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Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

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Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#11

Post by tokenadult »

"The present discounted value of the promises embedded in the Social Security law greatly exceeds the present discounted value of the expected proceeds from the payroll tax. The difference is an unfunded liability variously estimated at from $4 trillion to $11 trillion--or from slightly larger than the funded federal debt that is in the hands of the public to three times as large."

The mismatch between the promised benefits that many voters think they have "earned" by "saving" money in their personal "Social Security accounts" and the actual funding capacity of the Social Security system is why it looks like Mr. Ponzi was the designer of the system. The overall societal effect of Social Security as it is currently funded is a massive wealth transfer from the working young to the nonworking old, which is excellent politics but rather poor economics.

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#13

Post by tptacek »

lionhearted wrote: post #10
gislebertus wrote: post #4

Seems like there's an awful lot of polemical posts on Hacker News lately from Conservative political organizations. Guess they figured out that here they could promote their agenda for free. Is that really what Hacker News wants to be? A political forum? If so, I'll encourage the folks at Media Matters, Center for American Progress, and Campaign for America's Future to start posting here. It's bad enough that Conserv…

In a site populated by hackers and entrepreneurs, you're going to get people with a strong preference for individualism over collectivism - that's the nature of the beast here. People are going to be very free action-oriented, anti-paternalistic, and not too many of us are going to like the government. We've also got the smart people thing going on where we think politicians are numbskills that spend more time politi…

A social safety net isn't "collectivism". "Collectivism" is an emotional button hard libertarians try to push. Agree or disagree with Social Security, but please don't tar "hackers and entrepreneurs" with a single political brush.

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#14

Post by tptacek »

Once every couple years, a "new" group of people gets all huffy about the fact that Social Security taxes "aren't really invested at all", but rather pay off current retirees. It's a false controversy. That's the intent of the system. The people collecting Social Security today paid for the previous generation's baseline defined benefit retirement.

Social security isn't an investment plan, and it isn't a welfare plan. It's not a sports car either. It's an easy, cheap, intellectually flimsy argument to snipe at it by saying it's bad at being something it isn't intended to be.

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#15

Post by lionhearted »

tptacek wrote: post #13
lionhearted wrote: post #10

Earlier quoted context omitted.

In a site populated by hackers and entrepreneurs, you're going to get people with a strong preference for individualism over collectivism - that's the nature of the beast here. People are going to be very free action-oriented, anti-paternalistic, and not too many of us are going to like the government. We've also got the smart people thing going on where we think politicians are numbskills that spend more time politi…

A social safety net isn't "collectivism". "Collectivism" is an emotional button hard libertarians try to push. Agree or disagree with Social Security, but please don't tar "hackers and entrepreneurs" with a single political brush.

Pardon me, I didn't know it was a politically-loaded term these days. I meant it as a more general term the way people would make the broad statement that "Eastern societies are more collectivist, and Western societies are more individualist." More responsibility to the group, with the associated pros and cons of that.

I was making the point to the original poster who said HN has a conservative lean. My point was you're going to tend to see more individualistic people on the whole here, and more individualistic people tend to dislike the government having a larger role in their lives. That's true on the whole in my experience, but certainly not for everyone.

Anyway, thanks for pointing that out. I'm just here for good discussion and the free cookies, not to push any emotional buttons or tar people I respect with a single political brush :)

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#16

Post by mattmaroon »

chaostheory wrote: post #7
mattmaroon wrote: post #3

It's not really a Ponzi scheme. A Ponzi scheme pays interest to attract investors so it needs significantly more customers with each iteration. Madoff's infamous one paid out 12% annually, so it needed to grow by 12% each year just to achieve stasis (or it would have if cash outs equaled profits anyway, some years it was probably more or less). Social Security isn't a Ponzi scheme because it would work perfectly well…

the main problem with Social Security isn't really changes in population size (though it still is a problem). The core problem of Social Security is this: "Taxes paid by today’s workers are used to pay today’s retirees. If money is left over, it finances other government spending—though, to maintain the insurance fiction, paper entries are created in a “trust fund” that is simultaneously an asset and a liability of t…

No, that is entirely incorrect. The government borrowing from SS is no different than them borrowing from the Chinese, either way it has to be repaid. At least this way the interest is going to Americans. Government borrowing itself may be a problem, but it's an entirely separate one.

The kicker is the first sentence. Today's workers pay today's retirees. The payments are designed to ensure a consistent, inflation adjusted standard of living for retirees. If the ratio of retirees to workers stayed the same, the payments would. But when there fewer retirees per worker, workers pay less, and when there are more, they pay more. It's the system's fatal flaw.

The problem now is that baby boomers paid much lower Social Security taxes than us, but they still need to receive the same standard of living that we will. You can see the historical rates here:

http://www.taxpolicycenter.org/taxfacts/Content/PDF/ssrate_h...

They paid a lower % with a much lower cap, even adjusted for inflation. They did so because the retiree to worker ratio was lower. If they paid the same percentage and cap that we do now, Social Security would be sitting on enough money to cover the shortfall in the future.

In 20 years, that ratio will be much higher than today, meaning the workers of 2018 would have to pay far higher taxes still for the system to fund itself. This would, of course, be unbearable (it's already close) so the government will have to seek other solutions, such as borrowing money or printing.

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#17

Post by tokenadult »

chaostheory wrote: post #9
gislebertus wrote: post #4

Seems like there's an awful lot of polemical posts on Hacker News lately from Conservative political organizations. Guess they figured out that here they could promote their agenda for free. Is that really what Hacker News wants to be? A political forum? If so, I'll encourage the folks at Media Matters, Center for American Progress, and Campaign for America's Future to start posting here. It's bad enough that Conserv…

for the record I am not a conservative, nor was my account just created today (specifically just a few minutes ago like your account. Let me guess, your past yc news account was NSX2?). I just feel that hacker news is a forum for posting a wide range of ideas. If you don't agree with an article you can do one of two things: 1) post a logical counter argument like some people already have. 2) ignore it. I really hate…

"I really hate posts that really have nothing to do with the general ideas that articles convey."

Agreed. You gave us the courtesy of titling the thread in a way that made clear what the thread was about. Anyone commenting here can express one opinion about Social Security or another, preferably with evidence, and then we can all learn something. I just found a link from Harvard

http://www.law.harvard.edu/faculty/hjackson/UnfundedMandates...

mentioning that Congress has exempted Social Security from a law designed to identify programs that set up "unfunded mandates." That's food for thought.

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#18

Post by jhancock »

chaostheory wrote: post #7
mattmaroon wrote: post #3

It's not really a Ponzi scheme. A Ponzi scheme pays interest to attract investors so it needs significantly more customers with each iteration. Madoff's infamous one paid out 12% annually, so it needed to grow by 12% each year just to achieve stasis (or it would have if cash outs equaled profits anyway, some years it was probably more or less). Social Security isn't a Ponzi scheme because it would work perfectly well…

the main problem with Social Security isn't really changes in population size (though it still is a problem). The core problem of Social Security is this: "Taxes paid by today’s workers are used to pay today’s retirees. If money is left over, it finances other government spending—though, to maintain the insurance fiction, paper entries are created in a “trust fund” that is simultaneously an asset and a liability of t…

This may be part of the problem. But thats not a ponzi scam. Its just mismanagement.

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#19

Post by gislebertus »

As a long-time entrepreneur, I'm concerned most about a market: are there people able and willing to buy what I'm selling?

Social Security helps with the "able" part, by making sure that no American lives in abject poverty if they're old or crippled.

Before Social Security, this was a big problem. About a quarter of Americans lived in poverty, and about half of old people.

More people with more money to spend means a bigger market for whatever I'm selling. That's why Social Security is good. That's why markets are bigger in places with lots of Social Security-type programs (Europe, the U.S.) than in places without them (South America, Africa).

Social Security also helps make it possible for me to be an entrepreneur. I know that I can take risks and not plunge my family into abject poverty if I'm crippled and can't work.

Why did I write about Conservatism in relation to this article? Because when someone is attacking Social Security, it's almost always as part of a larger political agenda they're promoting: Conservatism.

This article was from the Hoover Institution, a politically Conservative organization that pushes to eliminate New Deal programs like Social Security (not just SS). They also push for unregulated markets, and flat or regressive taxes. So does the American Enterprise Institute. So does the Heritage Foundation.

These groups call themselves "think tanks," which implies objective research. Unfortunately, they aren't averse to pushing false information or abandoning their principles to promote their interests.

For example, For example, the Heritage Foundation sharply criticized Malaysia's government for years. After a consulting firm owned by Heritage's president began representing Malaysian business interests, Heritage assessments of Malaysia turned positive. (http://thinkprogress.org/2005/04/17/money-talks-at-heritage/)

Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)

#20

Post by tptacek »

lionhearted wrote: post #15
tptacek wrote: post #13

Earlier quoted context omitted.

A social safety net isn't "collectivism". "Collectivism" is an emotional button hard libertarians try to push. Agree or disagree with Social Security, but please don't tar "hackers and entrepreneurs" with a single political brush.

Pardon me, I didn't know it was a politically-loaded term these days. I meant it as a more general term the way people would make the broad statement that "Eastern societies are more collectivist, and Western societies are more individualist." More responsibility to the group, with the associated pros and cons of that. I was making the point to the original poster who said HN has a conservative lean. My point was you…

Every time people write sentences that start with "Hackers tend to" and involve "the government", I throw up a little in my mouth. You could use the same logic about "individualist hackers" to argue against gun control. But then you'd be Eric Raymond.

Hackers are people who like to build things. That's all. They don't all think like you. Some of our country's greatest entrepreneurs are also its strongest believers in the social safety net. You might consider starting with Warren Buffett.

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