“An Era of Permanent Annual Deficits Has Been Reached”

These chilling words, said of the Social Security Trust Fund, are from Paul Blahous, public trustee for the Social Security Trust Fund (hat tip: Bruce Krasting), in testimony before the House Ways and Means Committee. Here’s the complete quote:

The 2011 Trustees’ report is the first in which Public Trustees have ever participated to have concluded that an era of permanent annual deficits has been reached (assuming no future change in law).

From Krasting:

Bottom line; either a significant portion of seniors are going to be eating cat food, or the next few generations are going to be paying (unfairly) through the nose.

The shortfall is all but certain to be in the hundreds of billions or even trillions. In the near term there are really only two practical courses of action: either a substantial increase in FICA max or an increase in the income tax.

Just as a quick recap I believe that Social Security should be retained with the following changes:

  • It should be means tested.
  • The formula for cost of living adjustments should be changed to reduce the rate at which benefits increase.
  • The Social Security retirement age should be increased to 70.
  • A new category of disability for people over 62 who have worked for an appreciable portion of their careers in physical labor earning an hourly wage should be created.

You can argue over whether FICA max should be abolished altogether or if FICA itself (the “payroll tax”) should be abolished and all funding for Social Security be derived from general revenues. I think there would be benefits from the latter since it would eliminate some of the differential between on the books and off the books employees.

Social Security is not a right. It is not an annuity. It is not an investment. It should not be the primary long term financial planning strategy for most Americans. However, I hope that recent years have disabused people of the notion that there is any asset or combination of assets that appreciates in value monotonically.

We’re going to need some sort of old age assistance for the foreseeable future. We need to find an acceptable and sustainable formula for funding it. Social Security is no longer the cash cow it has been for most of its history. What we’ve got now is collapsing. Times a-wastin’.

54 comments… add one
  • john personna Link

    Social Security is not a right. It is not an annuity. It is not an investment. It should not be the primary long term financial planning strategy for most Americans. However, I hope that recent years have disabused people of the notion that there is any asset or combination of assets that appreciates in value monotonically.

    This paragraph neatly avoids what it is, or was.

    As I’ve said before, the original “contract” made it a mandatory enrollment annuity.

    Now, the pay-in and pay-out were not set at sustainable levels. That is certainly true. It did not make sufficient adjustment with changes in demographics, and actuarial outcomes, as a private annuity would have done, but that doesn’t change the structure.

    The problem we have now is a badly structured annuity, left on automatic, for far too long. And now, all those people holding a “contract,” are getting a wake-up call.

    (My great recession pessimism makes me think the outcome will be a return to many, many, more impoverished seniors. It would be nice if cost-effective solutions were found for that … old-hippie communes or something … but it may come back to seniors living with their kids, multigenerational families, etc.)

  • john personna Link

    BTW, the strongest proof of SS as annuity is that it was never means tested. The pay-out was always, like an annuity, based on pay-in. That, and a 1940’s idea of retirement span.

  • An annuity is a contract and it’s enforceable.

  • john personna Link

    So you are going semantic on me? Seriously?

    If the only difference between the “contract” and the contract, I think I’ve made my point.

  • john personna Link

    I certainly agree that the annuity model, the “it’s my money, I paid it in, and was promised such-and-such return,” has failed.

    It failed because pay-out was not properly adjusted for actuarial outcomes. When you suggest different retirement ages, you are suggesting a change within the old model. Just different numbers.

    If we go to means-testing THEN it changes the nature, into a safety net, rather than a guaranteed income.

  • john personna Link

    BTW, as I’ve mentioned the sneaky solution is to keep SS pay-out high, but to just tax it back again. Then everybody gets “benefits” and the government gets “revenue.”

  • But, but, but, but…Social Security is fine. These are not the droids you are looking for, move along….

  • This paragraph neatly avoids what it is, or was.

    It is a transfer program, aka welfare program.

    As I’ve said before, the original “contract” made it a mandatory enrollment annuity.

    No. Annuities have a fixed payment schedule with a fixed termination date. Social Security does not have a fixed termination date. I don’ t know why everyone has to come up with all these euphemisms, it is a welfare/transfer program. You take money from current workers and distribute it to current retirees.

    The problem we have now is a badly structured annuity, left on automatic, for far too long. And now, all those people holding a “contract,” are getting a wake-up call.

    This is simplistic nonsense. Figuring out the payment schedule for an annuity is simple, there is a formula that can be used and there is nothing hard about it.

    The problem with Social Security is,

    1. It is not an annuity.
    2. It is part of the political process (you know that part about, robbing Peter to pay Paul you can always count on Paul’s support).

    So you are going semantic on me? Seriously?

    Seri0usly, no. You are the one playing word games. Social Security is not an annuity. It does not fit the definition. Really. Seriously.

  • sam Link

    “No. Annuities have a fixed payment schedule with a fixed termination date.”

    Uh, one of my employers converted my retirement to an annuity. It does not have a fixed termination date, though it does have a fixed payment.

  • john personna Link

    I understand that too Sam. Technically we are talking about a subset of annuities, the life annuity.

    A life annuity is a financial contract in the form of an insurance product according to which a seller (issuer) — typically a financial institution such as a life insurance company — makes a series of future payments to a buyer (annuitant) in exchange for the immediate payment of a lump sum (single-payment annuity) or a series of regular payments (regular-payment annuity), prior to the onset of the annuity.

    The payment stream from the issuer to the annuitant has an unknown duration based principally upon the date of death of the annuitant. At this point the contract will terminate and the remainder of the fund accumulated is forfeited unless there are other annuitants or beneficiaries in the contract. Thus a life annuity is a form of longevity insurance, where the uncertainty of an individual’s lifespan is transferred from the individual to the insurer, which reduces its own uncertainty by pooling many clients. Annuities can be purchased to provide an income during retirement, or originate from a structured settlement of a personal injury lawsuit.

    I really don’t know why Dave and Steve want to prolong this, unless it is just about me. It certainly doesn’t change the solvency of the Social Security system, or the need to change (possibly including moving away from the life annuity model).

  • john personna Link

    This is particularly funny. I say:

    The problem we have now is a badly structured annuity, left on automatic, for far too long. And now, all those people holding a “contract,” are getting a wake-up call.

    and Steve replies:

    This is simplistic nonsense. Figuring out the payment schedule for an annuity is simple, there is a formula that can be used and there is nothing hard about it.

    Perfect example of Steve’s pattern of agreeing completely, while telling you that you are wrong.

    Of course the formula is easy, duh, does that mean that SS stayed on top of it?

  • Drew Link

    Heh. NEWS ITEM: circa 2020

    Just as a quick recap I believe that ObamaCare should be retained with the following changes:

    It should be means tested.
    The formula for cost of health care adjustments should be changed to reduce the rate at which benefits increase.
    The ObamaCar coverage age should be increased to 70.
    A new category of ObamaCare for people over 62 who have worked for an appreciable portion of their careers in physical labor earning an hourly wage should be created.

    I usually chide jp for his overly literal interpretations and contortions, but I’m with him here. We all know SS isn’t a contract in the strictly legal sense. But in the fabric of our society for 70 years now it has most assuredly been a contract. I’d love to see it revoked just so people would wake up, realize that government and the pols are far more similar to Enron than dis-similar and can’t be trusted, and that Steve V is correct…………..its effectively been headed down the path to a welfare program for years now. Its just no pol wanted to cop to the “contract” fraud.

  • john personna Link

    Thank you Drew. Though I think the taxing benefits back door has been apparent for years as well.

  • Alright, lets take a good look at the annuity argument.

    Lets look at sam’s situation.

    1. Sam has $x in his retirement fund.
    2. Sam has an option to trade $x for a stream of payments with no fixed end date.
    3. COLA adjustments are spelled out in the initial contract.
    4. Sam is making this trade with a private insurance company.

    Now lets look at Social Security:

    1. Current retirees may or may not have $x in retirement funds like sam. They may have more or less. But it is largely irrelevant as well see in point 2 below.
    2. Current retirees are going to get a guaranteed stream of payments with no end date, but they’ll get it either from current workers or current taxpayers.
    3. The level of benefits and COLA changes are all politically determined.
    4. This whole thing is via government and is often a significant factor in political contests.

    Yeah, gee they are exactly the same thing. [/sarcasm]

    Sure, superficially there are similarities, but to pretend it is like buying an annuity is just laughable. Yeah, I’d love to buy an annuity with your money JP. How much you got? Let me know so I can start looking around for life annuities now.

  • Unfortunately, Medicare with or without the changes in the ACA can’t be fixed with the changes you’ve waggishly suggested, Drew, unless you assume that Congress will sit still for measures they’ve refused for the last dozen years. Its rate of increase is far too large. The math just doesn’t support it.

    But the math does support fixing Social Security with the various adjustments I’ve suggested. And we will continue to have some form of old age income supplementation whether we call it Social Security or not. Even if Social Security were abolished tomorrow the day after tomorrow another plan would be erected in its place. Too many people are too dependent on it and it’s too late to do anything about it.

  • But in the fabric of our society for 70 years now it has most assuredly been a contract.

    I’d argue it is hard to enter into a “contract” where one side has a monopoly on the legal use of violence, but that’s just me.

    If John wants to argue that his “annuity” position is that Social Security is here to stay in one form or another that’s a different position, IMO, than saying, “Social Security is an annuity that had a bad forumula.”

    These things are pretty easy when you have a large enough pool of applicants, and Social Security has that. You could quite easily look at when people are expected to cork off, look at the future path of payments and set up a system that is sustainable. We haven’t. Why not? Because it isn’t a freaking annuity. It is a welfare program determined by the political process.

  • john personna Link

    Actually i’m highlighting the problem. SS is an annuity run by politicians rather than actuarial accountants. That’s where it broke down.

  • john personna Link

    (If it had been run by accountants, then every year, every cohort, would have gotten a different pay-out (or a different withholding). Instead the polls just wake up every few years and try to tweak the deal by large age blocks, contributions rates, and retirement ages.)

  • Drew Link

    You missed the point – except for the “waggish” – Dave. Obamacare is just yet another flawed government “solution” to a government created problem. It will be found to be just as flawed and untenable as Social Security is now proving to be.

  • Drew Link

    “I’d argue it is hard to enter into a “contract” where one side has a monopoly on the legal use of violence, but that’s just me.”

    Me too, hence my acerbic invokation of Enron. Just about all of the large government income maintenance programs are introduced with simple minded assumption that fail over time. But let’s not quibble over technical definitions of a contract, or of the term “fraud,” which is also not technically applicable to SS.

    But is there anyone who does not consider the inevitable SS bait and switch to be as morally reprehensible as, well, Enron?? Its effectively fraud. Only if you have the morals of Barney Frank do you think this is just. It may be a practical reality, but its not moral or just.

    Voters, er, Charlie Brown, Lucy pulled the football yet again………

  • Drew Link

    “It is a welfare program determined by the political process.”

    Exactly. And so people look to government to sort out solutions why, again?? And who supports a president who routinely informs us that we can still have our candy because the cost of the candy will “only fall on 3% of the taxpayers.”

    Beggar thy neighbor…

  • john personna Link

    Wait a sec, and think about that quote:

    “It is a welfare program determined by the political process

    Don’t welfare programs give the most to the poorest? And the least to the wealthy? Usually welfare programs give nothing at all to the richest.

    Our mandatory annuity does the opposite. It gives the highest return to the richest, the highest earners over their lifetime. It gives much less to the working poor. And, if you were poor without working, it gives you nothing at all.

  • john personna Link

    Again, SS is messed up, but it is a messed up annuity, not a messed up welfare program.

  • john personna Link

    lol, we have a messed up welfare program, it’s called Welfare.

  • sam Link

    You know, most SS recipients are elderly women. There is a real problem that the program is aimed at solving:

    Women represent 57 percent of all Social Security beneficiaries age 62 and older and approximately 69 percent of beneficiaries age 85 and older.

    In 2008, the median earnings of working-age women who worked full-time, year-round were $35,000, compared to $45,000 for men.

    In 2008, the average annual Social Security income received by women 65 years and older was $11,377, compared to $14,822 for men. Social Security provides dependent benefits to spouses, divorced spouses, elderly widows, and widows with young children.

    In 2008, for unmarried women including widows age 65 and older, Social Security comprises 50 percent of their total income. In contrast, Social Security benefits comprise only 38 percent of unmarried elderly men’s income and only 31 percent of elderly couples’ income.

    In 2008, 46 percent of all elderly unmarried females receiving Social Security benefits relied on Social Security for 90 percent or more of their income.

    Elderly women are less likely than elderly men to have significant family income from pensions other than Social Security. In 2006, only 23 percent of unmarried women aged 65 or older were receiving their own private pensions (either as a retired worker or survivor), compared to 30 percent of unmarried men.

    Participation in employer-sponsored retirement plans is increasing for women in today’s workforce. In 2008, 51.0 percent of women employed full-time participated in an employer-sponsored private sector plan compared to 51.2 percent of men. Women generally receive lower pension benefits due to their relatively lower earnings.
    Source]

  • sam Link

    @Dave

    ” Medicare with or without the changes in the ACA can’t be fixed with the changes you’ve waggishly suggested, Drew, unless you assume that Congress will sit still for measures they’ve refused for the last dozen years. ”

    Speaking of which, what would you guys say to Kevin Drum’s suggestion for Medicare?

    [W]hy not reform Medicare by means testing it? …

    Here’s how it works. Basically, we leave Medicare alone. Oh, we can still go ahead with some of the obvious reforms. Comparative effectiveness research is a no-brainer for anyone who’s not part of the Republican leadership. Ditto for some of the delivery reforms on the table. Or allowing Medicare to negotiate for lower prices. It would be great if that stuff works. But if it doesn’t, then people will need to pay more for their care. So why not have dead people pay? They don’t need the money any more, after all.

    So Medicare stays roughly the same, but every time you receive medical care you also get a bill. You don’t have to pay it, though. It’s just there for accounting purposes. When you die, the bill gets paid out of your estate. If your estate is small or nonexistent, you’ve gotten lots of free medical care. If it’s large, you’ll pay for it all. If you’re somewhere in between, you’ll end up paying for part of the care you’ve received. [http://motherjones.com/kevin-drum/2011/05/why-not-let-dead-pay-medicare ]

    Interestingly, Medicaid, the program for the really poor, already does this to some extent. My mother-in-law passed away a year ago, and Medicaid has billed her estate $18,000 payable upon the liquidation of her estate (= sale of her house, all her estate consists of).

    Why not do something like this for Medicare?

  • sam Link

    hmmm, manual html. The Drum quote ends at the cite, the rest is re my family.

  • Drew Link

    “Don’t welfare programs give the most to the poorest? And the least to the wealthy? Usually welfare programs give nothing at all to the richest.”

    There you go again, with that literalist thingy.

    The program was originally installed to prevent old age poverty. Fine. Then, being a political creature, inevitably evolved into more of a middle class and unsound transfer payment system. Then it was a convenient piggy bank for the Enron executi….er, politicians to raid, and get votes……………….and now it will be abrogated – because its broke – and become a welfare program again. With a million broken promises along the way.

    But you promised, Lucy. You promised. Lucy: “yes, but ObamaCare will be different……”

  • Drew Link

    All you guys are getting at is the ultimate bait and switch. Let’s – after never, ever advertising it as such – just pocket the Medicare and SS contributions of millions of people for decades, say thank you very much, but we have decided to fork you over in a retroactive, unvoted upon, tax hit…………..because greed and envy is alive and well on the bottom half of the income and wealth spectrum. Because we can. Eff you.

    Morally reprehensible. Makes used car salesmen look like angels.

  • sam Link

    “Then, being a political creature, inevitably evolved into more of a middle class and unsound transfer payment system. ”

    I dunno. The stuff I posted from the SS administration supports the claim that, for the most part, it still is a program to prevent old age poverty

    In 2008, the average annual Social Security income received by women 65 years and older was $11,377, compared to $14,822 for men…

    In 2008, for unmarried women including widows age 65 and older, Social Security comprises 50 percent of their total income.

    Doesn’t sound to me like the folks are rolling in dough.

  • Actually i’m highlighting the problem. SS is an annuity run by politicians rather than actuarial accountants. That’s where it broke down.

    Then logic indicates you can’t have a nationwide mandatory annuity program because the politicians wont let the actuaries run it.

    Don’t welfare programs give the most to the poorest? And the least to the wealthy? Usually welfare programs give nothing at all to the richest.

    No. Look at Social Security and Medicare, the elderly are a fairly well of demographic. Now means testing Social Security and Medicare would make them more in line with what you’ve described.

    If you are hung up on the word “welfare” call it a transfer program, to me it means the same thing. I consider all programs part of the “social safety net” to be welfare/transfer programs. The basic goal is laudable, preventing people from falling below a given living standard, the problem is many of the programs have rotten incentives, do their job poorly, and are not sustainable.

  • Doesn’t sound to me like the folks are rolling in dough.

    You can find various distributions in any demographic. You look at white people and you have a distribution for wealth, education, etc. At one end you find grinding poverty and ignorance. The difference between that demographic and others is that tail is “smaller” and hence does not get as much representation in our government.

    Now a good step would be means testing, that would move the program back to what it was intended for: an income support program. Something you should rely on as little as possible, but if crap happens you wont be eating cat food and living in a tent under a bridge. But means testing has been a good idea ever since the program was passed into law (76 years). Why hasn’t it been done for 76 years? Well go back and read Drew’s posts.

    Then it was a convenient piggy bank for the Enron executi….er, politicians to raid, and get votes……………….and now it will be abrogated – because its broke – and become a welfare program again. With a million broken promises along the way.

    Our government has been using the SS surplus for decades to make federal budget deficits look smaller than they actually were. In a sense the typical American taxpayer has been a welfare recipient of SS as well.

    So everybody will come up with this plan and that plan to fix SS. Problem is it wont be fixed until the problem is nearly beyond repair (and maybe not even then) and it will cost a whole lot more than it would cost to fix it now, or if it had been fixed 20 years ago.

    Good government is an accident.

  • Sam Link

    It should be means tested.

    I hope you mean lifetime earnings means tested! Or 1) it becomes very unfair to super-savers and 2) it becomes a pseudo-savings tax for spenders (why save when I’ll lose social security money).

    I like the other items, but I’d change the first to simply reducing the highest level of benefits.

  • sam Link

    @Drew
    “Obamacare is just yet another flawed government “solution” to a government created problem”

    Heh.

    I have been struck at the heated rhetoric surrounding Paul Ryan’s Medicare reform proposal. One thing is not often pointed out: Ryan’s proposed “premium support” structure is in some ways similar to the plan put in place under President Obama’s healthcare reform law. In both cases, an individual would shop among competing private insurers, on an exchange overseen by the government regulators. In both cases, the government would provide financial support for the “needy” (low-income households in the case of Obamacare, the elderly in the case of Ryancare).

    Why don’t we see this parallel pointed out more often? The left wants to demonize Ryan, and the right wants to demonize Obama. Pointing out the similarities of their plans might make each of them seem, well, reasonable. The overwrought politics of health care makes it hard to recognize common ground. [Greg Mankiw]

    I understand that Alice Rivlin tried to get Ryan to see the similarities, and he refused to admit them.

  • john personna Link

    SteveV, you are agreeing with me again.

    We have an annuity program, and we let the politicians run it. That doesn’t work.

    Now, there is a way within the framework to make it work again. That would be to use actuarial data, to use workers actual contribution, and to calculate retirement-age benefits on that basis.

    Or, leave the model and go to one which is more welfare based, and put in means testing.

    But until we have means testing I’m not the one hung up on words. Until then we have a broken annuity.

  • john personna Link

    Sam, why would lifetime earnings be fair? If someone is standing in the catfood aisle, it matters what wealth is that month, not income 20 years ago.

    A wealth-based means test, and yes that means selling the million dollar house if you’ve got to, is the fair way to ration scarce funds. But, given the difficulty of a wealth-based test, an income-based one is the fall-back.

  • Drew Link

    “Doesn’t sound to me like the folks are rolling in dough.”

    Then let’s be honest. Tough as that is for politicians. No soup, er, SS for you!

    It’s a tax. Its welfare. And let’s vote on it honestly. Shell games only belong at 49th and 9th, ……not the Congress and Presidency.

  • Drew Link

    “Sam, why would lifetime earnings be fair?”

    Because it forces people to make prudent financial planning decisions, or not, and live with them. Not to seek unwarranted subsidy for their poor, and I would say irresponsible, planning.

    Funny thing. Sam zinged an arrow at me last week for daring to declare “moral superiority.” And yet, the fact is that living within your means and providing for a rainy day, or retirement, IS the morally superior position.

  • Sam Link

    Sam, why would lifetime earnings be fair? If someone is standing in the catfood aisle, it matters what wealth is that month, not income 20 years ago.

    I think you misunderstand. I mean that someone who averaged 100k a year would get the same, or very little more benefit as someone who made 60k, or even 30k a year.

    No one is living on cat-food, but the one who made 100k still has to save unless he wants a big knock-down to his standard of living.

  • sam Link

    “Funny thing. Sam zinged an arrow at me last week for daring to declare “moral superiority.”

    Wrong. I’m sam, he’s Sam.

  • We have an annuity program, and we let the politicians run it. That doesn’t work.

    It isn’t an annuity anymore than government is a business providing various services and products. The goals are totally different.

    Or let me try it this way.

    We don’t have an annuity program because we let politicians run it.

    Or yet again….

    Our positions are similar in terms of conclusion, but the underlying philosophies are dramatically different.

    I hope you mean lifetime earnings means tested!

    Of course otherwise you’d create an incentive for people who make $100k/year on average to not save and then get a larger chunk of Social Security than somebody who made $60/year on average but saved.

    If you make $100k/year and don’t save, well too bad your Social Security wont be that great.

    Problem with this approach? Anyone? Bueller? Bueller?

    Time inconsistency…shhhhhh….

  • Drew Link

    sam, Sam, sam I am………

    Houston, we have a problem. My bad.

    I think Sam is a current, or former, mathematics teacher or professor. His posting goes way, way back.

    sam, I don’t know, except from recent posts.

  • Sam Link

    I think Sam is a current, or former, mathematics teacher or professor. His posting goes way, way back.

    Aw it saddens me you only remember me correcting you on inflation math and not our magical moment together defending the virtues of an engineering education!

    sam, I don’t know, except from recent posts.

    sam is a program I wrote that argues fiscal policy on blogs. He’s been around a while too.

  • john personna Link

    I get the need for initiative, and I think we have that regardless. People shouldn’t want to live on SS, they should want more. They should want travel, Porsches in their old age.

    But beyond that you should see a problem. If you want to call this “welfare” but you don’t want to give it to those staring catfood in the eye (or visiting the soup kitchen, we have a busy one up the hill).

    How are you going to design a solvent system that is so flush it gives money to people who don’t need it?

  • john personna Link

    Yeah, you have a contradiction. More than one.

    You don’t want to call it an annuity, but you don’t want it to be welfare.

  • sam Link

    “sam is a program I wrote that argues fiscal policy on blogs. He’s been around a while too.”

    Were it only true. Then I wouldn’t wake up each morning with all these aches and pains. FWIW, and I know not much to you guys, I used to teach philosophy.

  • But beyond that you should see a problem. If you want to call this “welfare” but you don’t want to give it to those staring catfood in the eye (or visiting the soup kitchen, we have a busy one up the hill).

    Where did I say this? I don’t have problems helping those in need. Problem is when we come up with a policy it is always, at best, half-assed. This is why most policies to deal with something suck.

    I think definitions are important. They are important to making sure you don’t do something half-assed. You need to understand something before using it, IMO.

    In short, you think you understand my philosophy on this, but you really don’t. I can come up with good policy. Most commenters probably can, as none of them are dumb. Problem is good policy is not good politics. That is a key point just about every commenter here seems oblivious too at one time or another.

    For example, our host, is aware of the problem sometimes. He was quick to point out that while there are many good points to a policy such as limited purpose banking the various vested interests will hate and as such is a dead horse politically. But he also keeps talking about how we need reform in health care.

    Zoinks!

    What?

    Yeah, we need it. But the very same objection to limited purpose banking (or shifting to a consumption tax, or a pigouvian gasoline tax, etc.) apply just as much to health care. This is the problem with policy in general, it creates a constituency of winners who will work to retain the benefits. And bad policy is usually bad policy because it has bad incentives. Add on that discretionary policy has the time inconsistency policy and implementing policy becomes even more problematic.

  • john personna Link

    I doubt if, in the millions of years of human evolution, our social institutions have ever worked perfectly. They have worked well enough to get us here though. That includes 10,000 years of civilization, and government.

    Social Security might be an example in those terms. It’s broken, and yet it’s worked for generations. So, how broken is it really?

    We can count on Steve to tell us things like “Good government is an accident.” Heh. But good-enough government has that 10,000 years going for it.

  • Social Security might be an example in those terms. It’s broken, and yet it’s worked for generations. So, how broken is it really?

    It has always been broken, just like a pyramid scheme is broken from the start. It was never sustainable.

    Heh. But good-enough government has that 10,000 years going for it.

    Yeah, and its history is littered with brutality, rape, murder and wanton destruction. But WTF, it is “good enough”.

    Oh and regarding this,

    Yeah, you have a contradiction. More than one.

    You don’t want to call it an annuity, but you don’t want it to be welfare.

    No. I don’t think it is an annuity, and I think it is welfare. No contradiction.

  • And I said nothing about perfect government. I said “good government”. Now you want to lower the bar again with “good enough government” what is that? Government that f*cks things up, but not too badly?

  • steve Link

    “No. I don’t think it is an annuity, and I think it is welfare”

    I think you are technically correct, but it does lead to a question. Is there any other welfare program where you pay into the program for 40 years, then collect on it?

    “Not to seek unwarranted subsidy for their poor, and I would say irresponsible, planning.”

    I have no problem with this when you are talking about people who made above median levels of income in the past. However, we now face two problems. Incomes have stagnated unless you are at that top 1%. If that trend continues, how do people continue to save adequately. Shouldnt we try to engage in policies that support increased income at the bottom?

    Secondly, What kind of savings do you expect people making 15k-20k to achieve? Assume we are going full GOP mode, ie no health care insurance. For funsies, assume we really go full GOP mode and increase income taxes on these people with a flat tax.

    Last of all, we are gaining more and more of our revenue from payroll taxes. We collect less corporate tax, as a percent of GDP, than almost any other OECD country. We have seen income tax rates drop, while holding payroll taxes constant. If we are going to continue shifting taxes to payroll taxes, we need to expand the income limit on which we collect. I would suggest we go back to the 90% of income that was suggested by Greenspan (?) in the past.

    Steve

  • john personna Link

    I’m shocked that you all can’t just read the definition of a life annuity at wikipedia and be satisfied.

    No steve, no one “pays into” welfare and then receives a “pay out” based on the size of their contribution.

  • john personna Link

    And steve v, it is funny to see you treat government, and even social security, like something out of The Road.

    We are not quite post-apocalyptic, though I sense a bit of the doomer in you.

  • I’m shocked that you all can’t just read the definition of a life annuity at wikipedia and be satisfied.

    I have and I think you are wrong.

    1. A life annuity is the result of a profit seeking firm, Social Security fails that condition.
    2. Life annuities are bought by the recipient of the regular payments, Social Security fails that condition.
    3. Annuities, even life annuities are structured to not operate in the red and can be corrected, maybe not the existing contracts, but future ones, Social Security fails this condition on an empirical basis.

    And steve v, it is funny to see you treat government, and even social security, like something out of The Road.

    sigh

    Yes. Lets look at history.

    Who started WWI? Hmmm markets? No, governments.

    Who started WWII? Markets? No, governments.

    Those two events, was there not brutality, murder, and tremendous suffering? Yes.

    Lets pick some other notable events due to “good enough government”:

    Great Leap Forward
    Five Year Plans
    The Vietnam War
    The Korean War
    100 Years War
    Napoleonic Wars

    Comparison the The Road is just stupid. Well unless you are comparing it to the “good enough” government in North Korea, I’ve heard cannibalism does happen there.

    As for Social Security I’ve made no such comparisons. My position is,

    1. It is unsustainable.
    2. Attempts to make it unsustainable are likely to fail, at least in the long run (i.e. if we “fix it” now, in another 20-30 years our children will be having this exchange).

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