US Politics... 14 Months to Elections!

[Ormond]

Let's compare Social Security and a Ponzi scheme:

Social Security...

- Is transparent, meaning we know how benefits are paid

- Is guaranteed by government

- Is controlled, via Congress, by the American people

- In invested in Treasury bonds

- Is more than seventy-five years old, and still solvent

- Is NOT a fraud

A Ponzi scheme...

- Is shrouded in secrecy, the better to bilk people of their money

- Is guaranteed by no one

- Is controlled by oily tricksters

- Is invested in nothing

- Lasts only as long as the ringmaster eludes law enforcement

- Is a fraud

Yes, one can find rudimentary similarities between them - both are paid into - but you can find rudimentary similarities between Josef Mengeles' work and, say. open-heart surgery. The latter is consensual, intended to preserve and prolong life, and is governed by rules of ethics; the former is a crime against humanity. See how similar they are?!?

The fact that normally reasonable people are even discussing this "comparison" is a testament to the power of the right-wing messaging machine.

Edited to add: Yes, I am invoking Godwin's Law, so we can all move on. It is simply absurd to think that Social Security is a Ponzi scheme, and we shouldn't even be discussing it.

I don't know, I think you dismissing this too easily.

I would agree that it really isn't accurate to say that Social Security "is" a Ponzi scheme in term of exact equivalence. But I do think it is accurate to say that it is "LIKE" a Ponzi scheme in the way that makes an illegal Ponzi scheme different from other frauds -- the use of money collected from more recent enrollees to pay off original enrollees.

It seems to me that the analogy between SS and Ponzi is precisely one of the points that resonates with a lot of people -- and in my experience, is often the Tea Party like argument that makes the most sense to a lot of younger people, unlike most of the other Tea Party sort of issues -- because several of your points just become useless if one has a low level of trust in large institutions in general. And lots of Americans have such low levels of trust.

For people with low levels of trust, the fact that SSA is "guaranteed by the government" and that it's "invested in Treasury bonds" are scary, not reassuring. They simply don't trust government guarantees. And an awful lot of younger people seem to not trust "the American people" and think by the time they get old enough to be drawing from SS, the generations younger than them will simply not agree to pay for their benefits and will vote in politicians who will reduce or even eliminate them.

Plus it seems quite obvious to me that for a very large segment of the American public that "politicans" and "oily tricksters" are basically synonyms. And I don't think that is something which has just happened recently because of modern right wing propaganda. I think distrust of politicans and the belief that most of them lie all the time just to get elected has been a very common belief of the general public for several generations.

So if you think politicians are oily tricksters and you don't trust Treasury bonds to be a good investment because you don't trust the future American public and its elected politicians to live up to their obligations to SS, but basically to default on them, then SS can certainly look "like" a Ponzi scheme.

My father used to say that SS funds should never have been invested in Treasury bonds but instead invested in non-government securities, and then in his mind it would have been sustainable and not like a Ponzi scheme. But having the money invested in the government itself just doesn't seem trustworthy to a lot of people, because they believe human nature is such that it's inevitable that at some point in the future the politicians and the public are going to default on their obligations to SS. Therefore having the SS money invested in Treasury bonds seems to them to be almost the equivalent of having it "invested in nothing."

[TrackerNeil]

I don't know, I think you dismissing this too easily.

I would agree that it really isn't accurate to say that Social Security "is" a Ponzi scheme in term of exact equivalence. But I do think it is accurate to say that it is "LIKE" a Ponzi scheme in the way that makes an illegal Ponzi scheme different from other frauds -- the use of money collected from more recent enrollees to pay off original enrollees.

By that criterion, agricultural cooperatives are "like" Ponzi schemes, as are office birthday funds. Health insurance is a Ponzi scheme. Car insurance. Any system in which the money I pay now doesn't benefit me until later is a Ponzi scheme. If we look at a system from a high enough level, we can compare it to pretty much anything. I'm currently captaining an Ultimate Frisbee team, and since I have absolute authority you might say my team is "like" a banana republic. That leaves out the fact that I do not command an army, have a government, collect taxes, or use violence to enforce my will on the team, but, hey, we're not looking for exact equivalence, are we?

These kinds of statements, made by people who want to become President of the United States, should not only be dismissed but ridiculed. They are inaccurate, uninformed, and frankly, absurd. The fact that you and I, who don't go for political craziness, are seriously discussing this is indeed a sign that public discourse is controlled by the loudest and most persistent, not the rational and most sensible. And in fact, I am not going to seriously discuss it anymore. Those who wish to take a fairy-tale view of public policy are free to do so; indeed, history has shown that for those who cling to irrational beliefs, no proof is sufficient to sway them.

I do reserve the right to make fun of those who maintain that Social Security is a Ponzi scheme, or even "like" a Ponzi scheme. Those who insist upon acting like clowns and jesters should be treated as such.

[Ormond]

By that criterion, agricultural cooperatives are "like" Ponzi schemes, as are office birthday funds. Health insurance is a Ponzi scheme. Car insurance. Any system in which the money I pay now doesn't benefit me until later is a Ponzi scheme. If we look at a system from a high enough level, we can compare it to pretty much anything. I'm currently captaining an Ultimate Frisbee team, and since I have absolute authority you might say my team is "like" a banana republic. That leaves out the fact that I do not command an army, have a government, collect taxes, or use violence to enforce my will on the team, but, hey, we're not looking for exact equivalence, are we?

These kinds of statements, made by people who want to become President of the United States, should not only be dismissed but ridiculed. They are inaccurate, uninformed, and frankly, absurd.

The "likeness" is not just that "it doesn't benefit you until later", but that it also IS being used to "benefit" someone else now.

The insurance company analogy isn't quite the same thing because, as I understand it, a lot of the money insurance companies take in is reinvested in places other than the insurance company itself. Having SS funds all invested in Treasury bonds would be as if the insurance company was just keeping all the money "in house".

A lot of people are also mistrustful of the future of SSA funds just because they are all invested in "the same place", and one of the basic rules of saving for retirement that we are told over and over again by investment experts is that you should diversify your funds. SS seems like a complete lack of diversification.

I don't think the analogy is completely accurate. But I don't think it's as inaccurate as your "frisbee team vs. banana republic" example, and don't think it quite rises to the level of "absurdity". We will probably just have to agree to disagree on that.

[TrackerNeil]

A lot of people are also mistrustful of the future of SSA funds just because they are all invested in "the same place", and one of the basic rules of saving for retirement that we are told over and over again by investment experts is that you should diversify your funds. SS seems like a complete lack of diversification.

As mistrustful as Americans might be of government in general, they had a chance back in 2005 to put their SS taxes towards private accounts. However, the more Bush talked about enabling them to do just that the less keen they were to sign on. This is to my mind a good thing; what kind of additional damage would the nation have suffered in Fall 2008?

Fact is, Americans are thoroughly inconsistent when it comes to government. They want a small government that does everything it does for them now; they want a cheaper government that does not spend any less on Social Security and Medicare; and they want a more efficient government but don't care about the filibusters and procedural tricks that encumber it. You have to look more closely, I think, to figure out not what Americans say they want, but what they actually do want.

[RaceBannon42]

I'd love to have control of the $3300 I'm forced to contribute towards SS every year. Sure my 401 took a dump in 08 and its taking a small dump right now, but it recovered then and it will recover again.

Now this is a bit simplistic but lets say I contribute the same $3300 for 40 years, from 25 to 65. At a moderate 7% rate of return that would be worth 705k at retirement. On the other had looking at my estimated monthly benefit of $1500 would be 18k/yr I'd need to live to be 104 to use up that 705k, and thats if I kept it under the mattress. I'll take my chances with a private account thank you very much.

[TerraPrime]

Now this is a bit simplistic but lets say I contribute the same $3300 for 40 years, from 25 to 65. At a moderate 7% rate of return that would be worth 705k at retirement. On the other had looking at my estimated monthly benefit of $1500 would be 18k/yr I'd need to live to be 104 to use up that 705k, and thats if I kept it under the mattress. I'll take my chances with a private account thank you very much.

But that is sort of missing the point of Social Security, isn't it? It's never been billed as the best investment return vehicle, or the most profitable retirement planning tool. Your scenario only looks rosy if you have the fiscal discipline to stick to it. Did you take a loot at the recent rates of consumer debt in the U.S.? What do you think will happen, most likely, if we lose the SS and revert to all-private investment? My guess is that a significant number of U.S. citizens will come up with a fat 0 in terms of savings when they turn 65 (if they're lucky enough to not be in the negatives). Then we, as a society, need to decide what to do with these people who can no longer find employment to support themselves due to age. What's your plan?

[RaceBannon42]

But that is sort of missing the point of Social Security, isn't it? It's never been billed as the best investment return vehicle, or the most profitable retirement planning tool. Your scenario only looks rosy if you have the fiscal discipline to stick to it. Did you take a loot at the recent rates of consumer debt in the U.S.? What do you think will happen, most likely, if we lose the SS and revert to all-private investment? My guess is that a significant number of U.S. citizens will come up with a fat 0 in terms of savings when they turn 65 (if they're lucky enough to not be in the negatives). Then we, as a society, need to decide what to do with these people who can no longer find employment to support themselves due to age. What's your plan?

My plan? Is to save for my own retirement and not count on SS being there for me when I retire. I stick as much as I can afford to in my 401k, I diversify my investments, and I dont make rash decisions when the market tanks.

[Former Lord of Winterfell]

FLOW:

IMO the fact that the Republicans were willing to let the economy get so close to the edge of the cliff isn't business-as-usual posturing, but frightening blackmailing. They've created a dangerous precedent over a vote that had always passed without problems before, a precedent that both parties can now use to justify extorting new concessions when that vote comes around again.

That was based on a lot of hype. How is brinksmanship over the debt ceiling functionally any different from brinksmanship over the budget in the form of government "shutdowns"? The latter have been quite common over the years. So how was the debt ceiling thing any worse?

After all, when you get a "shutdown", the government isn't allowed to spend money on anything not already authorized. Generally, that means debt payments and social security.

In the case of the debt ceiling being reached, the government still would have had enough revenue to pay for those exact same things. It's just that all the discretionary spending would have stopped, just as it does in a shutdown. So how is brinksmanship on the latter any worse than on the former? Functionally, it affects the government almost identically.

So you're saying that the end justifies the means.

In that particular instance, yes. As a rule applicable to all situations, no.

If the parties' positions had been reversed and the Democrats had been the ones threatening the economy in order to obtain substantial tax increases and thus reduce the deficit, would you believe that they too had been right to proceed?

No, because I disagree with them on the substance. But in terms of process, it would have been no different than what the GOP did.

Also, don't you think it hypocritical that the Republicans only became deficit hawks after Obama was elected? They didn't seem to care when Bush was in the White House and pouring hundreds of unpaid-for billions into the black hole of two wars.

That has been debated endlessly here, and I really have no desire to rehash that. Yes, some Republicans are hypocritical on that. On the other hand, the overall fiscal situation and economy are dramatically changed from what they were a decade ago. Conduct that may have been tolerable at one point in time may become intolerable if other factors change.

If the Republicans want to cut so much, then why not cut the subsidies for Big Oil, Big Pharma and Big Agriculture?

To what specific subsidies are you referring? People toss that concept around all the time, but I'm not always sure what they're talking about. I mean, I oppose the government handing tax receipts to any business, either in the form of grants, loans, or whatever. So can you identify the specific "subsidies" to which you are referring?

[TerraPrime]

My plan? Is to save for my own retirement and not count on SS being there for me when I retire. I stick as much as I can afford to in my 401k, I diversify my investments, and I dont make rash decisions when the market tanks.

That sounds like a good plan.

But my question was actually about the scenario where we eliminate social security and allow people to simply save for their own retirements and we end up with a not-so-insignificant number of 65-year olds with debt or no financial means to support themselves.

[RaceBannon42]

That sounds like a good plan.

But my question was actually about the scenario where we eliminate social security and allow people to simply save for their own retirements and we end up with a not-so-insignificant number of 65-year olds with debt or no financial means to support themselves.

Ahh the old ant and the grasshopper parable. Well If I had the right answer this country would be in a better place wouldnt it. Maybe we end up calling it what its more and more becoming, a welfare program. Stop collecting "Social Security" Raise everyones taxes by a like amount, and put strict standards on what you need to do to qualify for "Retirement support". But something like that will never fly. People have contributed to the plan their entire lives and they are entitled to collect regardless of need. SS is a sacred cow, no one is going to get elected if they promise to do what is likely needed to fix it.

[Andriy Czarchenko]

Ahh the old ant and the grasshopper parable. Well If I had the right answer this country would be in a better place wouldnt it. Maybe we end up calling it what its more and more becoming, a welfare program. Stop collecting "Social Security" Raise everyones taxes by a like amount, and put strict standards on what you need to do to qualify for "Retirement support". But something like that will never fly. People have contributed to the plan their entire lives and they are entitled to collect regardless of need. SS is a sacred cow, no one is going to get elected if they promise to do what is likely needed to fix it.

I doubt raising the max limit would be politically that bad.

[Former Lord of Winterfell]

The "likeness" is not just that "it doesn't benefit you until later", but that it also IS being used to "benefit" someone else now. The insurance company analogy isn't quite the same thing because, as I understand it, a lot of the money insurance companies take in is reinvested in places other than the insurance company itself. Having SS funds all invested in Treasury bonds would be as if the insurance company was just keeping all the money "in house".

That is exactly correct. There are plenty of vehicles into which you put money now with an expectation of deferred payment. But the critical component of all of them is that the current investment is intended to finance the future payment. That's true whether it is an annuity, defined benefit pension plan, or life insurance. In each case, the administering entity estimates the present value of the expected future payment, and sets the initial investment/payment accordingly. For example, your life insurance premium is based upon an actuarial calculation of what you are expected to be paid in the future. The cost of the annuity is the present value of the future income stream.

The common element is that they are all set up so that even if they ceased taking new subscribers today, they would have all the assets necessary to meet the payment obligations of everyone currently subscribed. That an underlying premise for all of those plans.

But that is not the underlying premise for SS, which relies on current contributions to pay pre-existing obligations. If you stopped Social Security today, accepted no new subscribers, and tried to pay all the preexisting obligations, it would fail quickly, because it relies on current payments to meet preexisting obligations. In that respect, it is like a ponzi scheme, and unlike an annuity, defined benefit plan, or life insurance plan.

The second respect in which it is like a ponzi scheme is that the corpus has been spent on something other than the intended program. The classic ponzi is that you keep signing up new subscribers in an investment to pay off earlier investors, touting payments to those earlier investors as evidence of the worth of the investment. But at some point when the new money is really flowing in, the perpetrator stops paying the earlier investors, and runs off with the extra cashflow and whatever corpus was accumulated.

In Social Security, it's actually the U.S. Treasury that plays the part of Mr. Ponzi. Because not only is the program actuarily underfunded knowingly, but the corpus that is supposed to be accumulating to pay off future recipients has been spent on other government programs, and there are only I.O.U.'s in it's place. In other words, someone stole the money from the lockbox.

Forgetting the lockbox problem for the moment, here's the problem:

For example, a single man who retired in 1980 at age 65 after earning an average wage of $43,500 would have paid about $96,000 in Social Security taxes, and probably received $203,000 in lifetime benefits, according to a study by the Urban Institute, a non-partisan policy think tank in Washington D.C.

http://finance.yahoo.com/focus-retirement/article/113450/social-security-secrets-smartmoney?cat=fidelity_2010_living_in_retirement&mwp_success=NONJS_POST_SUCCESS

No annuity, defined contribution plan, life insurance plan, cooperative, etc., sets up a system where the average person gets twice the value of what they contributed, for obvious reasons. So while SS isn't exactly a ponzi scheme, it isn't just like all those other investment vehicles either.

[awesome possum]

To what specific subsidies are you referring? People toss that concept around all the time, but I'm not always sure what they're talking about. I mean, I oppose the government handing tax receipts to any business, either in the form of grants, loans, or whatever. So can you identify the specific "subsidies" to which you are referring?

How about some of the ones mentioned in here (found, as always, by an extremely simple Google search):

BP was reaping sizable tax benefits from leasing the rig. According to a letter sent in June to the Senate Finance Committee, the company used a tax break for the oil industry to write off 70 percent of the rent for Deepwater Horizon — a deduction of more than $225,000 a day since the lease began.

Or how about this one:

According to the most recent study by the Congressional Budget Office, released in 2005, capital investments like oil field leases and drilling equipment are taxed at an effective rate of 9 percent, significantly lower than the overall rate of 25 percent for businesses in general and lower than virtually any other industry.

But that skyrocketing tax rate for businesses is killing them!

Or how about:

And for many small and midsize oil companies, the tax on capital investments is so low that it is more than eliminated by var-ious credits. These companies’ returns on those investments are often higher after taxes than before.

But as long as the oil industry 1) threatens us by claiming they'll have to fire people (because a profit margin slightly lower than insanely high means they have to lay people off?), raise prices, etc. and continue to spend hundreds of millions on lobbyists ($340 million and counting since 2008) and have people like FLoW cheerleading on the sidelines for them, nothing will ever be done about it.

[Former Lord of Winterfell]

That sounds like a good plan.

But my question was actually about the scenario where we eliminate social security and allow people to simply save for their own retirements and we end up with a not-so-insignificant number of 65-year olds with debt or no financial means to support themselves.

You could legislate around that, at least in some respects, by limiting eligible investment vehicles, making such contributions mandatory via tax treatment (100% taxation of any amount not invested as required), and limiting/eliminating the right to early withdrawal.

[Selmy]

Just read the speech. I guess after 960+ days in office, a couple of recent sojourns to Martha's vineyard, and passing essentially nothing this year, the President must have awoken from his slumber, discovered a sense of urgency, and decided that the jobs bill MUST BE PASSED RIGHT NOW!!!!

Which explains why they've been keeping it secret all these weeks....

You're better than this.

[The Progressive]

I'd love to have control of the $3300 I'm forced to contribute towards SS every year. Sure my 401 took a dump in 08 and its taking a small dump right now, but it recovered then and it will recover again.

Now this is a bit simplistic but lets say I contribute the same $3300 for 40 years, from 25 to 65. At a moderate 7% rate of return that would be worth 705k at retirement. On the other had looking at my estimated monthly benefit of $1500 would be 18k/yr I'd need to live to be 104 to use up that 705k, and thats if I kept it under the mattress. I'll take my chances with a private account thank you very much.

For example, a single man who retired in 1980 at age 65 after earning an average wage of $43,500 would have paid about $96,000 in Social Security taxes, and probably received $203,000 in lifetime benefits, according to a study by the Urban Institute, a non-partisan policy think tank in Washington D.C.

http://finance.yahoo...JS_POST_SUCCESS

No annuity, defined contribution plan, life insurance plan, cooperative, etc., sets up a system where the average person gets twice the value of what they contributed, for obvious reasons. So while SS isn't exactly a ponzi scheme, it isn't just like all those other investment vehicles either.

This is quite puzzling ................ flow is arguing that SS pay out too generously for contributors compared to private investment, but racebannon claims the exact opposite, lol.

[Former Lord of Winterfell]

How about some of the ones mentioned in here (found, as always, by an extremely simple Google search):

I don't support any industry-specific tax breaks.

To the extent those listed industries are simply taking advantage of tax breaks available to any industry, I do not think it would be fair to exclude those industries from those otherwise generally-applicable tax breaks. That's why I was asking for details. For example, the Cayman Islands thing sounds like it could apply to any company that moved there, so I wouldn't support singling out certain industries for exclusion from that.

I do support -- and I think the GOP in general supports -- lowering rates, and eliminating a bunch of those general deductions, loopholes, etc.

[The Progressive]

You're better than this.

Lol, does pigs fly?

[Mlle. Zabzie]

That sounds like a good plan.

But my question was actually about the scenario where we eliminate social security and allow people to simply save for their own retirements and we end up with a not-so-insignificant number of 65-year olds with debt or no financial means to support themselves.

As has been previously stated, isn't the practical solution to acknowledge that social security has become/is becoming really just a wealth transfer mechanism (mainly between generations, but also to the disabled and orphaned) and put real income limitations on the ability to collect? The other thing (that I actually think is changing) that should probably change is people's view that they are "entitled" to retirement at a certain age. Raising the age eligibility for SS is both inevitable, and, I think, realistic.

How about some of the ones mentioned in here (found, as always, by an extremely simple Google search):

Or how about this one:

But that skyrocketing tax rate for businesses is killing them!

Or how about:

But as long as the oil industry 1) threatens us by claiming they'll have to fire people (because a profit margin slightly lower than insanely high means they have to lay people off?), raise prices, etc. and continue to spend hundreds of millions on lobbyists ($340 million and counting since 2008) and have people like FLoW cheerleading on the sidelines for them, nothing will ever be done about it.

The oil and gas provisions of the Code are byzantine beyond belief and really, IMO, give companies in the industry huge breaks. On a fair number of corporate or partnership tax provision, you could add a footnote "except for oil and gas companies, which are treated differently." I would personally repeal all those breaks. (Same goes with the various Monsanto, er, farmer, breaks).

You could legislate around that, at least in some respects, by limiting eligible investment vehicles, making such contributions mandatory via tax treatment (100% taxation of any amount not invested as required), and limiting/eliminating the right to early withdrawal.

Yeah, but doesn't that really amount to 100% current taxation? That is, if you can't touch the money until year X without a 100% penalty, don't you end up in much the same place? Even 401Ks, etc. don't have a 100% penalty attached to them for early withdrawal.

[TerraPrime]

Re: Race

Ahh the old ant and the grasshopper parable.

Indeed. Except that it's a bit more. Those crickets are our friends, parents, cousins, co-workers, and even our children. They are not an entirely different species of animals. And when push comes to shove, these crickets will be at our doorsteps, and then we get to make the really hard choice on what to do with them.

Maybe we end up calling it what its more and more becoming, a welfare program. Stop collecting "Social Security" Raise everyones taxes by a like amount, and put strict standards on what you need to do to qualify for "Retirement support". But something like that will never fly.

I think you will find that any sort of "retirement support" welfare program that does not collect mandatory contribution, like in Social Security, will be rife with abuse and easily gamed by the unscrupulous.

SS is a sacred cow, no one is going to get elected if they promise to do what is likely needed to fix it.

The problem is that what's broken about it is not something that can be fixed: population change.

Re: FLoW

You could legislate around that, at least in some respects, by limiting eligible investment vehicles, making such contributions mandatory via tax treatment (100% taxation of any amount not invested as required), and limiting/eliminating the right to early withdrawal.

Well, first of all, this proposal utterly fails the Conservative's cardinal rule of reducing the scope of the government's role in people's lives. If you have to replace Social Security with all these other laws, there really is no net gain on that ideological front.

Second, why should I trust private investment firms over a government-run program?

Third, really, what is the net gain here under your proposal? We eliminate Social Security, but we then make laws to mandate contribution to a sort of retirement program and we offer financial penalty to those who refuse and we either severely limit or we eliminate the opportunity to opt out of such a program. These seem to be differences that make no distinctions from the Social Security plan.