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)

#31

Post by JunkDNA » Mon, Jan 05, 2009, 2:17 PM UTC

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…

I would take your point about there not being many political current events a step further. The broad ideas discussed here are some of the most important issues of our day. I might be overstating things a bit, but I think it's safe to say that the HN audience is largely composed of the people who work to propel society forward through their ventures. The readership here are highly educated and are largely "in the trenches" every day solving problems and building the things society needs. These professional problem solvers and hackers are the very individuals I want to be engaging in healthy debate about the virtues of various policies and their impact on business, innovation, and society as a whole.

The problem is when the policy debate degenerates into the standard political name calling and senseless bickering that does nothing to advance intelligent ideas. If any community can keep that to a minimum, it's this one.

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

#32

Post by dantheman » Mon, Jan 05, 2009, 2:22 PM UTC

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…

MIT started long before it was in the people's republic of cambridge.

Serving the market doesn't make any sense, the market is letting people voluntary interact with each other.

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

#33

Post by tptacek » Mon, Jan 05, 2009, 2:27 PM UTC

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 to pay for their retirement. As it stands, social security is a small part of the entitlements problem moving forward --- Medicare has more than 7 times its liabilities in the projected future.

Fourth, this "small payments" thing is a myth. 2/3rds of Social Security beneficiaries derive more than half their income from Social Security; more than 1/3rd of them derive the overwhelming majority of their income from it.

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

#34

Post by tptacek » Mon, Jan 05, 2009, 2:30 PM UTC

JunkDNA wrote: post #31

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…

I would take your point about there not being many political current events a step further. The broad ideas discussed here are some of the most important issues of our day. I might be overstating things a bit, but I think it's safe to say that the HN audience is largely composed of the people who work to propel society forward through their ventures. The readership here are highly educated and are largely "in the tre…

I would be interested in talking to many of the people here about cooking. But this isn't "Hackers Discussing Cooking"; it's "Hacker News". Your idea about what this site should be is a slippery slope.

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

#35

Post by Retric » Mon, Jan 05, 2009, 2:36 PM UTC

mattmaroon wrote: post #26

tokenadult wrote: post #11

"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…

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 you money with 10,000 other people your age then paid dividends from that to the survivors you could save less money and still not worry about running out. Granted if to many people lived until retirement age you might need to reduce benefits. Granted you would not be able to give people money at the time of your death but if your single what's the point?

Now the implementation of social security is broken in several ways but minor changes in retirement age will fix the "benefit gap" long before it runs out of money. The basic problem is people are living longer so they need to increase average retirement age. The surplus was also invested in government bonds with terrible long term returns etc, but when you consider how much more important the first 20k/year is over the next you might consider guaranteed benefits even at high cost are worth a lot more than the simple math would suggest.

PS: There are a lot of things I hate about SS, but it's not really a Ponzi scheme.

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

#36

Post by mattchew » Mon, Jan 05, 2009, 2:44 PM UTC

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…

Social Security isn't a Ponzi scheme because it 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.

Only if benefits match contributions. If benefits exceed contributions, you do have a Ponzi scheme, and you have to find ways to funnel increasing amounts of money into the system.

Social Security taxes, as a percentage of income, have risen continuously since the program was started, well before the baby boomers started retiring:

http://www.ssa.gov/history/pdf/t2a3.pdf

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

#37

Post by tptacek » Mon, Jan 05, 2009, 2:50 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…

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 fund, for instance, doesn't run out until the 2040's.

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

#38

Post by tptacek » Mon, Jan 05, 2009, 2:52 PM UTC

mattchew wrote: post #36

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…

Social Security isn't a Ponzi scheme because it 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. Only if benefits match contributions. If benefits exceed contributions, you do have a Ponzi scheme, and you have to find ways to funnel increasing amounts of money into the system. Social Security taxes, as a percentage of income…

Again: that's not what the words "ponzi scheme" means. You could be arguing that "if benefits exceed contributions, you have a budget deficit", but that wouldn't be as emotionally manipulative, and it would also be boring.

Social Security taxes as a percentage of income were raised sharply in the '80s precisely because the baby boomers hadn't retired.

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

#39

Post by dantheman » Mon, Jan 05, 2009, 2:56 PM UTC

mattmaroon wrote: post #30

byrneseyeview wrote: post #5

Earlier quoted context omitted.

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 mon…

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?

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

#40

Post by tptacek » Mon, Jan 05, 2009, 2:58 PM UTC

dantheman wrote: post #39

mattmaroon wrote: post #30

Earlier quoted context omitted.

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 mon…

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 Social Security can. Social Security isn't an investment program.