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Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)
21–30 of 126 posts
Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)
#22Earlier quoted context omitted.
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 ad…
The government borrowing from SS is no different than them borrowing from the Chinese, either way it has to be repaid.
I'd like to offer you an annuity. Here's how it works: you give me about 15% of your paycheck every year, and I spend the money on whatever I feel like. I replace it with a piece of paper that says "Dear Byrneseyeview: Please tender to the bearer -- Byrneseyeview -- an amount equal to the sum borrowed)." See how this 100% foolproof scheme might break down?
Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)
#23Earlier quoted context omitted.
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 ad…
The government borrowing from SS is no different than them borrowing from the Chinese, either way it has to be repaid. I'd like to offer you an annuity. Here's how it works: you give me about 15% of your paycheck every year, and I spend the money on whatever I feel like. I replace it with a piece of paper that says "Dear Byrneseyeview: Please tender to the bearer -- Byrneseyeview -- an amount equal to the sum borrowe…
Here's 2 scenarios.
a) Government borrows $4 trillion from the Chinese at 2% annually.
b) Government borrows $4 trillion from Americans, by way of Social Security, at 2% annually.
What's the difference in what the government owes after 10 years? Either way the government has to raise $4 trillion (plus interest) in taxes, borrow it, or print it to pay it off. Either way everyone is in the exact same boat, except in boat b, Americans get the interest. In boat a the Chinese do. (Unless you count borrowing from the Chinese, leaving the Social Security money in a CD, and defaulting to on the borrowed money while paying out SS an option, which it isn't.)
I wasn't suggesting that government borrowing is not a problem. It is. They probably should just not borrow the $4 trillion from anywhere. But that's just a different issue that has nothing to do with Social Security, as many economists have pointed out.
Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)
#24Earlier quoted context omitted.
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 ad…
The government borrowing from SS is no different than them borrowing from the Chinese, either way it has to be repaid. I'd like to offer you an annuity. Here's how it works: you give me about 15% of your paycheck every year, and I spend the money on whatever I feel like. I replace it with a piece of paper that says "Dear Byrneseyeview: Please tender to the bearer -- Byrneseyeview -- an amount equal to the sum borrowe…
You weren't promised "an amount equal to the sum borrowed".
Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)
#25It'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…
[Social Security] would work perfectly well if the population remained stable over time, or shrank. And it would even be alright if it grew slowly and linearly.
You got it right but say it backwards. The problem is population shrinking.
The generation retiring is much larger than the ones still working when population has shrunk at some point. Baby Boom wouldn't be a problem in this respect, had it been followed by Baby Big Bang.
Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)
#26"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 b…
Even if it wasn't for the anomalous population boom that is causing the problem, you would essentially be being forced by the government to put a portion of your salary into an investment with a 0% interest rate. Which granted, would look good to a lot of people right now, but is bad financial planning on the whole.
On the other hand, I reject his cries of paternalism for the simple reason that other people's poverty has a negative effect on my life, liberty, and pursuit of happiness. Poor people have incredibly high rates of criminal activity, drug use, etc. Granted, I don't see a lot of retirees selling crack or robbing banks, but the effect it could have on their families, who sometimes they support or sometimes support them, could create a serious ripple down through generations.
Which doesn't necessarily mean I'm for Social Security or forced savings of any kind, but the issue is not nearly so simple as paternalism.
Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)
#27It'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…
[Social Security] would work perfectly well if the population remained stable over time, or shrank. And it would even be alright if it grew slowly and linearly. You got it right but say it backwards. The problem is population shrinking. The generation retiring is much larger than the ones still working when population has shrunk at some point. Baby Boom wouldn't be a problem in this respect, had it been followed by B…
You're right, I meant the ratio of retirees to workers, not the overall population. Thanks.
Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)
#28It may not technically be a Ponzi scheme but it is in effect. If you're not able to take out what you put in, you're losing money. If you work 40 years, putting in 12% of your salary (companies have to pay it, otherwise it would be part of your salary) you should get all that 12% back for 40 years. Since most people don't live to 108, SS pays very low monthly payments and pays back about half of a lifetime.
If you die however, you don't. Sure there's exceptions but... you can do better on our own. Mutual funds, Money Market accounts... heck, even bonds and CD's would enable you to pass it down. In addition, from 15 on, 12% of your income even if you only make $8 an hour for 52 years and only invest it in something that nets 10% would easily make you a multi-millionaire. You could retire comfortably and still pass it down.
Since we're facing massive shortfalls, isn't that about the same as a Ponzi scheme?
Also, I've been reading this site for probably close to a year. I greatly appreciate having intelligent people post comments. Sites like Digg or Reddit not only have very biased commenters, they also usually only parrot whatever HuffingtonPost or Keith Olbermann said the night before. It's mindless.
Intellectual comments, even if they're not ones I agree with are interesting to read. Kudos to you guys!
Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)
#29Earlier quoted context omitted.
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…
No worries, I feel like I've learned an important lesson here about generalizing. For the record, you don't need to talk about being tarred, throwing up in your mouth, for me to get your point - but it does get across that how you feel about this. I'll be more careful about broad generalizations going forwards, and best wishes.
Re: Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman)
#30"In 1964, Barry Goldwater was much reviled for suggesting that participation in Social Security be voluntary. I thought it was a good idea then. I still think so." A guess why Goldwater was reviled? Voluntary Social Security would be DOA. It doesn't make fiscal sense for the upper class to pay social security, so they wouldn't. That leaves the lower class' taxes going to pay for it--somehow I don't think there's enou…
I don't understand why it would only make sense for one class to buy into Social Security. If it's a good investment, it's a good investment; 'rich' means less than 'has a particular set of risk/return preferences'. And I think you validate his point if you claim that social security is only solvent because it redistributes money from the rich to the poor. If the system is unsustainable without giving some people a l…
Social Security isn't a good investment for anyone and it never has been. It wasn't meant to be. It was meant to prevent our seniors from plunging into poverty because that would have many negative effects on society as a whole.
If you made it opt out, people would fall into two categories. One would be smart enough to manage their own money and opt out because they can get a better rate of return putting it in a money market. One would be too dumb to manage their own money and opt out because they don't want to pay 12.4% extra income tax. Either way, Social Security would be opted out by almost everyone and totally fail to accomplish the objectives it was created for. At least the way it is, it has a chance, assuming it can remain adequately funded.
I'm actually against Social Security (at least in its current incarnation) but recognize the need for some form of it that is forced.