Social Security: The Biggest Ponzi Scheme on Earth (By Milton Friedman) • Hacker News Board

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

#41

Post by dantheman » Mon, Jan 05, 2009, 3:00 PM UTC

tptacek wrote: post #33

spkthed wrote: post #28

It 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 di…

First, the words "ponzi scheme" don't mean "anything where you put X in and get X - n out." Second, Social Security isn't an investment program. The goal of Social Security is to provide each generation of retirees with a baseline level of income. It has succeeded at this task. Third, we're not facing massive shortfalls. We raised taxes on the baby boomers in the early '80s to build up the social security trust fund…

There is no such thing as a social security trust fund. The government uses that money to fund other programs and puts IOUs in there; that means when more are receiving than contributing there will be a massive tax burden on those contributing they get hit with both their normal SS tax, plus the taxes to cover the shortfall.

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

#42

Post by byrneseyeview » Mon, Jan 05, 2009, 3:07 PM UTC

tptacek wrote: post #24

byrneseyeview wrote: post #22

Earlier quoted context omitted.

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".

Good point: there should be interest.

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

#43

Post by tptacek » Mon, Jan 05, 2009, 3:08 PM UTC

dantheman wrote: post #41

tptacek wrote: post #33

Earlier quoted context omitted.

First, the words "ponzi scheme" don't mean "anything where you put X in and get X - n out." Second, Social Security isn't an investment program. The goal of Social Security is to provide each generation of retirees with a baseline level of income. It has succeeded at this task. Third, we're not facing massive shortfalls. We raised taxes on the baby boomers in the early '80s to build up the social security trust fund…

There is no such thing as a social security trust fund. The government uses that money to fund other programs and puts IOUs in there; that means when more are receiving than contributing there will be a massive tax burden on those contributing they get hit with both their normal SS tax, plus the taxes to cover the shortfall.

If there's no such thing as a social security trust fund --- in which case, Reagan and Greenspan's baby boomer FICA tax hike was a huge scam --- then there's no social security crisis. There's just a general budget issue. But in the general budget, Social Security is dwarfed both by other entitlement programs and by a host of other programs.

If you don't believe in the Social Security trust fund, then we should be discussing Medicare. Or out-of-control defense spending. Social Security is irrelevant.

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

#44

Post by byrneseyeview » Mon, Jan 05, 2009, 3:08 PM UTC

mattmaroon wrote: post #23

byrneseyeview wrote: post #22

Earlier quoted context omitted.

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 bo…

The problem is not with the borrowing; the problem is that Social Security's asset base consists of the government's ability to borrow money. It is usually a really bad sign when someone says "I totally can't pay off this loan, but I know this guy who is willing to lend me more money because he has no idea how financially irresponsible I am."

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

#45

Post by mattmaroon » Mon, Jan 05, 2009, 3:11 PM UTC

Retric wrote: post #35

mattmaroon wrote: post #26

Earlier quoted context omitted.

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…

In defense of social security: It pays significant disability and survives benefits which has little to do with investing and everything to do with insurance. So consider SS as insurance in case of a long life. Some people will live well over 100 so finding the "correct" amount of money to save is overkill for most people who die far younger than that. If you invested a portion of your savings each year and pooled yo…

The life insurance aspect of SS is always overlooked in discussions on its impending collapse. I would guess that it's just not a significant factor. The yearly Social Security/Medicare payments for the average American is something like $7,500. Term Life would be what, $600?

I'm not sure what you meant after that. Actuarial tables take life spans into account. And people are not living longer, see my original comment. That's a myth, and not the problem at all.

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

#46

Post by tptacek » Mon, Jan 05, 2009, 3:11 PM UTC

byrneseyeview wrote: post #42

tptacek wrote: post #24

Earlier quoted context omitted.

You weren't promised "an amount equal to the sum borrowed".

Good point: there should be interest.

Just like the interest you earn on your health insurance?

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

#47

Post by mattmaroon » Mon, Jan 05, 2009, 3:15 PM UTC

byrneseyeview wrote: post #44

mattmaroon wrote: post #23

Earlier quoted context omitted.

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 bo…

The problem is not with the borrowing; the problem is that Social Security's asset base consists of the government's ability to borrow money. It is usually a really bad sign when someone says "I totally can't pay off this loan, but I know this guy who is willing to lend me more money because he has no idea how financially irresponsible I am."

No, the problem is with the borrowing. When our nation borrows that much, everyone's asset base consists of the government's further ability to get money (by borrowing, printing, etc.). That's the way free floating currency works. Having to print $4 trillion to put the money back in Social Security is the same to every American as having to print $4 trillion to give to China.

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

#48

Post by mattmaroon » Mon, Jan 05, 2009, 3:16 PM UTC

tptacek wrote: post #40

dantheman wrote: post #39

Earlier quoted context omitted.

Why can't we let people live with their decisions? Obviously those who opt out have better things to do with their money @ least from thier pov?

Because pooling risk and providing a baseline standard of living helps everyone, not just the direct beneficiaries of entitlements; for instance, current entrepreneurs aren't paralyzed in steady corporate jobs out of fear that they will need to supplement their parents income to prevent them from eating cat food. Again: of course it is true that skilled investors can net a better return on their FICA dollars than Soc…

Skilled investors? You'd get a better return from the CD at your bank.

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

#49

Post by tptacek » Mon, Jan 05, 2009, 3:20 PM UTC

mattmaroon wrote: post #48

tptacek wrote: post #40

Earlier quoted context omitted.

Because pooling risk and providing a baseline standard of living helps everyone, not just the direct beneficiaries of entitlements; for instance, current entrepreneurs aren't paralyzed in steady corporate jobs out of fear that they will need to supplement their parents income to prevent them from eating cat food. Again: of course it is true that skilled investors can net a better return on their FICA dollars than Soc…

Skilled investors? You'd get a better return from the CD at your bank.

Conceded. I think my point still stands, though.

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

#50

Post by spkthed » Mon, Jan 05, 2009, 3:25 PM UTC

tptacek wrote: post #33

spkthed wrote: post #28

It 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 di…

First, the words "ponzi scheme" don't mean "anything where you put X in and get X - n out." Second, Social Security isn't an investment program. The goal of Social Security is to provide each generation of retirees with a baseline level of income. It has succeeded at this task. Third, we're not facing massive shortfalls. We raised taxes on the baby boomers in the early '80s to build up the social security trust fund…

On the second point, that baseline is going to drop much, much lower unless they drastically raise taxes. We have what, 8 years until we start taking out more than is going in.

On the third note, agreed. Medicare/Medicaid have massive problems. That doesn't mean that SS doesn't have problems too. They do have issues with workers taking more out than putting in. The birth rate continues to decline.

On the small payments thing, that maximum SS benefit is what, $1,000 monthly? That is NOT enough to live on. Especially not when you consider the cost of nursing homes, medicine, and all the other costs of living when you are partially or wholly unable to take care of yourself.

I don't know about you but I burn $1,000 just on rent, utilities, transportation and food a month. The fact that so many people put so much of their income in it just shows how misled they've been. That's a scary prospect.

If you make $50k annually averaged out from 15-65 you've put in $300,000 into SS. That's a fairly average income, well within middle-class. If you live until 90 you have pulled out everything you've taken in. If you die sooner, that money is just gone. Most people don't live until 90. Now, combine that with the fact that right now it's 3.5 people supporting one person and it starts to look like a Ponzi scheme.

http://seniorjournal.com/SocialSecurityQ-A.htm