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  • Social Security's Unintended Consequences

       January 27, 2005



    (image found at socialsecuritychoice.com.)

    Yes, that's right: despite the claims to the contrary, Social Security was never intended to be a person's sole source of income upon retirement. Why, then, is that all we hear about these days? Why do we constantly hear about the "failures" of the social security system, which the American people were assured at the time of enactment that would never cost more than "one penny per one dollar earned?"

    Dave Gibson at the American Daily seems to have a pretty good idea:

    Democrats are up in arms over President Bush's rather modest plan for revising Social Security. Conservatives and basically anyone who still works for a living, are overwhelmingly in favor of a privatization of the system. After all, Social Security is going broke. Democrats as well, know the system is doomed. However, 'social programs' are the only thing currently keeping Democrats in office.

    Bingo, Yahtzee, Circle Gets the Square!

    Keep reading his excellent article here


    Posted by jkhat at January 27, 2005 09:27 AM

        The trackback entry for this page is : http://www.inthehat.com/mt/mt-tb.cgi/649

     

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    Comments

    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: kris at January 27, 2005 09:58 AM

    I was having a conversation about social security reform with my friend Liberal Steve last night. Steve had two big problems:

    1. He's upset that Bush believes he has a "mandate" to reform social security (although, actually, I have no idea if Bush has said anything like this). Liberal Steve claims that he doesn't know anyone that voted for Bush, in part, because he planned to privitize social security. He seems to think that this is some wacky plan Bush sprung on the nation after the election. Now, I completely disagree. Anyone that didn't think Bush had plans to partially privitize the system simply hasn't been paying attention. He talked about this time and again on the campaign trail and in the debates.

    2. Liberal Steve is also afraid that Americans are too stupid to invest their own money. I have a couple of thoughts on this. First, perhaps liberal opposition to social security reform isn't just because liberals want to insure that Americans remain on the government payroll. It's actually another example of typical liberal "government knows best" mindset. Second, some Americans probably are too stupid to invest their own money, but who's to say that privitization has to be an all or nothing thing. Couldn't Americans have the option of doing nothing to their accounts? Or, possible investments could be restricted. For example, perhaps only some investments, like index funds, would be allowable.

    I think that some liberals are still so blinded by their hatred of Bush that they can't think straight. They are knee jerk opposed to anything Bush wants to do. I'm not saying that his plan is the right one, but they are still only thinking in terms of defeating Bush - all or nothing. Wouldn't the better approach be to say something like: "Yes, social security does need to be reformed. However, we don't agree with President's plan. Instead of doing that, let's do this, or let's add this other thing to the program". Isn't that how government is supposed to work? Isn't there supposed to be some give and take between the parties and government branches? I really think the Dems are just dropping the ball here. All they want to do is stop things, but they still have no plans of their own.

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: james at January 27, 2005 12:49 PM

    first, let me make the point right up front that more people voted for bush than for any other president; additionally, he actually had a majority of people in the country vote for him, unlike some democratic presidents of the 1990's.

    moving on, though: as far as his concern about the presidents "mandate," it's idiotic - last i checked, the president's rights are constitutionally absolute and completely independent of polls. the constitution does not say "and the president shall have the power to veto, given that he has a 55% approval rating." and, in any event, it's congress that passes laws, not the president. if he wants to make an idiotic "no mandate" argument at all, he should be directing it at congress, if anyone. that, of course, wouldn't work, since the mere passage of a law means that there was indeed a "mandate" to pass it. the dems cooked up this idiotic "no mandate" position b/c they have nothing else - its a way of criticizing the president for simply exactly what his job requires him to. sounds to me that liberal steve drinks the kool aid willingly and often.

    that out of the way, i have to say, im not a huge fan of privitaztion myself. first, where is the money going to go, into the stock market? ever hear of putting all of your eggs in the same basket? see enron. also, imagine we had that system now - let's say that for years and years people had been putting their social security money into the stock market. what happens when the baby boomers retire (or die)? there might be enough selling on the market to cause another great depression. "but you have the same problem with 401ks" - yes, you do. and we will. wait until the 50 year olds start cashing in, or worse, when they all start dying off. that's a lot of money coming out of the market.

    next, there is the whole inflation issue. people complain now that they think they could get a better return on their investment than the government can, and they probably can. but what happens when everyone starts pulling in 8% by investing in an index fund? you guessed it - inflation will make the money worth much less. the error is that people, in doing these calculations, are assuming that they will be the only ones making 8%. they wont be - everyone will. which means that the net gain will be much less, as the $ will be worth much less. in other words, yeah, it'd be great if someone gave me $100. But if everyone else in the US also got $100, then what did I actually gain? $100 would suddenly be worth much, much less.

    One of the main criticisms of social security, and the main criticism of the cited article, is that many people never see most of the $ that they pay in b/c they get paid out much less than they paid in and/or they die too early. those people are exactly right, it is unfair. if my parents die before they are able to collect, i should be able to collect the $ they paid in, shouldnt i? the fact that i can't though, does at least serve to keep inflation down.

    hey, dont get me wrong, im not saying that's a BETTER option, nor am I saying that it's right. im just saying that as terrible as the current system is, the new ones that i've heard proposed aren't any better.

    let's say that this whole "privatization" thing comes off, and take the inflation thing out of the equation for the sake of argument. right now, social security barely pays out enough for people to live on - that is the main criticism. it will be the same then, except that this time around, we'll have a few scapegoats, those lucky few who managed to pull out a 20% return. the 8% people will again be moaning that they cant afford to pay their bills, b/c company x,y, or z went belly up, or because they made poor investment choices, etc. they'll start lobbying and eventually get yet ANOTHER program, to serve as a "base level" insurance program, serving the same function as social security did back when it passed. we end up with 2 socia1ist programs, unfortunately at more than 2x the cost.

    im not arguing that the current system isn't broken - it certianly is. it's a pyramid scheme that if started by an individual rather than the federal govt would be illegal. but if we're going to talk about "fixing" the problems with the system, we should speak honestly and look at at ways to actually solve the problems. people need to realize that scrapping the program all together may be the only viable solution.

    so far, everything coming out of the White House has been aimed at a quick feel-good fix, not a real solution. And most of it has been pandering, plain and simple. Bush telling blacks that they "are getting short-changed" by the system b/c they have a lesser life expectancy.

    I don't know what is happening to the republican party, but I certainly don't like what I see. President Reagan must be spinning in his grave.

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: Jody at January 27, 2005 08:30 PM

    Priceless comic. Many do not realize the historical context in which social security was introduced. It has served it's purpose, let's see what we can do to make it better...or disolve it altogether (gasp! Nevermind, too radical of a viewpoint here). :)

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: KV Big Sis at January 28, 2005 10:46 AM

    I think the problem is that Bush is ignoring the obvious solution - withhold Social Security on ALL wages and self-employment income. In 2005 we pay 6.2% on wages and self-employment income up to $90,000.00. So we peons are paying SS on every dollar we earn, while those making above $90,000.00 are getting the break. This would be a simple system to implement, would have an immediate effect, and would avoid the market risks involved with individual investments.

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: james at January 28, 2005 10:53 AM

    what "break" are you talking about? people who make 90,000+ will never get back anywhere near the amount of money that they pay into SS. so your "obvious" solution is that the rich should be forced to pay way way more than their fair share? if you're going to go that route, why not just say "i think bush is ignoring the obvious solution - we are 2 billion short, and bill gates has $2 billion to spare. we should take it."

     
     
    #  March 7th, 2005 6:48 PM      Converted_Comment
    Converted comment: Posted by: BV Big Bro at January 28, 2005 01:16 PM

    I have no problem withholding SS taxes on all income, but all this will do is create a big surplus now, that will be spent now. To me, the whole point of privatizing is to take SS out of the general budget so that the federal government cannot spend the funds. SS then becomes a forced savings account. The good part of this is it forces the federal govt. to deal with its' spending habits now. The bad part IMHO is that it does not address those whose income is so low that they will still need assistance at retirement. I would prefer to see the whole system simply means tested now.

     
     

     

     


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