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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)

#101

Post by mmmurf »

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…

You're right it doesn't make any difference, but your point is irrelevant.

Social security is only as "sound" as the will of future taxpayers to pay the inevitably increased taxes required to keep it going, regardless of whether the money is borrowed, promised, set-aside, appropriated, recommended, etc.

Since its inception, social security benefits have been cut little by little to the point where middle class people must significantly supplement it with their own private investments to avoid poverty in retirement.

So there still may be something called "social security" in 20 or 30 or 50 years, but chances are it will bear little similarity to the program's initial inception or even to the program people think of it as today.

You also argue that the government should borrow money. Why not just tax today for what we spend today? Had we done that, Bush would never have been able to go to war in Iraq, the "trust fund" would not be in danger, etc.

Not to digress, however. The biggest threat to social security is that congress won't have the will to use the limited available tax revenue for the program, and the public won't want the drastically increased taxes.

Obama wisely suggested switching SS over to be a welfare program and funding it from general revenue, but the initial concept was that it's not welfare and so nobody should feel like they are on welfare when they receive their social security check. This is a fairly significant matter.

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

#102

Post by mmmurf »

tptacek wrote: post #14

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…

You may be right, but the intent of the system doesn't really matter. When SS began the tax was 1%, now it's 12.5% and benefits have been decreasing every year.

Sadly, the planners didn't anticipate just how population trends would play out, and so the initial idea -- that everyone pays 1% and then no old folks have to worry about poverty if they choose to retire -- just doesn't quite work out any longer.

The trouble is that people can't really rely on social security for (guess what?) security!

Will congress increase the payroll tax to 30%? Will it decrease social security benefits drastically? Will it fund SS out of general revenue at the expense of other programs? Will American taxpayers decide that SS is worth a middle class income tax rate of 55%?

The answer to all of these things is the same: maybe.

But that's not security. Obama has wisely advocated converting SS into a welfare program, but that hasn't gotten much traction.

The point is, with population trends doing what they are, somthing has to give. When people running for office talk aobut "saving Social Security" they are not honest about the impending outcome of obvious demographic trends. Meanwhile, all of us pay 12.5% of every paycheck into something that will probably offer us ZERO security in retirement.

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

#103

Post by mmmurf »

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…

Well, you forgot about the way that benefits are systematically reduced and the retirement age is systematically increased. What about someone who worked hard in his 20s, 30s, 40s, 50s in hopes of retiring at 65 only to see the SS age be increased to 70? Is that security? No, that's a 5 year ripoff.

Now, the SS retirement age is GREATER THAN the average lifespan of African American citizens! You may consider that another "good in a sick sort of way" aspect of the program, but I don't.

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

#104

Post by mmmurf »

tptacek wrote: post #37
Retric wrote: post #35

Earlier quoted context omitted.

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…

This was one of the intellectual flaws of the Bush privatization scheme; they calibrated returns from individual private accounts to the average lifespan, without noting that a pretty large contingent of social security beneficiaries would outlive the average. Current estimates are that many of us will be long retired before there even is a "gap" between Social Security funding and Social Security benefits. The trust…

The privatization plan would give the beneficiary ownership over the investment, so there is not a problem, it just means that the investment has longer to grow. Ideally someone doesn't just build up a pile of money and intend to die with $0, he/she intends to leave some to the next generation or to charity.

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

#105

Post by mattmaroon »

Retric wrote: post #95
mattmaroon wrote: post #73

Earlier quoted context omitted.

You have it backward. The percentage of people living into old age has not changed significantly. The average lifespan from birth has, but that's not relevant to SS. The average lifespan of someone who enters the system (an adult, at let's say age 18) is the same. The percentage of people who live from the age of 18 to the age of 95 will not be higher than 40 years ago, in fact, it may be lower.

The average lifespan has not changed much once you hit 18, but your chances of dieing between 30 and 40 have gone up where your chances of dieing between 60 and 70 have gone down. I need to find and old actuarial table from the 50's to show compare with today. Edit: http://www.ssa.gov/OACT/STATS/table4c6.html I should say the odds of hitting 100 from 1 are about the same but the odds of hitting 100 from 65 have incre…

That's not worth much in and of itself. It has to be compared with past data to be relevant to the argument. Also, it would have to be that 18-65 has gone down while 66+ has gone up. Seems highly unlikely to have done so significantly.

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

#106

Post by mattmaroon »

justindz wrote: post #99
mattmaroon wrote: post #73

Earlier quoted context omitted.

You have it backward. The percentage of people living into old age has not changed significantly. The average lifespan from birth has, but that's not relevant to SS. The average lifespan of someone who enters the system (an adult, at let's say age 18) is the same. The percentage of people who live from the age of 18 to the age of 95 will not be higher than 40 years ago, in fact, it may be lower.

This is an important point you've raised. In particular, lowered infant mortality combined with a poor grasp of statistics makes it look like you and I are living longer, even when those infants that might have died before could end up keeling over at 30 from health problems and we might die a few years earlier than we were likely to a few decades ago. Also, people who are living longer as a result of advances in lif…

I blame it on the government for citing the worthless stat in the first place. They rarely express it as anything other than from birth expectancy. They should mention it from some stable age like 5, then simply show infant mortality stats separately. Though I guess they don't want to do that because we have one of the worst rates in the developed world.

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

#107

Post by mattmaroon »

byrneseyeview wrote: post #93
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…

Either way everyone is in the exact same boat, except in boat b, Americans pay the opportunity cost of investing at 2% . In boat a the Chinese do.

Well, I certainly wasn't claiming it was a top-notch investment strategy. But for Social Security to work, it has to have periods where it's overfunded, so it can pay out when it's underfunded (and the problem is that it didn't) and that surplus has to go somewhere. I can't think of anything better for it than what they do, which is essentially buy government bonds. It's the only 100% guaranteed investment, since the government can print money to replace it. Just be glad they didn't buy CDOs with it.

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

#108

Post by mattmaroon »

tptacek wrote: post #46
byrneseyeview wrote: post #42

Earlier quoted context omitted.

Good point: there should be interest.

Just like the interest you earn on your health insurance?

You actually do earn interest on HSAs right? I don't know much about them other than the bit I read, but they seem to be all the rage nowadays.

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

#109

Post by Retric »

yummyfajitas wrote: post #77
Retric wrote: post #71

Earlier quoted context omitted.

What's the odds you live to be 105? What's going to pay your income if you live that long? Ok, what happens in the great depression II shows up in 40 years?

As I noted before, the really old are a small fraction of SS. If SS were really just protecting people against outliving their investments (say, it kicked in at age 90) and against disability, I'd have little objection to it. That's just insurance, and a small portion of SS. As for GDII, I'm not sure how SS helps there. That sounds like a place where the ponzi-like nature of SS will become readily apparent: not enoug…

I agree that increasing the SS age is a good idea.

Anyway, Employment is vary stable even in the GD I vs. every other asset class. If unemployment goes from 5% to 20% the drop in income does not change much on a year over year basis, but just about every other asset class is going to tank. If unemployment stays over 20% vary long there is not much that can save your retirement.

The reason to fund SS with workers income is it's more stable than just about everything else in the economy. Inflation or deflation and people still make about as much money.

If you have 5x what you need to live off of and it's extremely diversified then it's not a problem but what's the point in waiting that long?

You might have 20% cash on hand but how long is that going to last you? You might have some bonds but if the company tanks your out of luck. You could have some property but who's buying? etc.

PS: How much money do you think you need to save and how would you invest it to have a 99.9% chance to live off of 20k inflation adjusted for the next 30 years?

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

#110

Post by Retric »

mattmaroon wrote: post #105
Retric wrote: post #95

Earlier quoted context omitted.

The average lifespan has not changed much once you hit 18, but your chances of dieing between 30 and 40 have gone up where your chances of dieing between 60 and 70 have gone down. I need to find and old actuarial table from the 50's to show compare with today. Edit: http://www.ssa.gov/OACT/STATS/table4c6.html I should say the odds of hitting 100 from 1 are about the same but the odds of hitting 100 from 65 have incre…

That's not worth much in and of itself. It has to be compared with past data to be relevant to the argument. Also, it would have to be that 18-65 has gone down while 66+ has gone up. Seems highly unlikely to have done so significantly.

Still looking, but I found one for japan: http://www.mhlw.go.jp/english/database/db-hw/lifetb04/2.html

  1955: 40 and live to 60 = 71%;
  2004: 40 and live to 60 = 88%; 
  1955: 60 and live to 80 = 32%;
  2004: 60 and live to 80 = 64%;
Edit US: http://www.infoplease.com/ipa/A0005124.html (Looks like deaths are down per 100,000 people but I can't find the right tables.)

Edit: Got it: Even more old people in the US: 1990 vs 2000: http://www.infoplease.com/ipa/A0905042.html look at Percent change in the over 75 age range. The US population was not growing anywhere near that fast.

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