Nick Baumann of Mother Jones has an article about Social Security and Ponzi schemes which contains the following helpful Venn diagram. Show it to anyone who repeats the "Social Security is a Ponzi scheme" claptrap.
In my blog: Perry, Ponzi, Pfui I point out that Social Security and Ponzi schemes also have the common property that the payoff to previous investors -- now retiring -- is financed by current investors (workers). SS is no more a Ponzi scheme than borrowing from a bank is a robbery.
(BTW, "pfui" was in the NY Times crossword the other day: I feel exonerated by Will Shortz. Nero Wolfe actually used the expletive quite a few times in Rex Stout's stories.)
I did not publish a recent comment by Anonymous because it is totally factually incorrect. Social Security will not be "insolvent" nor will young people contributing now face virtually no return on their contribution. (There will always be people paying the FICA tax, and the difference in size between succeeding "generations" will almost surely not be as great as the difference between the "Boomers" and the "Xers".)
ReplyDeleteFurthermore, there are several fairly minor "tweaks" that will fix the problems of SS. Tip O'Neil and RR patched things easily 25 years ago.
"Ponzi Scheme" is a pejorative term, signifying a fraud.
I don't mind differences of opinion, but there is only one set of facts.
I love your censorship. To quote the Social Security Board of Trustee's report - "projected long run program costs are not sustainable under currently scheduled financing, and will require legislative modifications if disruptive consequences for beneficiaries and taxpayers are to be avoided."
ReplyDeletehttp://www.ssa.gov/oact/trsum/index.html
And it also says - "The projected actuarial deficit in each of these programs is large enough that continued solvency under current-law financing is extremely unlikely. "
When something's "continued solvency" is extremely unlikely, I call that insolvent. Quit your BS about my being "factually incorrect" and get off your "holier than thou" throne.
Nonsense. All this report is claiming is that SS can not continue paying 100% of promised benefits unless changes are made. This was true in 1985 as well, and so tweaks were made. (See today's -- 9/10 -- blog.)
ReplyDeleteAs for the second quote, the Trustees are simply saying that SS can continue, after 2037, to pay only 78% of promised benefits, so if it continues to pay 100% after 2037 it will probably run out of money eventually. However, as I've said, this can be easily fixed. Furthermore it's all "actuarial" (i.e. statistical or probabilistic): increases in employment and population can fix this as well.
This hullabaloo about SS is being cooked up by its enemies, who'd like to see us put our money in the stock market. Sure glad I didn't -- what about you?
So you agree that Social Security in its present form can't cover 100% of its liabilities. Therefore, it is not solvent. In order to be solvent, the fair value of your assets must exceed that of your obligations. If assets can't completely cover obligations, then you're not solvent.
ReplyDeleteNow you're deleting posts? Insolvency means you can't service 100% of your obligations. And like you said, under status quo SS can't. So under status quo it is not solvent.
ReplyDelete??? What are you talking about? Look just above and you'll see the post you're complaining about along with your repetition.
ReplyDeleteAnyway, SS is currently paying 100% of its obligations and will be able to do so until 2037. After that it won't be able to, but a lot can change before then. The obligations for even next year are not obligations now. Until a person lives to apply for SS benefits, that person is not an obligation, only a virtual or actuarial obligation. It may be likely, for example, that company X will not have enough customers to meet its payroll next year; nevertheless, X is not insolvent until that happens.
What am I talking about? You editing other people's posts.
ReplyDeleteAnyways, you have a pretty perverted definition of insolvency. When liabilities exceed the fair value of assets, you're insolvent. The U.S. Bankruptcy Code, the Uniform Fraudulent Transfer Act, the New York Debtor and Creditor Law, and various provisions of Delaware law all define “insolvent” in this manner.
Look, I can't "edit" posts from anyone -- even if I wanted to. All that Google/Blogspot allows me to do is accept or decline to publish a comment; I can't change it in any way. Even if I could I would never alter text submitted by someone else. I resent the suggestion and ask you to reconsider your accusation.
ReplyDeleteHowever, I have absolutely no obligation to accept a comment on the blog -- any more than a newspaper is obligated to publish a letter that you submit.
My definition of insolvency is the same as everyone's definition: being able to cover liabilities. The issue is not insolvency but liability. SS is not liable or committed to pay anyone one thin dime until that person reaches the age of retirement and submits a valid application to collect from his/her Social Security account. Mr. or Mrs. X, who is 39 now, may not even be alive in 2037; furthermore, the SS fund may very well be able to pay in full all retirees who are eligible in 2037. We will only know for sure when that year rolls around.
(Put another way: A company is not insolvent until its actual debts exceed its assets. Just because some statistician or fortune-teller decides that this will be the case sometime in future does not mean that it is the case.)
I suggest that Anonymous check out the definition of liability -- especially as it pertains not to an actual current obligation but to a statistical or actuarial possibility of a debt in the future.
Unless Anonymous can produce an explicit document saying that the SS system is responsible now, or next year say, for payments to people who may or may not be alive in 26 years, when they may or may not apply for benefits, I will close discussion of this topic (something all blogsites do routinely, by the way).
Blogmeister - did you bother to look up how public companies reporting under GAAP or IFRS classify their liabilities? A company's pension plan beneficiaries may only be 39 years old today, still working, may or may not be alive in 2037, etc. Yet that current worker still has pension liabilities associated with him or her on the company's balance sheet.
ReplyDeleteSS and public companies are quite a bit different in terms of bookkeeping. When a company borrows money, say, the money lent is booked as both a liability and an asset. Money is spent for labor and materials -- liabilities -- but products are created which are assets. These assets are lost when sold, but are replaced by income from the sales.
ReplyDeleteSocial Security has no "products" and no sales. It has assets coming in from FICA, some of which become transformed -- still as assets -- when the government borrows them and they are replaced by Treasury Bonds.
The so-called "liabilities" of SS are different since, first of all, they are mostly statistical based on projected life spans, years of contribution to the system etc. Secondly, I believe that the SS law is written so that SS is only obliged to pay out to the extent that it has the funds. Thus, statistically, if nothing changes in income or mortality, SS will have the funds to pay out only 75-80% of the benefits based on current payback to recipients. However, by law, this would then be the extent of the system's liability. Thus, SS can never itself become a liability on the U.S. government. That is my understanding of the law. In any case, the SS system is not insolvent now and is certainly not a Ponzi scheme.
Unless there is a posting containing particulars of SS law, this "thread" is closed.
Wow - even PAUL KRUGMAN has used the term "Ponzi scheme" when talking about Social Security.
ReplyDeletehttp://online.wsj.com/article/SB10001424053111904060604576570670305899208.html?KEYWORDS=ponzi+scheme
As usual, Anonymous reads carelessly. Krugman is very careful with his words. He refers to the "Ponzi game aspect" of Social Security, and very precisely points out what he means by this: a generation taking out more than it put in. (He also points out that this is not happening anymore.) No mention of scamming or skimming or fraud or any of the other activities associated with the dictionary definition of "Ponzi scheme".
ReplyDeleteAnonymous also reads the Social Security Trustees' report with equal carelessness. I will post the conclusions of that report on the blog.
I did not post some of Anonymous' comments since they lacked the civility and factual specifics which are required in this Comments section.
It's too bad that you get so bent out of shape about the specific words people choose to describe Social Security's unsustsinability and need for reform. We should be focused on how to fix it instead of some stupid Venn diagrams
ReplyDelete