Death and Taxes

Politics and religion
41

If the ratio of retirees to workers remains constant, or only increases in the retirees’ favor, then that’s true. But that’s not the case. Which is why SS taxes keep going up while the rate of return declines. [/quote]

And when the system started up, the ratio of workers to retirees was about 1000/1. So? There’s no reason you couldn’t fund a social security system in society with zero population growth; the “final” generation before population flatline will get back what it put in plus productivity growth.

SS differs from most pyramid schemes in that it doesn’t promise impossibly high returns, but it does rely on money from later investors to pay earlier investors, which is pretty much the defining trait of a pyramid scheme.

Using this expansive definition, buying stock that doesn’t pay a dividend is a pyramid scheme.

Why, if you’d just take that money you spend on homeowner’s insurance and invest it - after all, it’s unlikely that your house will burn down - you’ll be a lot richer in the future. All that happens when you pay for insurance is that the money gets paid to those bastards whose house actually does burn down!

The closest analogy is actually annuities, I think; you pay them some money and they pay you back a fraction of it per month as time goes on. Invididuals who invest into the annuity get different “rates of return” depending on how long they live, but the group as a whole has the same rate of return. Sure, you can not invest in it and dump it all into stocks instead, but you’re taking on a lot of risk.

42

I’m not against charity or compassion. I’m just against government-enforced charity for people that are in bad straights solely by choice. We’re not talking about folks that are penniless through happenstance, here.

“People that are in bad straights solely by choice?” What does that mean? What % of SS recipients would you say are in bad straights by choice? Bad things never happen?

43

Complacency based on ignorance is hardly a strong indicator of the system’s support. Of course, not all of the people who support it are unaware of the hidden costs in its continued existence, but I’d be willing to bet a large number of them don’t really give it much thought. I’m sure if you’d asked medieval serfs if they wanted their master’s patronage taken away from them without explaining possible alternatives you’d have gotten much the same reply.

I’m not defending social security because of the costs it’ll take to transition to a private system; if you want to pay them, go right ahead. But pretending those costs don’t exist, and then pretending that you can get a higher rate of return in a private system based on that, is dishonest.

Ok, then what are you defending social security on? Because it seems to me that you are saying in the long run it will never be a serious source of deficit, in addition to the continuously building opportunity cost losses and the absence of wealth creation with all that stagnant money shuffling.

And what “corruption” are you talking about?

You know what I am talking about. You don’t think it’s a pyramid scheme, I do, etc etc.

And when the system started up, the ratio of workers to retirees was about 1000/1. So? There’s no reason you couldn’t fund a social security system in society with zero population growth; the “final” generation before population flatline will get back what it put in plus productivity growth.

Right, which is why the impending baby boomer retirement, for instance, will break the bank.

Like I said, that payment in=payment out way of rationalizing the long term prospects of SS, even if it were a reliable prediction of future situations, misses the point: the overall costs of the operation, and what they mean in the long term for an economy.

Using this expansive definition, buying stock that doesn’t pay a dividend is a pyramid scheme.

I really find it hard to believe you mean this as a serious point of debate. You can tell me with a straight…err…face that you can’t tell the difference?

Why, if you’d just take that money you spend on homeowner’s insurance and invest it - after all, it’s unlikely that your house will burn down - you’ll be a lot richer in the future. All that happens when you pay for insurance is that the money gets paid to those bastards whose house actually does burn down!

The difference is that homeowner’s insurance is optional. Thus, the deadweight loss from such an investment in insurance is not a systemic guarantee. Also, there is an easily discernible difference in the value of homes as opposed to human lives, which make such calculations easy for the people that want to exchange a higher level of returns for greater security.
The situation changes radically when it is a mandatory scheme enforced from above, because such an approach is inherently less efficient than people making their own decisions. Simply because you do not approve of other people’s judgement with regard to the money they have earned is not sufficient justification for the hidden costs you’ve made me repeat myself about numerous times.

44

A public retirement program with zero population growth won’t result in people getting back what they put in; it’ll result in them getting back what they put in plus productivity growth - their kids will be richer due to technical innovation, which lets them pay their parents more. It’s not payments in = payments out.

The difference is that homeowner’s insurance is optional.

For people who’ve paid off their mortgage, anyway - but the point is that it’s an extraordinarly bad idea to opt out of it. You’re taking on an enormous risk for a marginal gain in income. Same deal with SS; if your investments go south or you become disabled, you’re going to be begging on the street, all for a small gain in income.

Using this expansive definition, buying stock that doesn’t pay a dividend is a pyramid scheme.

[quote]I really find it hard to believe you mean this as a serious point of debate. You can tell me with a straight…err…face that you can’t tell the difference? "

[/quote]

I’m serious, what’s the difference? If you define a pyramid scheme as “anything where the rate of growth in the supply of new joiners drops off”, it qualifies just as well as Social Security when population growth goes south. Just because you don’t like it doesn’t mean it’s a scam.

Anyway, my basic argument here is in opposition to Sones’s “it’s free money” bit - SS doesn’t have a lower rate of return than a private system. It does cause some deadweight loss - although economists disagree about how much - but switching to a private system won’t magically fix the demographic retirement crunch; it just shifts the cost of that crunch into a different accounting line.

If you want to argue that it causes long-run deadweight losses, go right ahead, but that’s no what anyone else in the debate here (or in the popular media) is talking about. It’s all misinformed assertions that we can have money for free.

45

So the costs of living won’t rise (at least) proportionately? The costs of medical care? No wonder everyone’s a millionaire since the industrial revolution took off.

For people who’ve paid off their mortgage, anyway - but the point is that it’s an extraordinarly bad idea to opt out of it. You’re taking on an enormous risk for a marginal gain in income. Same deal with SS; if your investments go south or you become disabled, you’re going to be begging on the street, all for a small gain in income.

Extraordinarily bad idea to you, so I say, more power to you, buy all the insurance you like for that .0001% chance of using it. Better get some terrorism insurance etc as well.
Like I said, I have no problem with such decisionmaking if you do it for yourself. If you are buying it in a market restrained by supply and demand and rational incentives. But that is not the case in SS, and, come to think of it, one of the reasons the insurance industry is such a fucked up amalgam of privatization and corporate welfare.

I’m serious, what’s the difference? If you define a pyramid scheme as “anything where the rate of growth in the supply of new joiners drops off”, it qualifies just as well as Social Security when population growth goes south. Just because you don’t like it doesn’t mean it’s a scam.

I didn’t define it like that, and I think you would have to be taking some serious liberties with Ben’s statement relative the context he placed it in to take it to mean that. If you really want me to restate my reasoning for it being a pyramid scheme, I guess I can, but I think at this point we’re hitting raw semantic fruitiness irrelevant to the matter at hand.

Anyway, my basic argument here is in opposition to Sones’s “it’s free money” bit - SS doesn’t have a lower rate of return than a private system. It does cause some deadweight loss - although economists disagree about how much - but switching to a private system won’t magically fix the demographic retirement crunch; it just shifts the cost of that crunch into a different accounting line.

Well, for one thing it will turn those assets into wealth creating or at the very least not stagnant funds, which is a significant improvement. SS does have a lower rate of return; I can’t think of very many private investments that could come close to having such a paltry return, and those would likely be things that have a compelling, unusual reason behind them like war bonds.
Are you saying that even a minimal rate of risk such as that incurred in the long run by a 401k automatically outweighs any difference in return? Your portfolio must be something to see!

If you want to argue that it causes long-run deadweight losses, go right ahead, but that’s no what anyone else in the debate here (or in the popular media) is talking about. It’s all misinformed assertions that we can have money for free.

I am, and I think you really have to be creative with numbers not to see that as an important factor. Also, if anything, the libertarian advocates of SS reform are the opposite of promoters of free money; I don’t think that even enters into their conceptual framework as a possibility. I am sure somewhere you can find figureheads and fringe acts that soft-pedal or ignore the costs of the transition, but as I understand it the consensus on this side, if such a thing can be said to exist, is that in the long run that transition cost will be justified by the greater rate of return.

46

That must be why Cato states that the rate of return of a privatized system is higher than of the current system, right?

http://www.socialsecurity.org/pubs/articles/bp-040es.html

Well, for one thing it will turn those assets into wealth creating or at the very least not stagnant funds, which is a significant improvement. SS does have a lower rate of return; I can’t think of very many private investments that could come close to having such a paltry return, and those would likely be things that have a compelling, unusual reason behind them like war bonds.
Are you saying that even a minimal rate of risk such as that incurred in the long run by a 401k automatically outweighs any difference in return? Your portfolio must be something to see!

Arrggggh, this is exactly what I’m talking about! What do you think the rate of a return of a privatized system - including transition costs - would be? You’re comparing the rate of return of private investment vs. public investment and paying the existing beneficiaries.

If social security didn’t have to pay the existing beneficiares, it’d have a damn high rate of return too.

47

Oy vey. The difference is that in the shift to the private scheme it is a one-time cost, rather than a continually occurring one. I haven’t really seen much to support your assertion that it is an infinitely sustainable system as it stands now; you will have to pay the piper eventually. The opportunity lies in ensuring that when that payment is made we take advantage of it to convert to a system that is not eventually bankrupt again. I think the transition cost, while certainly much larger than a simple stopgap payment, would be manageable if combined with fiscal responsibility in other areas (a big if).

If social security didn’t have to pay the existing beneficiares, it’d have a damn high rate of return too.

So if social security wasn’t social security it would make more money? Look, the privatized option doesn’t cease to provide financial security to the existing beneficiaries. There wouldn’t be much of a point if it did. It does so, at a much higher rate of return, with none of the massive deadweight costs of the former system. The “existing beneficiaries” cost you are talking about is a one-time payment to wean people off the previous system. Costly, but far better sooner than later, as it will come eventually in some form. The difference is whether we budget for it or allow it to become a crisis of gargantuan proportions. If you really want to see the day when US government bonds become junk bonds, well, just wait until our parents retire if nothing is changed.

I think the fundamental conceptual issue we are divergent on is that you think the Baby Boomer retirement is manageable, and the transition costs to a private system aren’t; and I see it as the opposite and don’t think there is any point in reinforcing failure. If that is a fair assessment, I don’t see much point in continuing to kick that back and forth.

48

Sigh. Look, if you want to privatize you have to pay off today’s beneficaries. You’ll need to include that cost - 3 trillion - when you talk about the “rate of return” of the new system. Produce that number and we’ll talk.

And the “massive deadweight loss” isn’t a done deal - there’s a wide range of estimates from economists about how much loss SS imposes.

Look at that Cato article I linked; they’re all like that. They pretend that the transition cost is an afterthought, not increasing the national debt by half-again.

49

The one time cost of ‘buying out’ current beneficiaries, if you estimate it a 3 trillion, sounds like a bargain. I’d buy some of that debt, guaranteed to be repaid by the governments increased tax revenue generated by resultant increase in economic growth. You don’t think the government has $3 trillion of assets they could sell to pay for it?

But how would you reconcile a ‘private’ investment program? Mandated stock investment regulated by the feds would create an artificial overvaluation of the stock market similar to the ‘dot com’ bubble with similar results when people rolled over their investments into bonds or cash en masse as a result of a new regulation in the system or large group of simultaneous withdrawls(retirees). This would give Government insiders tremendous power over their own, and their ‘friends’ investments.

Why shouldn’t SS just be abolished after the distributions? The only reason the Gov wants SS to exist in private form or it’s current form is so that it can be used as a scare tactic, bargaining chip and power lever. The more money they have control over=more can be syphoned off, borrowed, mortgaged against, or re-distrubuted.

We should be allowed to keep our %15 and invest it as we see fit. Whether we want to buy gold, stocks, or a new HDTV it should be our choice because it’s our money. And if we’re stupid enoough to choose not to save for retirement, no one should be forced to support us in our old age.

50

Since they have no choice other than to pay SS taxes, none of them.

It means that I was replying to your argument that voluntary retirement savings is a bad idea because statistics show that many people don’t save. Those would be the “People that are in bad straights solely by choice.” Unless orbital mind-control lasers are making them spend all their money rather than investing some of it.

We don’t live in a society with zero population growth, though. Our population fluctuates from generation to generation, which makes this sort of system inherently unstable. The current crop of retirees (and pending retirees, as the Baby Boomers leave the workforce) is far larger than the current crop of taxpayers. The chances that you or I will ever see any return at all on the money that we put into the system is exceedingly low.

Private investment, as you point out, also has risks. But at least I have a decent chance at seeing a good return on my investments in exchange for those risks. And if you don’t like risks, just put your money in a bank. You’d get returns comparable to SS with a simple savings account.

Using this expansive definition, buying stock that doesn’t pay a dividend is a pyramid scheme.

Care to explain that? Unless the explanation is similar to your homeowner’s insurance analogy. If that’s the case, I’d rather just skip it.

Why, if you’d just take that money you spend on homeowner’s insurance and invest it - after all, it’s unlikely that your house will burn down - you’ll be a lot richer in the future. All that happens when you pay for insurance is that the money gets paid to those bastards whose house actually does burn down!

This is not analogous, for a number of reasons. For one: unlike my income, I don’t own my home–the bank does. The bank requires that I have insurance in order to protect their investment. The government has nothing to do with it–it’s a contractual obligation, not a federal mandate. If I owned my house, I could opt to cancel my homeowner’s insurance, if I wanted to. Some people do.

but the point is that it’s an extraordinarly bad idea to opt out of it. You’re taking on an enormous risk for a marginal gain in income.

It can be. If you can afford to pay for a new house out of pocket, then paying insurance may not be worth the cost. And even if you want insurance, if you are unhappy with your terms, you can shop around for a better deal. That applies even to people with mortgages. Social Security doesn’t offer that option. Social Security is the equivalent of federally mandated homeowner’s insurance for everyone, automatically priced at a terrible rate.

Look, if you want to privatize you have to pay off today’s beneficaries. You’ll need to include that cost - 3 trillion - when you talk about the “rate of return” of the new system.

I agree, but this only applies until the “hidden debt” inherent in the Social Security system is paid off. You keep talking as though SS provides equivalent returns to private investment, now and forever. For instance:

SS doesn’t have a lower rate of return than a private system.

Source? Here’s Alan Greenspan on the matter:

Those born in 1960, for example, are currently calculated to receive a real rate of return, on average, of less than 2 percent on their cumulative contributions. - Testimony of Chairman Alan Greenspan before the Committee on the Budget, U.S. Senate, January 28, 1999

The average rate of return on a conservative investment portfolio is more like 5%, which means that even a conservative private retirement plan has about 300% better rate of return than SS.

51

Ah, forget it. I just can’t explain the math well enough. But if you assume that every generation should pay off the hidden equally - by, say, paying for the transfer cost with bonds - then you’ll end up with virtually the same rate of return, forever.

The demographic crunch calculations for social security also leave out the fact that the rate of return for private investments will also drop when the worker/retiree ratio goes down.

52

My brain hurts more than usual trying to sort these circular arguments out!

We do know SS will go bankrupt in the future unless changes are made. We’ll have to see what the Congress Critters come up with.

53

It might cost a bit more, but that’s far from going bankrupt.

54

Yeah, it’ll be at least 2010-2015 until all the baby boomers turn 65 and start drawing benefits. We’ve got time to stall and manipulate public opinion until then. Why do today what you can put off until tomorrow for your own political benefit?

55

I just realized what bothers me so much about discussing Social Security after reading some comments over on Delong’s.

Namely: can you recall privitization proponents ever talking about raising taxes, which is an absolute requirement to fund it? I’m not talking about in obscure journals where they discuss it in technical terms, I’m talking about in public. It simply doesn’t happen - can you recall a public conservative ever, ever admitting we’ll need to raise taxes to privitize Social Security? By contrast, raising taxes to fix Social Security is pretty much all liberals talk about when the subject comes up.

If conservatives want to argue “we’re going to have to raise taxes anyway by about as much, so we might as well privitize anyway,” fine, go for it. It’s an honest debate. That’s not what happens, though; what happens is Bush trots out and insists that $1 put into private accounts today won’t have to be made up by equivalent tax increases elsewhere. Hey look, kids, free money! They know they’ll have to pay just about as much to transition to a privatized system, but that’s a cost you can reveal after tricking the voters into getting the privitaized system in the first place.

This goes back to something I said previously; there’s a real distrust for the concept of deliberative democracy on the right. The conservative position on deficits is pretty much “they won’t vote to cut spending like they should, so we’ll just cut taxes, run deficits, and then use that to trick them into cutting spending”, for example. The vein cuts across a bunch of issues; the 2000 election, LK’s preferring a military dictatorship to a democratic government in Chile (albeit a stupid democratic government), Bush’s tax cuts, you name it.

56

That’s actually a pretty decent insight on your part, I think. Especially if what you mean by deliberative democracy is what I think you mean.

In a similar vein, I think what you regard as right-wing sneakiness is actually a hell of a lot more honest than left-wing patronization and pandering. And there is the crux of the problem, when you realize what a false dichotomy it is under any deep analysis. Tactics and strategies are just as prone to switch sides so long as you look at a big enough picture.

For instance, you criticize the right for advocating the transition to privatization without mentioning the short run costs, which is an absolutely fair thing to say. But if anything, the difference is simply a matter of scale and complexity when you get to the lies of the left. “Welfare will save the poor, and we won’t mention the many complex consequences this will have both from the taxation needed to fund such an endeavour to the problems that arise culturally and materially when giving money away for free.”

How many leftist politicians ran on a “We’ll give you shit for free, so long as you don’t mind remaining an overall impoverished and marginalized segment of the population as a result”?

57

Belated apologies, my mention of the USPS was based on the projected $20 billion bailout “loan” against a 2 trillion dollar budget, which would be 1%. While this isn’t 3% is still a pretty penny.

Although in all fairness, all “bailouts” of this and the airlines and other crap would be a great place to rescue some funds for any other spending, such as paying down the deficit or whatever.

58

Careful King, poor people are entitled to that extra ‘fair share’. They couldn’t possibly better themselves or make ends meet on their own because they’re helpless idiots. Remember, patronization=compassion.

And they’re no longer marginalized, they’re mainstream.

59

That’s one of the more just aspects of the leftist attachment to democracy as an objective good; it is only a matter of time until they are ruled by the whims of the everyday folks for which they claim to have such compassion. Of course, what happens to them happens to all of us, so I guess it’s not as amusing as I thought :(

60

What the hell do you mean, objective good? And what could possible be worse than pretending your program doesn’t have a 3 trillion dollar price tag- it’s zero!