Thursday, January 1, 2009

Social Security, and other Ponzi schemes

Here's Tim Slagle, writing in the December issue of Liberty magazine:

Here’s the reason why a private insurance program will always be a better option than Social Security: there was a slump in the market this week, but it will recover. Almost all the value it had will come back in time. On the other hand, everything you have ever paid into Social Security has been spent. It’s gone. Social Security is completely bankrupt, and trillions of dollars in debt. If it were a private corporation, its administrators would all be in jail.
So if you had your choice, whether to put 15% of your income into Social Security, or the stock market, where would you put it? And in a free country, shouldn’t you be entitled to make that choice?

First off, the total bankruptcy of Social Security has been brought to you by the same people who think they can regulate the stock market. But, I digress.

Let's take Mr. Slagle's statement a few steps further..... Given the total lack of accountability in the Social Security system, I think that all of us - Democrats, Republicans, Libertarians, members of the Green Party, and the Flat Earth Society - all of us would've prefered to put all of our money into the stock market from Day One, and do without Social Security altogether, right? There is no money at all in the S.S. fund. It's now a troubled Ponzi scheme. Surely we can agree on that much.

But what if you were only given the choice of withdrawing all of your contributions to Social Security and putting it into the market on the day before the recent financial meltdown? Would you still do it?

Of course you would. Unless we immediately open the border to a jillion Mexican teen-agers, there simply aren't enough people coming into the workforce to keep the current Bernie Madoff-style Social Security scheme afloat. It's doomed.

One last question.... Is there ANY scenario in which you wouldn't prefer to have all of your Social Security payments put into stocks/mutual funds/etc. ?

So why aren't we allowed to do it?


Dr Ralph said...

Social security is not an investment: it is a tax we pay to provide (I'll say it) welfare for the elderly and disabled. Since it's a tax, not an investment, to label it a Ponzi scheme is more than a little misleading.

Now, you may not like taxes, and you may not like welfare, but at least call it what it is. Is it mismanaged? Perhaps? Does it need to be reformed? Probably. But mis-identifying it makes that process harder, not easier.

This argument is a little like the whole "school choice" issue. Your property taxes are not paying tuition for your kid, they are paying to educate the community's kids, because, as a society, we've decided (most of us, anyway) that having an educated population makes for a better, more stable society. You may choose to opt out, but that doesn't get you off the hook for the rest of the community.

The same goes for Social Security: you are not paying "your money" into "your account," you are paying to have a minimal income available to all retirees. Again, you don't have to like this arrangement: just don't mis-characterize it.

And as someone who's seen his 401k drop to about 30% of its January 2008 value -- given the option, I wouldn't be lining up to put all my Social Security into the Stock Market. I've got more than enough exposure as it is (and yes, I do believe the stock market should be one component of a wise retirement strategy).

The Whited Sepulchre said...

You are missing my point.
The money is gone. It wasn't supposed to be gone.
Who took it?

And I gotta disagree about the Ponzi analogy.
Social Security is now (unlike the original intent) totally reliant on the next generation of investors/suckers.

The fund is as empty as the Garden Tomb in Jerusalem.

The Whited Sepulchre said...

And one other thing....

I presented this as an either/or. You're not saying that you would ever ever ever voluntarily put money into the SS fund, are you?

Dr Ralph said...

My point: it's not an investment; it's a tax. Argue about it as such.

Would I ever voluntarily pay into SS? Absolutely, like I pay all my other taxes. But not with the expectation that SS alone is going to support me (that's why I'm putting money into what's left of my miserable 401k).

Will Social Security need to be changed/reformed? No doubt.

Am I an idiot? Well, I bet you $10 about some guy trying to kayak to the North Pole, so you be the judge of that!

Uncle Fester said...

The doctor is right, social security is welfare, but it is wefare for the rich. It takes money from the most needy (the working young and those with families) and gives it to the richest in the population.

this from elderweb:
"The population age 65-74 saw their household assets increase by 74% during this 15 year period, from an average of $111,000 to $190,000, with the sharpest rise, 46%, in just the last five years. At the same time, the group from age 45-54 saw their assets decline by 23%, from an average of $109,000 in 1984 to $85,000 in 1999."

Browncoat Libertarian said...

ok, let's compromise:

Social Security is a Ponzi Tax.

TarrantLibertyGuy said...

Dr. Ralphy-Paul Barrsky is about 7% right; 82% wrong and 11% misguided. Where he's right? It is not an investment. Period. It is called a Social Security Tax. It is absolutely throwing money down a rathole. A rathole tax, if you will. He's right in that my money I give today benefits the elderly of today and yesterday...

Where he is wrong is that this is framed by the government as an investment vehicle. Here's how: I get a 'statement', not unlike my wilting 401(k) statement. Well, still, Dr. Ralph might say, it's just a statement showing the taxes that you've paid to support all of those needy elders out there.

Um, no. Here's what the SSA website says about my statement. "Your Social Security Statement is a concise, easy-to-read personal record of the earnings on which you have paid Social Security taxes during your working years and a summary of the estimated benefits you and your family may receive as a result of those earnings."

The estimated benefits that me and my family will receive as a result of Dr. Ralph's earnings? NO! My earnings and SS payments, I'm led to believe, fund MY retirement benefits. Since I'm 100% confident that either (a) there will be no benefits left to dole or (b) our dollar's value will have to be reduced to next to nothing to support me and fellow retirees, I don't see that as a good tax or investment.

It's also framed, again - officially - by our friends in DC as a quality INSURANCE program. I quote: "The Statement shows how even young workers are building valuable protection in case they become disabled or die before they reach retirement age." AIG has MUCH more stability than the SSA.

So, Whited isn't mischaracterizing it - - the Social Security Administration is. And I've lost 43% in my 401(k) but am praying at some point, I'll be given some actual freedom to invest in whatever I choose - which WON'T be in a tax.

I might suggest, Dr. Ralph, a book for you to read. It's really a good read, well researched and written. It's "Libertarianism: A Primer" by David Boaz. It takes a good look at Social Security and how it actually harms those the most that it was created to help.

The Whited Sepulchre said...


No matter which way you slice it, the money is gone.
Where did it go?
Who has it?

Dr Ralph said...

TLG: only 11% misguided? The nicest thing anyone's said about me on this thread. Thanks!

WS: Yes, the money is gone. It was duly handed over to a bunch of retirees (and a handful of people collecting disability). Most of it went to groceries, rent and the like, although a small percentage probably went to Lotto and Powerball tickets. This is a surprise?

The Whited Sepulchre said...

Ok, I'm with you. So who's going to replace MY money?

Bill Woessner said...

So who's going to replace MY money?

I hate to break it to you, but it's not your money. If you're talking about the Social Security benefits you've been promised, they can only come from one source: taxes. Traditionally, that money comes from payroll taxes. But as Social Security starts to "redeem" the trust fund bonds, it will also draw money from income taxes.

If you're fairly young, the current projections say you won't receive 100% of the benefits you've been promised. However, if President-Elect Obama follows through on his campaign promise (har har), he's going to push an additional tax on incomes above $250K to cover the shortfall.

Dr. Ralph and TarrantLibertyGuy are both 100% correct. Social Security is not an investment (or insurance, for that matter). But its proponents have tried long and hard to pass it off as such. The fact that Social Security is so misunderstood is a testament to how well their efforts have worked.

I also agree with Uncle Fester. Social Security transfers wealth from workers to seniors. It's predicated on the belief that seniors need help and workers can afford to help them. To be fair, that was probably the case back in 1935, when people's life savings were wiped out in bank failures. Today, however, the situation is very different. The richest man in the world is a senior while some full-time workers live in poverty.

Personally, I have no problem with welfare. But let's make sure we're taking from the rich and giving to the poor. In 2006, it would have cost $195 billion to completely eliminate poverty in the United States. Compare that to the $595 billion spent on Social Security. It's clear the money is NOT just going to the poor.