for retirees and the disabled.

Yes, all these arguments are the equivalent to "it's kinda like that" or "it's sorta like this." Yes, kinda...sorta, but it isn't any of these schemes. Vague similarities are not identities.

 

[Tricky]

It is important that we label things with scary names. "Ponzi scheme" was selected because "Death Panel", "Job Killer" and "Socialist Muslim" were already taken.

 

[Newtons Bit]

ETA: And as for this, "I said it is based on the money that is put in, which is stated in various ways throughout the statement."
That's only partially true.

Bull. I quoted directly from the statement which backs my statement. That's not partially true, it's a verified fact.

 

[Bri]

Bull. I quoted directly from the statement which backs my statement. That's not partially true, it's a verified fact.

Here's your full quote:

I said it is based on the money that is put in, which is stated in various ways throughout the statement. Most clearly "we estimated your benefit amounts using your average earnings...".​

The actual text you quoted from the SS statement doesn't match what you said. The quote from the SS statement indicates that the SS benefits are based on average earnings, not the money that is put in.

-Bri

 

[mhaze]

And how could it be a "flawed" program if it has not ever failed in its 80-some year history and there's no reason to think it will fail in the future (unless people like Rick Perry have their way)?

Bull. Now that logic reminds me of the first chapter analogy in "Black Swan" by Taleb about the happy turkey.

Paraphrasing,

"The turkey is fat and happy. Every day, some 3000 of them, of his life he's had delicious food to eat, all of it he wants. Then one day the food doesn't come. What does it mean?"

 

[mhaze]

And how could it be a "flawed" program if it has not ever failed in its 80-some year history and there's no reason to think it will fail in the future (unless people like Rick Perry have their way)?

Just ANSWER THE QUESTION.

Wrong. I'm asking you, Joe, and Bri to clearly state what I'll get from SS, in terms that could be contractual (I understand that they are not). I'm asking you to look at the variance between this "reasonable expectation of return" by the consumer, and the vague feel-good-words that you guys are using.

This is very reasonable. Consider if I was 42, a union worker, and had a pension fund that was supposed to give me X dollars. I've got an IRA that has Y dollars. I've got SS that says it should pay Z dollars. Now I'm trying to plan retirement.

Can I have a mortgage that continues past the date of my retirement?

I'm aware of some risk level in the pension fund, and in the IRA. I'm wondering about that in the SS.

This isn't complicated stuff. Do I or DO I NOT get a payback? If the best you can answer is "maybe", then I'll plan on retiring without counting on the SS, and I'll consider it a scam, and I'll certainly be okay with the Ponzi scheme concept. Because I know that people that got in early got a payback, but people that got in late might not or would not.​

If you can't or won't answer the question except with vague phrases and feel-good words, then you can not advise a person on the utility or lack of of SS to them. Period.

 

[Random]

I assume you're jesting, but it's not a Tontine either. It's a tax. You can join or not join a Tontine voluntarily. And with a Tontine, the only benefit goes to just one person. These are not characteristics of Social Security, which is a tax financed government safety net program for retirees and the disabled.

It does have more in common with a Tontine than a Ponzi scheme. I can see that, its basically a forced Tontine with two tiers (payees and recipients). The death of recipients and potential recipients allows living recipients to collect more than they invested while allowing the overall structure to remain stable.

(The single recipient Tontine is unnecessary and not always the way things were done, it just makes a good plot device in stories so that’s how people have come to think of it)

 

[Bri]

If you can't or won't answer the question except with vague phrases and feel-good words, then you can not advise a person on the utility or lack of of SS to them. Period.

You're directing this at Joe, so I'll let him respond, but I already answered this from my perspective in a previous post.

ETA: I'm still not sure what your question had to do with SS being a Ponzi scheme though.

-Bri

 

[JoeTheJuggler]

Yes, it does.

No, it does not.

If you die early in retirement, you won't get back nearly what you paid in in taxes over the years. If you live a really long time, you might get back a lot more.

That's because Social Security is not an IRA. It is a taxpayer financed safety net for retirees and the disabled.

Saying it is a Ponzi Scheme is no more valid than saying income tax is theft. (Or "abortion is murder" for that matter.)

In fact, I think tying the benefits calculation to taxes paid is what threatens the long term solvency of the program and undermines its purpose. If benefits were paid based on need, there would be no problem (and indeed, we could probably greatly reduce the amount of Social Security taxes most of us have to pay). That's why I'm in favor of means testing.

I think the idea that it's an entitlement not based on need but on taxes paid is pretty weird. Can you imagine if unemployment were done the same way? Everyone who pays in must be guaranteed to collect based on the amount they paid in, even if they're never unemployed and never need it!

 

[JoeTheJuggler]

Just ANSWER THE QUESTION.

I already have many times over. And I notice you have yet to reply to most of my arguments. You continue to ignore the fact that Social Security is not an IRA and argue as if it were.

Social Security is not a contract. It is not an investment. Why is it a surprise that it doesn't have the characteristics of a contract or an investment? (ANSWER THE QUESTION.)

It is a tax-financed government program to help protect retirees and the disabled from poverty (this is what "safety net" means). These aren't "fuzzy" terms. I have pointed out in support of this position the fact that the first month Social Security taxes were collected, benefit checks went out. Do you understand that this is not consistent with the notion of Social Security as an IRA? (ANSWER THE QUESTION.)

Wrong. I'm asking you, Joe, and Bri to clearly state what I'll get from SS, in terms that could be contractual (I understand that they are not).[/quote]
You understand it's not a contract, yet you want it expressed in terms that are contractual? You understand it's not an investment or any guarantee of a specific benefit, but you want me to tell you what that guarantee of a specific benefit is? (ANSWER THE QUESTIONS.)

You're making no sense at all. You've simply got to let go of the idea that Social Security is a contract or an investment. It's neither.

I'm asking you to look at the variance between this "reasonable expectation of return" by the consumer, and the vague feel-good-words that you guys are using.

A return is something you get on an investment, but Social Security is not an investment. It's a tax. These aren't "vague feel-good-words". These are words with real and specific meanings. You are just viewing everything through a haze, so to speak, wherein tax and investment are somehow the same thing.

This isn't complicated stuff. Do I or DO I NOT get a payback?

No. You do not get a "payback" or a "return" because Social Security is a tax and not an investment. People receive benefit checks from Social Security. Do you understand the difference?​

 

[JoeTheJuggler]

Bull. Now that logic reminds me of the first chapter analogy in "Black Swan" by Taleb about the happy turkey.

Paraphrasing,

"The turkey is fat and happy. Every day, some 3000 of them, of his life he's had delicious food to eat, all of it he wants. Then one day the food doesn't come. What does it mean?"

It means your analogy is nonsensical.

I was responding to someone else's loaded question that assumed Social Security is inherently a flawed program. I pointed out that it is not. It has been solvent the entirety of its 80-plus year existence. Most years, it has had surpluses that it has invested into government securities building up a sizable Trust Fund.

So, now that we are dealing with a change in demographics (the retirement of the Baby Boom generation), it is beginning to use that Trust Fund to give us ample time to respond to the change in demographics. It should be no big deal to tweak the program in any number of ways to guarantee its solvency indefinitely.

The only reason it's become a big deal is you have people like Rick Perry spreading misinformation about the program.

I'm from a very large Baby Boom era family. I was at the tail end of it, but I could observe the effects of this really strange demographic. When my oldest siblings went to schools, the schools were just being built and barely kept up with the demand. Just a couple of years after I left those schools, classrooms were being turned into storage rooms and schools were being combined and closed up right and left.

Does it follow that there is something flawed with our public education system because it had to scramble to keep up with the Baby Boom and then had empty buildings some 10 or 12 years later?

In fact, by comparison, the Social Security system showed considerable foresight and prudence in running surpluses for so long so that we have at least a 10 year buffer to make adjustments.

 

[BenBurch]

I assume you're jesting, but it's not a Tontine either. It's a tax. You can join or not join a Tontine voluntarily. And with a Tontine, the only benefit goes to just one person. These are not characteristics of Social Security, which is a tax financed government safety net program for retirees and the disabled.

As I said a modified Tontine. There were a number of differing historic forms of Tontine. There were Tontines that paid out an annuity either immediately or after a certain number of years and which paid out as long as you lived. Some of these were designed without the last survivor benefit that is usually associated with Tontines. This latter form is very similar to what is called "Permanent Life Insurance."

 

[BenBurch]

Oh, and another way they are similar; Many, many Tontines were run by governments as a means of raising money.

 

[Newtons Bit]

Oh, and another way they are similar; Many, many Tontines were run by governments as a means of raising money.

<sarcasm>So they were taxes then, and not Tontines?</sarcasm>

 

[Random]

In fact, I think tying the benefits calculation to taxes paid is what threatens the long term solvency of the program and undermines its purpose. If benefits were paid based on need, there would be no problem (and indeed, we could probably greatly reduce the amount of Social Security taxes most of us have to pay). That's why I'm in favor of means testing.

There’s not much money to be made means testing. Yeah there are some people who have enough wealth where Social Security is not going to be a significant portion of their income, but there are not as many of them as you would think. With caps on Social Security payouts and relatively few people who would not need Social Security, there’s not much money to be saved. The only way to save significant money is to put the cutoff for means testing so low that many people who need Social Security would not receive it.

Plus, it would be creating yet another political football (the limit caps on means testing) for the Social Security destruction crowd to kick around forever.

 

[JoeTheJuggler]

I disagree. I've been reading estimates of people making the case against means testing who claim it's not significant, but the numbers show that it is. For example, "Only about 10 percent of benefits go to people with outside income of $40,000 or more a year — a figure that most of us would regard as middle class." (Based on the analysis by the Center for Economic and Policy Research. Link.)

But the shortfall we need to make up is only about 20%, right? So this measure alone would halve the problem (the shortfall between revenues and benefits paid out [ETA: or am I comparing wrong percentages?]). To me, that's significant.

As someone else said, we could just cut benefits across the board to 80% of their current levels, but I think it makes more sense as a safety net to keep the current benefits for those who need them, and cut it drastically (or eliminate it) for those that don't.

Then a modest adjustment on the revenue side (though I favor a bigger adjustment--taxing ALL earnings rather than just the first ~$100K) would solve the problem. And in time, as demographics change again, our descendants will have the "problem" of a big surplus.

ETA: I don't think Social Security should be to protect the middle class who actually have the means to save and invest for their retirement. It really should be a safety net for the poor.