About that Social Security

Social Security has been running a deficit since 2010, and in 2034, its “trust fund”—more or less just a tally of previous surpluses—will run out. Left and right could not disagree more about how to handle the situation.

Democrats, up to and including Hillary Clinton and Barack Obama, would like to expand the program, necessitating tax hikes above and beyond what would be needed merely to sustain it. And conservative intellectuals, whose thinking is captured in a new report from the American Enterprise Institute, would like to gut the program and replace it with a flat benefit that does nothing more than ensure seniors don’t live in poverty. That’s something the current program doesn’t achieve, so low-income seniors would see bigger checks—but on balance, this would slash benefits so dramatically that the program would eventually run a surplus, allowing tax cuts.

http://www.theamericanconservative.com/articles/social-security-gut-or-expand-it/

One would think that social security would be enough to never trust government to do anything important if such a thing could be done any other way.  We'd been tinkering with what problems government can solve for a 100 years - I can see the answer clearly.  Almost none.

How Giving $1,000 to Every Baby in America Could Reduce Income Inequality - NationalJournal.com

http://www.nationaljournal.com/washington-inside-out/how-giving-1-000-to-every-baby-in-america-could-reduce-income-inequality-20140212
Like it or not, the sharp inequality in the country is a fundamental issue.
The gap between the richest and the rest of us is greater than it has been since 1929—a notable year. The gap between the pay of CEOs and top executives and the average pay of their companies' workers has grown into a yawning chasm compared with the ratio just a couple of decades ago.
One can believe, along with deluded oligarchs such as Tom Perkins, that any criticism of the rich is like Kristallnacht—or, more reasonably, that without the drivers of wealth, the entire society would falter and fail to grow. Or one can believe, as some studies show, that social mobility has not fundamentally changed in several decades—that Americans can still move up the ladder.
Or one can believe that the failure to deal with the stagnant incomes of the lower half of the population will lead to a sag in demand that will itself imperil growth. And one can believe that as our population ages and people live longer—making the ratio of Social Security contributors to Social Security beneficiaries much less favorable—stagnant or lower incomes will undermine the viability of the entire system, much less the ability of those relying solely or mostly on Social Security to get by.

Inequality is a "fundamental issue."  Thank you sir, for not taking more words to say nothing.

Someone, anyone, show one negative impact to anyone from inequality?  It hurts no one.  Live and let live.

This proposal, though, might be the gateway to jettisoning the nastiness of social security.

Whatever combination of those things you believe, one thing should be accepted universally: If Americans lose the sense of the American Dream—that if you work hard and play by the rules, you can rise to the absolute limits of your own abilities—and if Americans gain a sense that the rich get richer while the rest of us get screwed, our national unity will be imperiled, and the opportunities for real demagogues to emerge will grow.
Is there any way to deal with this problem that doesn't get caught in our partisan, ideological, and tribal crosshairs? There is, and I am surprised it has not entered our policy discourse at all as the debate over inequality and adequate living standards has raged.
It is called KidSave, and it was devised in the 1990s by then-Sen. Bob Kerrey of Nebraska, with then-Sen. Joe Lieberman as cosponsor. The first iteration of KidSave, in simple terms, was this: Each year, for every one of the 4 million newborns in America, the federal government would put $1,000 in a designated savings account. The payment would be financed by using 1 percent of annual payroll-tax revenues. Then, for the first five years of a child's life, the $500 child tax credit would be added to that account, with a subsidy for poor people who pay no income. The accounts would be administered the same way as the federal employees' Thrift Savings Plan, with three options—low-, medium-, and high-risk—using broad-based stock and bond funds. Under the initial KidSave proposal, the funds could not be withdrawn until age 65, when, through the miracle of compound interest, they would represent a hefty nest egg. At 5 percent annual growth, an individual would have almost $700,000.
The initial idea of KidSave was to provide a retirement supplement to Social Security, making it easier in some ways to reform Social Security to achieve fiscal solvency. But the concept can serve multiple purposes at a very small cost.
Imagine if we adjusted the KidSave rules so that at certain pivot points in life, individuals could withdraw a portion of their nest egg to pay for college expenses or a down payment on a house or a medical or other emergency, or even the creation of a small business, while still making sure that a substantial share of the funds would stay in a retirement account. We could ameliorate many of the problems facing hard-pressed middle-class and working-class families and encourage entrepreneurship, while protecting a major nest egg for retirement years. No doubt, some would squander or misuse the money, but for most, it would provide an opportunity and a lifeline.
More than 65 percent of Americans have a net worth of less than $100,000. The average net worth in the U.S. is about $37,000. But averages disguise another reality: the dramatic differences in net worth between the bottom and the top. The wealth owned by the top 1 percent of the population is more than 37 percent of the total; the top 20 percent own 87.7 percent of the wealth. KidSave would significantly change all those numbers and ratios, and provide a cushion of wealth for those at the bottom of the ladder.
KidSave drew support from liberals and conservatives, from unions and business interests, from the Heritage Foundation and AARP. For conservatives, it meant a universal investor class. For liberals, it meant giving wealth and security to tens of millions of people who have little or nothing. But for reasons I can't explain, it went nowhere.
The same was true of a second iteration of the program, where each child would get an initial $2,000 loan at birth from Social Security, with the money also placed in a retirement account invested through the Thrift Savings Plan; the initial $2,000, as adjusted for inflation, would be paid back in five annual installments starting at age 30, but with the accrued investment growth continuing to build in the individual's account. That plan was cosponsored by Kerrey and fellow Sens. Rick Santorum, Daniel Patrick Moynihan, Charles Grassley, and John Breaux, but it still died on the vine.
In his State of the Union message, President Obama proposed a commendable plan for starter retirement accounts, MyRA, providing an incentive for workers to have small amounts automatically withdrawn from their salaries to invest in principal-protected Treasury bonds. Nice, but tiny. KidSave is much more ambitious, with much greater potential. Why not give every American a piece of the pie? If the cost, in the end, were even $20 billion a year, that is chump change in a $17 trillion economy—and, of course, money that would all be invested in America. KidSave is an idea whose time has come.
Any takers?

The Weekend Interview with Stanley Druckenmiller: How Washington Really Redistributes Income - WSJ.com

But he adds that "I did not think it would be nutty to tie entitlements to the debt ceiling because there's a massive long-term problem. And this president, despite what he says, has shown time and time again that he needs a gun at his head to negotiate in good faith. All this talk about, 'I won't negotiate with a gun at my head.' OK, you've been president for five years."

His voice rising now, Mr. Druckenmiller pounds his fist on the conference table. "Show me, President Obama, when the period was when you initiated budget discussions without a gun at your head."

Which brings him back to his thieving generation. For three decades until 2010, Mr. Druckenmiller ran the hedge fund he founded, Duquesne Capital. Now retired from managing other people's money, he looks after his own assets, which Forbes magazine recently estimated at $2.9 billion. And he wonders why in five years the massively indebted U.S. government will begin sending him a Social Security check for $3,500 each month. Because he earned it?

"I didn't earn it," he responds, while pointing to a bar chart that is part of his college presentation. Drawing on research by Boston University economist Laurence Kotlikoff, it shows the generational wealth transfer that benefits oldsters at the expense of the young.

While many seniors believe they are simply drawing out the "savings" they were forced to deposit into Social Security and Medicare, they are actually drawing out much more, especially relative to later generations. That's because politicians have voted to award the seniors ever more generous benefits. As a result, while today's 65-year-olds will receive on average net lifetime benefits of $327,400, children born now will suffer net lifetime losses of $420,600 as they struggle to pay the bills of aging Americans.

http://online.wsj.com/news/articles/SB10001424052702303680404579141790296396688
Did you see that headline about how social security robs the young and poor to give to the old and rich?  No?  Wonder why that is ...

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.”

― Friedrich von Hayek

History of Social Security - Would FDR Approve?

From forced and government facilitated savings plans to mandatory wealth transfer from old to young - it's been a long and winding road for social security, one in which the politicians did a nice of job of spending other people's money to enhance their political legacy. 

In other words, the people who stole your money are long gone, many are dead, and you've no one to blame except yourself for trusting the government in the first place - not that you had a choice.

http://www.realclearpolitics.com/printpage/?url=http://www.realclearpolitics.com/articles/2012/04/09/the_origins_of_entitlement_113768.html

SS Ponzi Scheme

At the Republican presidential debate in Tampa on Monday night, Mitt Romney said Rick Perry has needlessly "scared seniors" by calling Social Security "a Ponzi scheme." Romney, more sensitive to the anxieties of retirees, prefers to say "the American people have been effectively defrauded out of their Social Security" (as he puts it in his 2010 book No Apology) because Congress has spent the program's surplus revenue instead of saving it to pay for future benefits—the sort of crime for which bankers "would go to jail."
See the difference? Neither do I. Both the former Massachusetts governor and the current Texas governor understand that Social Security is a transfer program disguised as a retirement plan and that its frequently mentioned "trust fund" does not actually exist. Their spat over how exactly to characterize that situation is illuminating not because it reveals substantive differences between the candidates but because it shows how often these simple truths are overlooked.
http://reason.com/archives/2011/09/14/you-say-ponzi-scheme-i-say-fra

I love USA Today's point that there's a difference but no distinction between a Ponzi scheme and SS:
The day of the debate, for instance, USA Today opined that "Social Security is most certainly not a Ponzi scheme," because Ponzi schemes "are criminal enterprises, which Social Security is not."
In other words, "might makes right." 
Here's another nuggest on our entitlement death spiral:

No one knows for sure exactly how much fraud exists in the Medicare system, but most experts agree that it costs billions of dollars each year. Between 2007 and early 2011, the federal government reports having won convictions against 990 individuals in fraud cases totaling $2.3 billion. In 2010, it recovered an additional $4 billion through collection of non-criminal penalties on health providers who improperly billed the government. But that’s just a fraction of the total problem. 

According to a 2011 report from the Government Accountability Office, Medicare makes an estimated $48 billion in “improper payments” each year, an estimate that’s almost certainly lower than the actual amount since it doesn’t include bad payments within the prescription drug program. Some of that money, perhaps a lot of it, is fraud, but experts differ on exactly how much. On the very low end, the National Health Care Anti-Fraud Association has estimated that about 3 percent of all U.S. health care spending is fraud. Assuming fraud is distributed equally across payment systems, that would mean Medicare’s share is roughly $15 billion a year. But almost all analysts believe fraud is much more common in Medicare than in it is in payments by private insurers. Toward the high end, Sen. Tom Coburn (R-Okla.) once suggested the number could be as much as $80 billion a year. In March, the executive director of the National Health Care Fraud Association told members of Congress that total health care fraud losses likely range from $75 billion to $250 billion each year. 

http://reason.com/archives/2011/09/13/medicare-thieves

I'm just so proud knowing our country is going to the poor house based on principles inherent in social security and medicare!

Unipartisan Support: Yes It Is A Ponzi Sceme

As follow up to this post, have a look at this:  What should be interesting to participants and pundits alike is that during the last presidential campaign, on November 5, 2007, the late Tim Russert, and Chris Matthews, while talking about the Democrat candidates on an episode of MSNBC's "Hardball" broadcast exactly one year before America elected its first black president, agreed that Social Security was "a bad Ponzi scheme".

Another interesting post is here. 

Which was my point - at least in a Ponzi sceme, you didn't have to make the bad investment.

Easy Come, Easy Go

Or should we call this post "It's Only (Our Children's) Money"
In fact, the government’s classification of obligations such as interest payments as official and others, such as Social Security payments, as unofficial is a labeling game with no basis whatsoever in economic theory. It’s a strategy politicians have used for decades to disguise the true nature of our country’s indebtedness.
How big is the fiscal gap? By my own calculations using the CBO data, it now stands at $211 trillion -- a huge sum equaling 14 times the country’s economic output. To arrive at that figure, I assumed that annual noninterest spending, as well as taxes, would grow indefinitely by 2 percent a year beyond 2075, the point at which the CBO’s estimates end.
http://www.bloomberg.com/news/2011-06-29/stop-the-fiscal-war-against-our-children-now-laurence-kotlikoff.html

Social Security "Nuts"

Kratthammer on Social Security:
Last week, President Obama's budget chief, Jack Lew, took to his White House blog to repeat his claim that the Social Security trust fund is solvent through 2037; and to chide me for suggesting otherwise. I had argued in my last column that the trust fund is empty, indeed fictional.
If Lew's claim were just wrong, that would be one thing. But it provides the intellectual justification for precisely the kind of debt denial and entitlement complacency that his boss is now engaged in. Therefore, once more unto the breach. 
Lew acknowledges that the Social Security surpluses of the last decades were siphoned off to the Treasury Department and spent. He also agrees that Treasury then deposited corresponding IOUs – called "special issue" bonds – in the Social Security trust fund. These have real value, claims Lew. After all, "these Treasury bonds are backed by the full faith and credit of the U.S. government in the same way that all other U.S. Treasury bonds are."
Really? If these trust fund bonds represent anything real, why is it that in calculating national indebtedness they are not even included?

That's why publicly held bonds are so radically different from intragovernmental bonds. If we default on Chinese-held debt, decades of AAA creditworthiness is destroyed, the world stops lending to us, the dollar collapses, the economy goes into a spiral and we become Argentina. That's why such a default is inconceivable.
On the other hand, what would happen to financial markets if the Treasury stopped honoring the "special issue" bonds in the Social Security trust fund? A lot of angry grumbling at home for sure. But externally? Nothing.

Cafe Hayek amplifies:
The question is whether or not Uncle Sam will have enough assets in the future to pay all of his obligations under Social Security.  When sensible people such as Charles Krauthammer and Robert Samuelson note that these obligations are so massive that honoring them in full will require drastic tax hikes or spending reductions, accounting-challenged defenders of the status quo exclaim “Not to worry!  The Social Security trust fund holds lots of U.S. Treasury bonds.  Those bonds are assets.  So Social Security’s obligations are covered!”
But those bonds are held by the same party that issued them, namely, Uncle Sam; the creditor here is one with the debtor.

Social Security Truth or Dare

Let's start with its $2.6 trillion trust fund. Doesn't this prove that people's payroll taxes were saved to pay for future benefits, disconnecting them from our larger budget problems? Well, no. Since the 1940s, Social Security has been a pay-as-you-go program. Most benefits are paid by payroll taxes on today's workers; in 2010, those taxes covered 91 percent of benefits. The trust fund's $2.6 trillion would provide only 3.5 years of benefits, which totaled about $700 billion in 2010.
The trust fund serves mainly to funnel taxes to recipients, and today's big surplus is an accident, as Charles Blahous shows in his book "Social Security: The Unfinished Work." In 1983, when the trust fund was nearly exhausted, a presidential commission proposed fixes but underestimated their effects. The large surplus "just developed. It wasn't planned," the commission's executive director said later. Even so, the surplus will disappear as the number of retirees rises.
Similarly, Congress has repeatedly altered benefits. From 1950 to 1972, it increased them nine times, including a doubling in the early 1950s. In 1972, it indexed benefits to inflation. People didn't complain when benefits rose, but possible cuts now trigger howls that a "contract" is being broken. Not so. In a 1960 decision (Flemming v. Nestor), the Supreme Court expressly rejected the argument that people have a contractual right to Social Security. It cited the 1935 Social Security Act: "The right to alter, amend, or repeal any provision of this Act is hereby reserved to Congress." Congress can change the program whenever it wants.
All this makes Social Security "welfare." Benefits shift; they're not strictly proportionate to wages but are skewed to favor low-wage earners -- a value judgment reflecting who most deserves help; and they aren't paid from workers' own "contributions." But we ignored these realities and encouraged people to think they "earned" benefits and that Social Security is distinct from the larger budget. Politicians, pundits, think-tank experts and journalists engaged in this charade to spare Social Security's 54 million recipients the discomfort of understanding they're on welfare.
http://www.realclearpolitics.com/printpage/?url=http://www.realclearpolitics.com/articles/2011/03/07/why_social_security_is_welfare_109126.html

I'm of the opinion that SS was an unconstitutional program from the start - but it's a great example of what happens when you have a compliant supreme court, a leftist president, and good intentions.  Whatever the original intents of the program - that it be voluntary, that it only cover the 50% who would have lived long enough to receive it, that it smooth over the transition from agrarian to industrial population bases - since it was originally approved, it's just been another tool whereby politicians have spent taxpayer money to further their political aspirations.  Shame on all of them.

Spends or Returns?

"The data going in suggested that the results would be dramatic. The U.S. is now home to 39 million people over 65, or nearly 13% of the population. That's a big patch of gray, and it's getting bigger fast. In 2011, the leading edge of the 76-million-strong baby-boom generation - born from 1946 to '64 - will cross the line to 65, and they'll keep coming until 2029. Already the government spends $600 billion per year in Social Security payments for people 51 or older, and a staggering $1.3 trillion when you include Medicare, Medicaid and disability benefits."
The way this bit reads, it makes it sound like the old are a liability. The crushing irony is - social security is money that was taken from the folks and is now being given back to them. Saying "the government spends $600 billion per year in SS payments for people 51 or older" is factually accurate, but conceptually dishonest. "SS returns $600 billion in confiscated funds per year to the people from whom it was taken." This is much or honest. Why don't we talk about it like that?

Read more: http://www.time.com/time/specials/packages/article/0,28804,1963392_1963366_1963382,00.html#ixzz0h9IApp9u