Perry no longer thinks SS is a Ponzi scheme.

[mhaze]

Right on cue, as I predicted you would ignore what I posted and continue to argue against a straw man......

Right. We should all consider the Enron coffee shop to have a great future, after they make minor adjustments in their menu pricing. There is no need to look at the larger picture.

 

[johnny karate]

Right. We should all consider the Enron coffee shop to have a great future, after they make minor adjustments in their menu pricing. There is no need to look at the larger picture.

This analogy is a bit too complex and nuanced for me. Perhaps you could make a comparison to a household budget so I could better understand what you're trying to say.

 

[Neally]

Meanwhile, CNN's fact check of the claim that Social Security is a Ponzi Scheme is pretty much in line with what I've been saying all along:

http://www.cnn.com/2011/POLITICS/09/12/truth.squad.social.security/index.html

CNN's rebuttal is pretty weak. The fact that it is a legitimate government program doesn't take away from the fact that it is still organized like a ponzi scheme where current payouts depend on contributions from new contributors, and they even said so:

It is true that benefits to current Social Security recipients are paid for in part by new members of the workforce.

 

[mhaze]

Sure. The Jones family makes 3000 per month and they spend 4000. They discuss the problem of spending on an essential item, Mrs. Jones cloths. They spend 1400 a month on her clothes. They come to the conclusion that everything is fine if they sell the old clothes that she doesn't wear any more on ebay and makes 200 per month. This would reduce the cost of the clothes to the number in their budget, 1200.

They are erring by focusing only on the subset. Their checks start to bounce because numerically that's simply what happens.

 

[JoeTheJuggler]

Sure. The Jones family makes 3000 per month and they spend 4000.

You're starting this analogy off on a faulty premise already.

As I've pointed out numerous times, even if nothing is done, the Social Security trust fund will continue to grow for about another 10 years.

How about saying the Jones family made more money than they spent for most years over the past 80 years. They invested the surplus in extremely safe government instruments (bonds, t-bills, and the like).

In 2010, their bills increased, and they had to cash in some of those instruments, however, their net worth will still continue to increase for the next 10 years because of the interest they're earning on those investments. (Funny how you would not count interest income as income in this family!)

If they continued to make no changes, they would project that after 10 years, their net worth will begin diminishing such that in another 12 years, they would be unable to pay their bills.

The prudent thing would be for them to look into ways of controlling the increase in expenditures and increasing their income some time within the next 10 years.

Luckily, they have several options, and except for family members who suggest that their entire household is a criminal enterprise and that they're already insolvent, most people agree it's not a complicated or even especially difficult matter to ensure their long-term solvency.

 

[JoeTheJuggler]

They are erring by focusing only on the subset.

So isn't Perry erring by calling Social Security a Ponzi Scheme? Or did he mean the entire federal government is a Ponzi Scheme?

Remember, this is the point I've been making for some time: the only characteristic Social Security has in common with a Ponzi Scheme (that taxes paid into the system don't go directly back to the people who paid those taxes--and even this requires considering taxes to be somehow like voluntary investment) is true of pretty much all taxpayer-financed programs. It is not a scam or a fraud, and it is not similar to misrepresenting the value of an investment.

 

[Random]

You guys are arguing past each other.

JTJ is arguing that Social Security is separate from the overall Federal Budget and should be evaluated on its own, in which case there is no problem. Mhaze is arguing that Social Security is just another government program and since the federal government is in trouble, so is Social Security.

Both of these are perfectly acceptable ways of looking at the issue, as long as you stick to one or the other. If mhaze starts arguing that “Social Security has unfunded liabilites” or is JTJ argues that the Social Security shortfall “can easily be made up for by cutting our bloated defense budget”, well, those are signs that the terms of the debate are changing.

 

[mhaze]

No, Joe. You are alleging a similarity between the Jones having secure investments with an outside firm, and the real situation such as the USA has, where it has "loaned money to itself".

Want to restate? This time get the balance sheet liabilities and equity/assets correct.

So isn't Perry erring by calling Social Security a Ponzi Scheme? Or did he mean the entire federal government is a Ponzi Scheme? .....

I'll go with the latter, but Perry didn't juxtapose these two issues in the way that I have done in this discussion.

His discussion of SS in his book is quite clear, I'll try to copy a few pp later.

 

[JoeTheJuggler]

and the real situation such as the USA has, where it has "loaned money to itself".

You're wrong. Those "IOUs" in the Social Security trust fund are not lent to the Social Security trust fund. From the pov of the trust fund, they are investments. And they're the safest imaginable investments that exist on the face of the Earth.

You're just wrong when you claim that the SS trust fund has been merged with the general treasury. That has not happened.

And if you're concerned about the fiscal health of the federal treasury, do you suppose it would help the U.S. to have those same instruments held by China or France as opposed to held by the SS trust fund?

Again, those instruments are debt to the general treasury but represent surpluses in the money-in vs. money-out for Social Security. So if you're worried about the general debt problem of the U.S., that is in fact a separate issue from the solvency of Social Security. You cannot possibly claim that those investments represent a shortfall in Social Security as in your Mrs. Jones' clothing budget faulty analogy.

To try to repair your messed up analogy in such a way that encompasses the entire federal government debt (which is not the subject of this thread by the way--since Perry didn't claim the entire U.S. government is a Ponzi Scheme):

Let's say for 80 years Mrs. Jones brought in more to the household most years than she required for expenditures. The rest of the household have become freeloaders (especially in times of war!). In fact, some members of the household (like Military Jones) always spends lots of money while contributing virtually none to the family revenues.

The surplus money Mrs. Jones has been making was borrowed by the household at large--especially by Military Jones--who promised to repay that money with a very modest interest. (And here the analogy breaks down, because while it wouldn't be prudent to loan money to family members, in the real world U.S. instruments are the safest and surest investments in the world and the "family" would have been borrowing that money from someone else if Mrs. Jones hadn't lent it to them anyway.)

Suddenly, Mrs. Jones finds her personal expenses have increased, and she needs to begin cashing in some of those loans. If she changes nothing else, she will still continue to increase her net worth even as she cashes in those loans for another 10 years. At that point, she'll begin decreasing her net worth for another ~12 years until she reaches the point where she won't be able to meet her personal expenses. Luckily, she has several options involving limiting the future increase of her expenses and increasing her personal revenues (independent of her investment income), and she can do this in plenty of time to avoid decreasing her net worth.

No the household's debt problem--which would exist with or without Mrs. Jones' participation--is another matter. It's plain that the household debt problem cannot be blamed on Mrs. Jones. She's more than paid her way for 80 years now, and with relative ease she can fix things so that she will continue to pay her way and remain solvent in the long-term.

 

[mhaze]

You're wrong. Those "IOUs" in the Social Security trust fund are not lent to the Social Security trust fund. .....

The IOUs are to the US government, so called "special issue" securities, and return 4.6%. Regular marketable securities, such as you and I get, return 0.1 percent or so depending on term.

This is a "hidden tax" and is paid for by simply printing money.

By your logic, the SS could be "fully funded" by just jacking that 4.6% up to 12% or any required number. Peter does not pay Paul, one pocket does not feed the other, the ultimate bill does not come due.

I'm fine with calling it a Ponzi scheme, although my judgement is skewed because I just read a rather interesting book on Charles Ponzi. He would have loved this scheme. But you are welcome to argue over whether it exactly fits one or another particular definition of the phrase floating around today. That's just mincing words.

 

[JoeTheJuggler]

The IOUs are to the US government, so called "special issue" securities, and return 4.6%. Regular marketable securities, such as you and I get, return 0.1 percent or so depending on term.

This is a "hidden tax" and is paid for by simply printing money.

I agree with you on this point, but in the course of its 80-some year history, the trust fund has also held public issues.

However this still doesn't support the claim that SS is a Ponzi Scheme or a scam. Everything was done publicly and by normally legislative procedures.

FWIW, the current average interest rate is well under 4%. And public 30 year government bonds are still over 3%.

I agree with you that the special issues is not a good way of handling things, but it's also not very significant, and not at all relevant to the claim that Social Security is a Ponzi Scheme.

 

[Neally]

Situation: Social Security system survives by taking in money from active workers so that it can pay out to needy retired people.

Problem: System is paying out more than it is paying in, but we need to have some way to protect needy people who have already paid in.

Classic definition of Ponzi:

Situation: Ponzi system survives by taking in money from new investors so that it can pay out to older investors.

Problem: Ponzi system is paying out more than it is paying in.

From Wikipedia: "it pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors."

 

[JoeTheJuggler]

Classic definition of Ponzi:

Situation: Ponzi system survives by taking in money from new investors so that it can pay out to older investors.

Problem: Ponzi system is paying out more than it is paying in.

From Wikipedia: "it pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors."

Again, you're leaving out very significant parts of the definition of a Ponzi Scheme, in particular that it is an illegal way of defrauding investors.

The characteristic Social Security has in common with a Ponzi Scheme, as I've said several times, is shared by pretty much any tax-payer funded enterprise (money paid in doesn't necessarily go back to benefit the same people in the same proportion that they paid in).

There is still the assumption that Social Security is merely a forced IRA, which it is not. Disability payments, for example, can't possibly be equal or commensurate to contributions by the same people benefiting from it.

_______

BTW, I've been citing the worst case scenario for the trust fund being depleted in about 25 years. The Trustees Report gives best case scenario as being as much as 75 years. While reality is likely to be somewhere in between, I hope prudent minds will recognize that we really should take the steps necessary to resolve the long term solvency within the next 10 years.

Trouble is, as long as people are being fed misinformation (like Social Security is a Ponzi Scheme, or Social Security has failed to fulfill its promises), then people will be led to believe that the best solution is to do away with it.

 

[Random]

Classic definition of Ponzi:

Situation: Ponzi system survives by taking in money from new investors so that it can pay out to older investors.

Problem: Ponzi system is paying out more than it is paying in.

From Wikipedia: "it pays returns to separate investors, not from any actual profit earned by the organization, but from their own money or money paid by subsequent investors."

But Social Security contributers are not investors buying into a system, they are taxpayers paying a tax. The benefits of that tax are distributed to retired workers. If you are working, you are paying Social Security tax. If you live long enough, you will receive Social Security benefits until you die.

What you receive in benefits may be determined by the government looking at what you have put in, but that is just so that people don’t work a few months then collect full benefits.

Imagine a very simple Social Security program. Each week, the government takes 5% of the paychecks of all US workers and puts this money in a pool. This pool of money is then evenly distributed to every US citizen over the age of 65. Fairness issues aside, when would this system run out of money? Is this a Ponzi Scheme?

 

[mhaze]

I agree with you on this point, but in the course of its 80-some year history, the trust fund has also held public issues.

However this still doesn't support the claim that SS is a Ponzi Scheme or a scam. Everything was done publicly and by normally legislative procedures.

FWIW, the current average interest rate is well under 4%. And public 30 year government bonds are still over 3%.

I agree with you that the special issues is not a good way of handling things, but it's also not very significant, and not at all relevant to the claim that Social Security is a Ponzi Scheme.

Average interest? 30 year bonds? WHAT?

Social security gets 4.6% on instruments they can redeem any time they want. The only valid comparison is 3 month T bills. It's simply a back door way to give an above average "interest rate" to SS for money it really doesn't even have, because it loaned it to the US Government.

So my point stands - the 4.6% is strictly "printed money". And what SS had in the past is not relevant.

Now let us go to your argument on Ponzi. It seems to be that since the SS-Ponzi was launched by the State, it cannot be a Ponzi boat, since Ponzi boats are illegal. Now that's really important, I suggest you and some of the guys form a study group and figure that one out. Me and some of the younger people, we'll start launching the limited number of lifeboats.

We'll probably still be in cell phone range when the SS-Ponzi goes down. Will you call us before then and let us know what your study group has concluded?

 

[Neally]

Again, you're leaving out very significant parts of the definition of a Ponzi Scheme, in particular that it is an illegal way of defrauding investors.

Again, you're focusing on the fact that it's done by the government, making it legal and avoiding the fact that the structure is the same. It fits the definition and structure of a Ponzi scheme as detailed in my post.

The characteristic Social Security has in common with a Ponzi Scheme, as I've said several times, is shared by pretty much any tax-payer funded enterprise (money paid in doesn't necessarily go back to benefit the same people in the same proportion that they paid in).

Crude deflection.

Trouble is, as long as people are being fed misinformation (like Social Security is a Ponzi Scheme, or Social Security has failed to fulfill its promises), then people will be led to believe that the best solution is to do away with it.

Did Perry say we should do away with it?

But Social Security contributers are not investors buying into a system, they are taxpayers paying a tax.

With the expectation that the money they put in will be paid back to them at retirement. That money is not being paid back to them. The money paid back to them comes from new taxpayers, just like the returns from a Ponzi scheme come from the new investors. It is structured the same and thus can honestly be characterized as a Ponzi scheme.

 

[Random]

With the expectation that the money they put in will be paid back to them at retirement. That money is not being paid back to them. The money paid back to them comes from new taxpayers, just like the returns from a Ponzi scheme come from the new investors. It is structured the same and thus can honestly be characterized as a Ponzi scheme.

Dogs have four legs. Cats have four legs. Dogs are not cats.

Social Security takes money from current investors and gives it to previous "investors". A Ponzi scheme takes money from current investors and gives it to previous "investors". But Social Security is not a Ponzi scheme.

The fact that dogs and cats share a common trait does not make them the same. The fact that Social Security and Ponzi schemes share a common trait does not make them the same.

I can make a long list of the similarities between Rush Limbaugh and Al Sharpton. They are both carbon-based life-forms, they both have two arms, they both have two legs, they are both public figures, they both have receeding hairlines, they both speak English, they are both US citizens, etc. It's the differences that are important.

 

[mhaze]

Dogs have four legs. Cats have four legs. Dogs are not cats.....

And Social Security isn't a scheme invented by Charles Ponzi.

Why, that simply proves it.

Plus, Social Security begins with an "S" and Ponzi with a "P".

Why, that proves it even more.

Can we please cut out the total dumbass stuff here?

 

[Neally]

Social Security takes money from current investors and gives it to previous "investors". A Ponzi scheme takes money from current investors and gives it to previous "investors". But Social Security is not a Ponzi scheme.

LOL -- you've just describe the essential nature of a Ponzi scheme and how it is the same essential structure as SS, then deny that they are the same. Apparently the irony escapes you.

 

[johnny karate]

Did Perry say we should do away with it?

I suppose that depends on whether we're talking last year, last week, or tomorrow. His views on the subject seem to be in constant flux.

Then:

He suggested the program’s creation violated the Constitution. The program was put in place, “at the expense of respect for the Constitution and limited government,” he wrote, comparing the program to a “bad disease” that has continued to spread. Instead of “a retirement system that is no longer set up like an illegal Ponzi scheme,” he wrote, he would prefer a system that “will allow individuals to own and control their own retirement.”

Now:

So what is his position now? “The governor wants to see the benefits for existing retirees and those close to Social Security be strongly protected,” Mr. Sullivan said. Beyond that, “he believes a full review and discussion of entitlement reforms need to be had, aimed at seeing that programs like Social Security and Medicare are fiscally responsible and actuarially sound.”

http://blogs.wsj.com/washwire/2011/08/18/perry-is-less-fed-up-over-social-security/