Social Security, a Benign Ponzi Scheme?
Immigration? A surging birth rate?
Social Security will do fine no matter how, thank you very much.
by Max Sawicky
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We tend to get edgy when, as it occasionally does, national economic growth slips from three to one percent a year. But the impact of the “Baby Bust” — the expected slowdown in workforce growth — is in the same ballpark, except it goes on for decades. The retiring of the Baby Boom generation is also held to pose huge difficulties for Social Security, a matter that I have argued elsewhere is overblown, but not negligible. Coincidentally, the economy of the People’s Republic of China will have more than enough workers to grow rapidly for an indefinite period. So if any of this concerns you, the U.S. will need more people. The alternatives are: more immigrants, more sex, or more sex with immigrants.
By the end of this year, the Social Security Administration (SSA) projects an increase in the population aged 20-64 of one percent — about 1.8 million people. Between 2010 and 2016, this projection falls off the table, to less than half a percent annual growth. By the late 2020s, the projected growth rate is one-tenth of a percent. The inescapable implication is slower economic growth. I like to rant about the importance of good stuff that GDP doesn’t reflect, like leisure time, but if tomorrow we shifted to less work and more leisure, the growth rate issues would remain.
Since the beginning of the industrial revolution, machines have been perceived to displace workers. This is certainly true in the short run, with much disruptive damage to individual well-being that the Government ought to address (and usually doesn’t). In the long run, however, it’s not an issue. When machines are substituted for labor, new things for labor to do are found. The income earned in these new jobs increases demand for goods and services, and the economy rolls along, merrily for some, not so much for others.
I suspect nobody would complain if American citizens experienced a permanent surge in the birth rate. If we need more people, we should devote ourselves to how best to absorb immigrants. Of course, we should prefer immigrants to be legal and to have some control over the process — who comes, what they are obliged to do, etc. Assimilation is important, but in my view it is something the U.S. is good at and could do even better.
How many should we be talking about? I ran some numbers. Assume the 20-64 population grew faster, hitting one percent a year for the next 75 years. (Naturally some of them would not work, and there would be other family members, but we’re just doing back of the envelope stuff here. This is a blog, not a seminar.) In 2008, that would mean an additional 215,000 people, over and above the million newcomers (legal and illegal) already assumed by the SSA.
The SSA assumes immigration decreases slightly from that million mark for the ensuing 75 years, even while total U.S. population grows from 305 million to 436 million. Now if you let population compound with a top-up of immigrants, the addition grows to about 3.5 million in 2080, and the cumulative increase is 168 million. So instead of 436 million, we would have over 600 million.
Of course 600 million is huge. But so is 436 million (total U.S. population under the absurdly low immigration projection). So is 305 million, our present population. If you like, you could dial down my one percent assumption, though that means less economic growth than otherwise.
This brings me to Charles Ponzi. Before Nigerian email there were chain letters, and before that, Ponzi. Suppose I offer to sell you a note that pays off sixty cents on the dollar. You give me $10, I give you back $16 next week. That’s a pretty good return. Now if I do that, I can easily make good if by next week I find two people willing to make the same deal, with an extra rake-off of $4 (on top of your ten) for myself. I make a good living as long as I find more suckers people. If I run out, I skip town with your money. (The actual Ponzi story is a little more complicated.)
But suppose instead of sixty cents, I only promise three cents. You give me $10, I’ll owe you $10.30 next week. If I make this deal with ten people, I only need eleven next week to get square, I have $7 left over, and each additional customer adds $10 to my bottom line. Then it’s much easier to keep the program going. It’s also easier if the clientele grows faster, and/or if their incomes grow faster. If the different factors don’t get out of kilter, there’s no problem.
In a nutshell, that’s Social Security. A steadily growing payroll tax base makes a pay-as-you-go system solvent indefinitely. As things stand, the program is not facing much difficulty, as I and others have argued. There is the “pig passing through the python” — the Baby Boom moving to retirement — but it is manageable as things stand. Even so, greater immigration would make the program more solvent than it already is.
That’s why I believe the children are the future: they will pay my Social Security and Medicare, as I do now for others. Why do it through the Government? Because some kids are rotten. Mine is a little angel, but she might decide to run away with the circus. Thank you very much, I’d rather rely on Social Security.
Max B. Sawicky is an economist at the Economic Policy Institute. He has worked in the Office of State and Local Finance of the U.S. Treasury Department and the U.S. Advisory Commission on Intergovernmental Relations. He is a member of the National Board of Americans for Democratic Action and serves on the editorial advisory board of Working USA. He is a frequent contributor to TPM Cafe.
Sawicky’s page can be found at Max Speak, You Listen!
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32 Comments
1. coberly:max
this pains me. you are generally right about a lot of things including Social Security.
But the Social Security “problem” as defined by the SSA, could be fixed, according to SSA’s own numbers, when you take the trouble to do a little simple arithmetic, by a 6 dollar a week raise in the payroll tax for each employee and employer, starting now. Or a fifteen dollar a week (today’s money) starting in 2042 or so when that same worker should be making about 150 dollars more per week.
The cost of paying off the Trust Fund will be about fifty cents per week starting in 2016 and raised fifty cents per week each year until about 2045.
This is not a big enough cost to even think twice about, much less start procreating like mad, or bringing in a lot of immigrants to do our work for us.
Jun 6, 2007 - 9:51 am 2. Miracle Max:There’s a number of ways to skin the cat. Social Security aside, the projected drop in economic growth might be of interest in and of itself.
There’s no fixed amount of work. More people will do more work, for themselves as much as for “us.”
Jun 6, 2007 - 10:11 am 3. gcblues:that ssi may or may not function is not an argument that justifies it’s existence.
ssi is destructive to the economy and our culture. it removes a large % of capital from our economy, and it creates dependency on the state. both are true and have huge negative impacts on our well being and our culture.
if FDR, our first communist president, had implemented a private savings scheme instead of a state based scheme most people that worked most of their lives would today be millionaires. those still in poverty no matter what the cause would be few, and therefore a problem more easily solved with much less interference from the state.
SSI, as are most social programs and evil by the state. they usurp the individual for the collective and pave, widen and light the road to sefdom.
Jun 6, 2007 - 3:31 pm 4. venividivici:Social Security should be opt-in, as long as people are contributing money they would otherwise contribute to Social Security to a defined contribution retirement plan. The return on Social Security assets is a few percent, while an index fund in a DC plan returns much more. Over the lifetime of a worker, that is hundreds of thousands of dollars. I understand the annuity features of Social Security protect people from making irrational decisions, but so long as regulations make it impossible for them to make irrational decisions over the long-term of their entire career, Social Security is a very bad way of preventing people from hurting themselves.
There are also longevity issues that are likely to require Social Security taxes to be raised time and again.
Jun 6, 2007 - 6:37 pm 5. you don't say:that ssi may or may not function is not an argument that justifies it’s existence.
ssi [contributes to] the economy and our culture. it [prevents] a [surplus] of capital [swamping] our economy [and destructive dampening of demand, and concomitant low or negative investment returns], and it creates [widespread affluence or at least honorable survival in old age]. both are true and have huge [positive] impacts on our well being and our culture.
if [George Bush], our first communist president, had implemented a private savings scheme instead of [the] [social insurance program we have now] most people that worked most of their lives would today be [at the mercy of the market]. those still in poverty no matter what the cause would be [too many], and therefore a problem more easily solved [by leaving well enough alone].
SSI [privatization], as are most [hair brained conservative schemes] [are] evil. They usurp the [collective will] for the [rich and selfish few] and pave, widen and [stripe] the road to sefdom.
Jun 6, 2007 - 6:44 pm 6. venividivici:you don’t say,
Why don’t you just change your name to “I don’t know”, as in, you don’t know anything about private market annuities, equity markets or expected returns over 50-year time horizons.
You don’t have an empirical leg to stand on if the jumble you posted represents your views on financial markets. The idea that somehow a surplus of capital would swamp the markets is so f-ing laughable it’s pathetic. What would happen is that the cost of capital would go down very marginally, meaning that more projects could be financed in the private sector, meaning more jobs created, which would mean more general revenues in income taxes. The only losers in Social Security’s elimination would be the people who work for the Social Security Administration. Period. As I mentioned, some simple rules in place to prevent people from royally screwing themselves over are all that’s necessary. Even after service fees (which, of course, have been coming down in defined contribution plans, which would be the primary retirement savings vehicle in lieu of Social Security, as the DOL has demanded more transparency and companies compete for plans’ business), returns to defined contribution assets have been much higher than returns to Social Security assets.
I could go on, but, of course, your post is ideological, not factual. I find it hard to stomach the fact that people like yourself have a say in policies without having done the requisite analysis to even have an opinion based in fact.
Jun 6, 2007 - 8:58 pm 7. Miracle Max:To all — the background for this is the right-wing media drumbeat that SS is bankrupt, which is just hogwash. Comments going to more debatable issues around the program are more well-taken.
gc — the alleged dysfunctionality of SS has been a major issue in the debates. As for FDR being a communist, all I can say is drink more water, it will purge the system of toxins.
veni — Comparing rates of return of SS and private equities is apples and oranges. In the latter case, among other problems, it fails to factor in the extent to which SS paid benefits well in excess of contributions at the beginning of the program as an anti-poverty measure for old folks coming out of the Depression.
You seem to favor some kind of mandatory saving plus regulations. Once you start down the paternalism road, regarding regulations to prevent bad individual decisions, you get something that resembles SS. In any case, if you think more saving would be swell, that option is still available.
It’s true that longevity means the problem, such as it is, is bigger than the Baby Boom’s retirement, but that’s not necessarily a crippling aspect. Who cares if the payroll tax between 2060 and 2075 has to be raised a percentage point.
regarding ‘you don’t say,’ it is possible for there to be too much capital. I think vv exaggerates the dependence of job creation on investment.
Jun 7, 2007 - 4:14 am 8. Perte:The numbers are bogus, but I won’t even take issue with them. What is missed here is that the Trust Fund is almost out of cash. Most of the $2 trillion balance is IOUs from Congress, which Congress isn’t even talking about making good. The number of employed is virtually static, while the number of recipients is exploding. The pig is in the mouth of the python. We already pay more for interest on the National Debt than we pay for defense and, if we renig in any way on the SS commitments we have made, interest rates will boom. That is NOT a good picture. SS needs a broader tax base, to be actuarially rational.
Jun 7, 2007 - 6:39 am 9. Dmitri:I will echo the statement made above, I don’t care if Social Security is or is not stable.
Forcing people to save money at gunpoint is not freedom.
Jun 7, 2007 - 8:10 am 10. Miracle Max:Perte — I don’t envy the Congress that decides to cut benefits, even though the Trust Fund is still flush, as it will be for another 40 years or so. The number of employed is projected to grow from the present 163 million to 216 million (assuming very little immigration), which is not quite “static.” We do NOT pay more in interest than for defense. You start by saying Congress will not pay full benefits for lack of tax dollars, and you end by saying Congress might do just that. There’s a lot you don’t know about this.
Jun 7, 2007 - 11:06 am 11. venividivici:Max,
Notwithstanding the historical returns for early participants, almost no mainstream financial markets analyst would tell you that social security assets will outperform equities over the next 50 years starting today. My point is that by taking money out of the hands of the Social Security Administration and letting it stay in private hands, economic growth on the margin would benefit. Your point about there not necessarily being an increase in jobs following an increase in investment capital available is true, but I would bet that the types of projects that would be funded if Social Security were eliminated would tend to be of the lower returns to capital type (all the other projects being funded already with currently available capital), which are usually pretty labor intensive. Alternatively, even if the projects were capital intensive, the government would still recoup some revenue from the corporate income tax. The point is more about leaving the money in the hands of individuals who can generate higher returns through risk-taking and the application of their skills with capital that currently goes into instruments making basically the risk-free rate.
The kind of “paternalism” I envision is simply the philosophical standard that says the government can provide for the “common good”, strictly defined, which I do believe it needs to do in the context of retirement savings. Study after study shows that people are very bad at estimating how long they will live and that opens them up to the danger of outliving their assets because they undersaved. If you look at the Pension Protection Act, you will see the kind of paternalism designed to prevent this from happening.
Individual accounts with a limited set of investment options including equities(have you seen what’s been going on with, e.g. target-date funds? I make one decision at the time I enter the workforce, or switch jobs, and I’m set), seems to me the way to go.
Jun 7, 2007 - 4:24 pm 12. dale coberly:all,
you win. i am too old and too tired to try to teach each of you one at a time. but here is a clue for you all: the trick to useful thinking is to keep on thinking after you have got the answer you want.
Jun 7, 2007 - 5:57 pm 13. venividivici:Dale,
Next time I’m looking for “Generic Words of Wisdom to Live By”, I’ll think of your words, which, of course, could apply to any conclusion posted on this thread, since no one is required to post their entire thought process’ evolution to accompany their current position.
What happened the last time Social Security was “fixed” in the way you suggest, back in the 1980’s? A mere 20 years later, we’re talking about having to “fix” it again.
Is it any wonder that someone with a sense of history would want to scrap the program?
Jun 7, 2007 - 7:58 pm 14. Miracle Max:vv — comparing SS to equities is another apples-to-oranges comparison. As you well know, it ignores risk and conversion costs when it comes time to exchange equities for an annuity.
And it ignores other social features of what is social insurance, not private insurance.
Investment versus consumption has no job creation advantage. It does have the possibility of lifting lab or earnings in the future.
It’s sort of pointless to imagine investment without SS, since you can’t put the toothpaste back in the tube. With no SS, old folks coming out of the depression would have faced serious hardships, and subsequent generations would be victimized to the extent they failed to save enough for retirement, disability, and bequests.
Social insurance versus something much more narrow along your lines is a legitimate debate. My point is that the premise that SS is infeasible has no foundation.
Jun 8, 2007 - 8:49 am 15. dale coberly:venividi
here i am a day older, a little less tired. it will be a waste of time to try to explain to you, but here is a start:
yes, indeedy, SS was fixed in ‘83 and here we are talking about fixing it again. we are talking not because it needs to be fixed but because the BigLiars know that if they can just fool enough of you into letting them “fix” it, they can fix it for good.
a “sense of history” will not substitute for actually knowing some history. not to say actual facts about the program, much less actual cause and effect relationships between the program and the larger economy.
so you see, us geriatric worders of wisdom don’t really expect the young pups to listen, but we do our best.
Jun 8, 2007 - 10:14 am 16. dale coberly:gc blues
you say that ssi removes a large percent of capital from our country. would you explain exactly how it does that, given that every dime you put into social security is taken out essentially on the same day. so that what you don’t spend today, someone else does. meanwhile the money is recorded against your name so that when you are too old to work you get the money back to spend in the same economy…
you are sure, no doubt, that “if only” that SS tax was invested, it would grow the economy. this only happens if more is invested than is taken out on any given day. it’s kind of a calculus problem.
you see, you are talking nonsense. but that’s not surprising.
could go into this a bit further with a discussion of price/earnings ratios but that would be getting a bit over your head.
Jun 8, 2007 - 10:33 am 17. dale coberly:venivici
you are unable to recognize that your reply to “you don’t say” is as ideological as you accuse his of being. or that in spite of arrogant noises about your superior knowledge of the investment system, you appear to have a very shallow understanding of it.
no doubt YOU could make more money in private investments, though perhaps not so much more than you suppose. but the question that would remain is can EVERYBODY make more money in private investments. The answer is almost certainly no, if we only judge by past performance.
But consider the following: suppose you knew of an especially fertile acre where everything you planted grew tenfold. so you tell your friends and they tell their friends and pretty soon you have ten, a hundred, a thousand, people all planting in your one fertile acre. will the ALL reap tenfold?
Jun 8, 2007 - 10:41 am 18. dale coberly:perte
you need to read the Trustees report. most of your “facts” are completely bogus, even according to the SSA.
of course, the Big Liars rely on your inability to read the trustees report and do a few simple calcualtions that will tell you the size of the “unfunded deficit” or to be smart enough to realize that it is unfunded only until we raise the tax about 1%. or more accurately: 3 tenths of a percent each year starting in 2016 and continuing to approximately 2040, when the needed tax raise will fall to 4 hundredths of a percent. this amounts to less than a dollar a week raise each year…falling to about 30 cents per week per year….all during a time when wages are expected to go up a minimum of one percent per year….or about eight dollars per week per year. and you get the tax back when you need it most.
Jun 8, 2007 - 10:50 am 19. dale coberly:Dmitri
your “forcing people to save at gunpoint” is a bit overblown. do they force you to stop for red lights at gunpoint? (answer is, ultimately yes.)
but they only have to do this because some people are too stupid or selfish to act in the public good without the public forcing them …ultimately at gunpoint.
if it were not for society you would be digging for your supper with a sharp stick. but you live in a country that figured out that it was better for everybody if everyone contributed a small percent of their income in order to assure that they would have enough money to live on in old age.
i used to feel a bit like you do, until i got old enough and smart enough to see that “voluntary” good behavior wouldn’t work in a country too big for shame to work to coerce the stupid and selfish into doing what was necessary for the whole community,…including themselves…to survive. that’s why we have taxes, and laws.
nice for you that you live in a country where the “at gunpoint” is held to a bare minimum.
though it is always necessary to be on the watch for government overreaching. so far SS is not a case of that.
Jun 8, 2007 - 10:58 am 20. venividivici:Max,
I agree that social security isn’t infeasible, but I don’t think it’s desirable, obviously, because I think it’s driven down overall wealth creation by pulling assets into low-return bonds when they could have been utilized in other asset classes. Yes, there are risks to equities, but over the same time horizon as a working life of someone accumulating social security benefits, the probability that equities won’t return more than government bonds is pretty close to nil. One could even further reduce this risk by investing in a variable annuity with guaranteed minimum benefits, which transfer most of the investment risk to insurance companies, which are regulation-bound to have enough capital on hand to meet almost any market scenario.
I just don’t see why an inferior social insurance system (which may not have been inferior at its inception, granted) needs to remain in place when a superior individual insurance system exists.
Jun 8, 2007 - 3:55 pm 21. venividivici:dale,
How can you possibly say not everyone can make more money in the equity market than they can in social security when the entire history of social security’s returns show an inferior return to the equity markets over the same time? Those are averages, meaning that the average person got those returns. I’m not talking about having everyone turn into Warren Buffett just because they invest in an S&P index fund in an individual account rather than the social security trust fund, although that appears to be what you think I’m saying. People who want the risk-free rate of return, which is essentially the maximum social security provides, can still get it by investing their private accounts in bonds. So, if I’m earning superior returns because I am taking on and managing more risk, and someone else is taking on and managing less risk and still making essentially the same return as they would under the current system, that is a win-win. So, yeah, my “ideology” supports win-win scenarios. What an ogre I am.
As far as the downside of the market relative to social security (the famous “insurance” aspect of social security), do you really think if the market crashes that much that returns to equities are equivalent to returns on social security, social security will survive, too? You’re dreaming.
Jun 8, 2007 - 4:19 pm 22. dale coberly:veni
not dreaming. counting.
i said it already, but it’s worth saying again.
your “market” returns maybe 10% on average. subtract all costs including inflation and you will be making 7%. consider that about 25% of investrors make less than 2%, and about 16% of investors lose money, and you have some sense of the risks. rich people can afford those risks, poor people cannot.
but what is more important is that this money does not come out of your adding machine by the “magic of compound interest.” there has to be some real enterprise using your money in a profitable way.
and that’s the problem. the markets are already awash with money. you would need to show me a credible way that 100 million people could “invest” five thousand a year each and expect to earn a rate that matched inflation, and the average increase in GDP, plus costs, and without risk. And of course you’d have to show how that also paid for disability and survivors benefits and spouse benefits, and made up for the possibility that you didn’t earn as much in your lifetime as you thought you would, and need a little extra during retirement just to have a roof and enough to eat.
the key here is not what YOU can do. or even what MANY can do. it’s what ALL can do. and I’ll refer you back to my little parable of the fertile acre since you seem to have missed it.
If you have an old economics book around you might want to look at the pages where they talk about the “fallacy of composition,” and “the law of diminishing returns.”
as for social security surviving a market crash… no reason why it shouldn’t. social security has nothing to do with the market.
if you had a major depression, or war, or some catastrophe that put huge numbers of people out of work or generally lowered the average wage so that the social security tax was not enough to pay beneficiaries a benefit high enough to keep them out of direst poverty, then you, SS, would have a problem. but even the SS administration doesn’t see that happening in the next 75 years.
but the point would be that if that happened, we’d have to figure something else out. like maybe the people who still had jobs or money would help out their neighbors. or maybe they’d just watch them starve. but until we get into that situation it doesn’t sound like a very good reason to cut our heads off today.
Jun 8, 2007 - 7:19 pm 23. dale coberly:veni
don’t know how long it takes a post to appear on this site. i wrote a long answer. if it hasn’t shown by tomorrow, i’ll write it again.
Jun 8, 2007 - 7:32 pm 24. venividivici:the key here is not what YOU can do. or even what MANY can do. it’s what ALL can do.
Oh, for christ friggin sakes, I already told you that if there are those who want to invest in risk-free bonds, they can under my scheme. So the “ALL” can get as the same return they get today. The incremental decrease in the demand for bonds should raise their freakin’ returns and the incremental increase in the demand for equities should decrease their return.
The point is that overall returns will be higher, precisely because there will be additional capital available for private sector managers to fund projects, as opposed to just investing in government bonds.
As for your point about 100 million people investing $5K, it’s just indicative of your ignorance of global financial markets. Total global market capitalization is $51 trillion dollars. The incremental $500 billion from social security would be 1% of total capitalization. How’s that for your “law of diminishing returns”?
Seriously, you need to just stop now, because not a single one of your points has any merit. Leave the financial policy to people who have a clue of what is going on in 2007, please. For the love of God this isn’t 1929 and we don’t need 1929’s policies.
Jun 8, 2007 - 9:08 pm 25. blogengeezer:Immigrate, Drop out of public school, Refuse to learn the predominate language, Refuse to learn math or science, Hold dear, the culture of your origin, Procreate until the family is forever in poverty.
That is, ‘Historically’ speaking, the recipe for a great Nation. India, China, Russia, name any other that uses their own slaves to do the distasteful manual labor.
The USA is just now building it’s future real workforce.
Jun 9, 2007 - 8:40 am 26. dale coberly:http://daflikkers.blogspot.com/
veni
your highly educated language should have given me a clue that i was in company over my head. i was going to ask you to put some numbers to your contention. and here you have. now, if i were a serious student of all this i would ask a few more questions. but since you have reached the answer you want, i won’t ask them of you.
but it’s good to learn there is 51 Trillion in capitalization, since Peterson was telling us just a little while ago that the 44 Trillion unfunded deficit (his calculation) was more than the value of all property in the united states.
i am a little uncertain about that additional capital enabling private sector managers to fund projects as opposed to investing in government bonds. are you saying that having more money means there will be more real projects, but if there were projects why would they invest in “bonds” and if the bonds are not tied to real projects where does the money come from to pay the miracle of compound interest.
oh, i am just full of questions.
and the funny thing is that just before i read your note i had thought of a way “the market” could do just exactly what i said it couldn’t. i was going to leave that as a question for the students. but i see the students already know everything.
but in case you really do know what you are talking about (and you don’t sound very well educated), you ought to put it down in very clear writing for the rest of us. friggen love of God may carry the day in your den, but the rest of us need numbers that add up.
meanwhile, the cost of “saving” Social Security works out to a tax raise of about a dollar per week per year starting in 2016 and levelling out before 2040.
while you are calculating you can tell us all how Peterson gets 44 Trillion out of that.
oh, one tiny detail: i noticed that in your new post 1929 scheme you were “willing to take more risks” while the other guy was earning government interest. you did not specify who was going to bail you out when your risks turned out to be riskier than you calculated, as they must certainly do for at least some investors.
Jun 9, 2007 - 9:06 am 27. dale coberly:veni
let me try to be perfectly clear.
i do not know a lot about “global financial markets.” i hope i did not claim that i did.
i do know how to count, and the main BigLie about Social Security, which you repeated in part above, is that it will cost a huge amount of money to fix. That’s wrong. In fact it’s a lie.
My thoughts about the ability of “the market” to absorb the money from Social Security are just that: thoughts. I am open to being educated. But judging from the quality of your posts, I do not expect much in the way of careful thinking from you.
But here’s another question. A real question: If markets are capitalized at 50 Trillion and they return on average 10 percent, does that me there is 5 trillion in income from capital in the economy every year? does it show up in the GDP? or is “global” the trick word? or are we talking about magic money that gets “reinvested” without ever touching the ground?
you see, i don’t know about these things. but your gutteral noises don’t help understand them, though i am sure they impress the timid.
Jun 9, 2007 - 9:27 am 28. dale coberly:veni
i just reread all of your posts. and yes you say many things that are just not true. so while i am waiting for the connection between that 50 trillion and what happens on the ground, i will continue to believe that you are not a careful thinker but leap madly from one factoid you like the sound of to the next,
Jun 9, 2007 - 9:35 am 29. dale coberly:veni et al
another question: assuming your 50 trillion global financial markets can absorb SS’s mere 500 billion per year, can it at the same time RETURN 500 billion per year to the beneficiaries?
You see, with SS, that money is not “invested” because it is eaten.
now, i suspect there is some mechanism for getting around this, but someone who understands global financial markets will have to explain it to me. talk slowly. do not try to bluff by waving your hands and calling me names.
Jun 9, 2007 - 10:23 am 30. dale coberly:veni
still learning: looking at P/E ratios from a while back i see 20’s and even 30’s.
Now I think that means your 50 Trillion in capitalization is earning about 3 to 5 %, not counting of course the profit from selling to the next greater fool. But if i am right, and i claim absolutely no expertise, it looks like my Social Security payout would be about 20 to 30% of what your market is capable of paying out now…ignoring for the moment retained earnings for future investment and all that.
is that right? seems like a big hit. on the other hand, your market may already be suffering from those diminshing returns.
Jun 9, 2007 - 1:36 pm 31. rclasgiddy:Dale,
Jun 9, 2007 - 4:56 pm 32. dale coberly:What you’ve been saying almost makes sense, because as long as the economy is growing and wages are increasing, there’ll be enough new money coming in to fund the payments. The problem is in the fact that the economic growth in the last several decades has come from increases in automated productivity that doesn’t involve adding more labor to produce more. When the shift of income goes from corporeal entities earning more (which SS taxes) to corporate entities earning more due to automation, there’s less revenue to tax. In the company I’m working for, we’re shedding 200+ workers who pay SS taxes to an automated IVR system. Needless to say, the computers that run the IVR pay no SSI taxes, but it supplants the sales reps who would have done the job and they do (did) pay SSI taxes. The company and its owners will gain greater profits, but after 97K in wages, none of it will go to SSI. If your argument is really going to work, i.e. no private investment, then we have to change the tax base to a percentage of the total tax base, especially corporate income taxes. Actually, I believe they should abolish personal income taxes altogether and fund everything from corporate income taxes (since corporations don’t actually pay any taxes, their customers pay for it in the price of their products).
rclassgiddy
i agree with your point and worry about it. but the SSA does not include the possibility in its projections. and for the most part all i am really arguing here is that the hysteria about the projections is fuelled by dishonest distortions of those projections.
if we reach a situation where a reasonable tax on wages won’t fund the retirements of workers we will indeed have to think of something else.
i had suggested that if the privatizers are serious, and not just out to kill SS, we could begin by agreeing to dedicated half of the next five years routine cost of living wages to a retirement plan such as state and federal workers have (private markets), while leaving the present tax and benefit structure untouched.
by 2040 we would have a much better idea what the future is bringing. i would bet that by that time most people would want to keep a minimum amount in SS for an absolute guaranteed old age income, while putting as much as they can into the private market things….exactly because, as you suggest… in the future wages are not going to be where it’s at.
Jun 9, 2007 - 8:52 pm