Social Security - I'm so CONFUSED!

As sad as it sounds, Major Tom is right. Social Security, as is, is going the way of the dodo.

Social Security funds are progressively designed to account for inflation and retirement costs - people are supposed to get out quite a bit more than they put in. Currently it can pay these costs, but not indefinitely due to demographic shifts. (Hello Baby Boomer retirement!) Assuming no action on the part of the government to sustain it, it will be operating at a loss by 2023, and the fund will be completely bankrupt in 2036.

Source.

Yes, assuming no action at all.

That is a dumbass assumption, because the people who are complaining that inaction will kill it are the people that want to kill it.

Well, any kind of Social Security reform has been historically considered a political black spot on any side of the political aisle. Which means that assumption is sadly more likely to happen than you think.

I'm not trying to make a statement about what I believe, I'm just noting the facts I've observed.

The fault in that thinking is that, Social Security won't suddenly stop paying beneficiaries or something. It just means that the government will be forced to pay for social security claims from other forms of revenue (or by borrowing money).

It's the same thing as refusing to raise the debt ceiling.

Basically, it comes back to refusing to raise taxes.

edited 13th Aug '11 12:35:37 PM by TheyCallMeTomu

Yep, it comes down to people either thinking the whole thing should be self-funded (see earlier posts in this thread) or having personal political programs they refuse funding cuts to.

For the record, a self-funded Social Security would work - under very specific economic conditions. Obviously, we don't have those conditions.

It would also be a tremendous waste-terribly inefficient.

Sitting on your money, not allowing it to accumulate any wealth, is just stupid.

^ There are quite a few scenarios where economically it is advantageous to sit on excess cash. Volatile economic scenarios (where it seems to shift from recession to prosperity and/or vice versa within 6 months or less) is one such advantageous use.

Why? It serves as a symbol of stability and certainty even if Keynesian economics says blow every last dime you have if it even starts looking like a recession. Remember, economic certainty is a bigger driver these days than net spending, that's the reason why this bad economy has been going on so long today.

Meaning if SS were entirely self-funded and sitting on that cash, it would be a signal of certainty in economic times like these.

Tell that to the people who think Social Security should do just that. A lot of the complaints about the system come from entitlement. ("It's still my money! No one should spend it but me!")

In short, people have false expectations of Social Security, thinking it can work like a savings account in some ways (accruing interest) but not in others (using said money in other ventures, to pay said interest).

That would only work if Social Security worked like most of the people in this thread seemed to think it works. You get out what you pay in, no more, no less.

edited 13th Aug '11 12:53:41 PM by TotemicHero

@Re Tom: You're right. The economic incentive in unstable times is that people will sit on cash, rather than spend it. To think I forgot that-and I'm a Keynesian! After all, that's precisely why we need the government to spend money: because the private sector isn't going to.

Thank you Tom, for showing me the truth path of Keynesianism I had forgotten. Truly, you are a Keynesian visionary.

In all seriousness, it's true that there's a benefit to possessing liquidity, but you're making the same fallacy between private individuals and governing bodies that you always make. There's no "Social Security Funds" that must somehow always be separate. There's money that's not being utilized to its fullest potential-it really doesn't matter where it's coming from. Hell, you had Bush Jr. who thought "Well, we're taking in too much money, the best investment is cutting taxes!"

edited 13th Aug '11 12:56:52 PM by TheyCallMeTomu

Basically, the view on finance Tom seems to be expressing (and is fairly common) is that once allocated to a particular goal, that money is "mode locked", and you shouldn't be allowed to spend it in any other way.

This has advantages (prevents a lot of potential abuse of the money) and disadvantages (limited ability to react to sudden events and emergencies). I'm not going to pass judgment on that here, as it's off-topic.

Social Security currently works like a savings account, as I said. I would not be surprised if quite a few people with this view don't understand how saving accounts, or banks in general, work.

The average person doesnt have the slightes idea that the money in a savings account for the most part, isnt actually there at any time.

And in case you missed the point, the main driver why this downturn is lasting so long is uncertainty. A Social Security system that is self-reliant and sits on cash for times like these gives the impression that it's going to be there tomorrow thus creating certainty.

Throwing money around and spending every last dime Keynesian style breeds uncertainty when there are few to no real benefits being seen as has happened this recession.

Keynesianism never foresaw the impact of market perception and uncertainty. It thought economics was a hard science that could be broken down by numbers when like most things human, all predictions and expectations fall apart when you apply it to humans.

edited 13th Aug '11 1:37:40 PM by MajorTom

Economics is one part market forces and hard data, and one part people are fucking morons.

The problem with the austrian school is that it decides to completely ignore data and its ability to spot trends in favor of throwing bones and dice around and hoping analyzing what individual people do works at a macro level.

I'd also point out that republicans have done nothing of the sort about leaving cash in the till when they can conveniently cut taxes by raiding social security.

edited 13th Aug '11 1:40:29 PM by Midgetsnowman

The reason why the economy is in the shitter is because it's in the shitter-aka high unemployment-and household debt. You can't just say "OH IT'S UNCERTAINTY BECAUSE THE GOVERNMENT!" and expect reasonably minded people to believe it.

And throwing money around on Keynesianism helps to fight unemployment, which actually breeds certainty. Your argument is beyond absurd.

And really not related to Social Security, so let's rerail.

edited 13th Aug '11 1:45:58 PM by TheyCallMeTomu

^ And at the same time, you can no longer credibly say just spend more money will cause the economy to turn around. Remember, the stimulus in 2009 actually increased uncertainty in the economy as its failure tore apart the logic that merely spending will improve the economy.

If you go on the street and ask the average person who knows that it failed and tell them we needed to spend more, they will more often than not tell you "Why? You want us to spend more on something that didn't work the first time? And you really expect different results?"

But that's drifting off topic.

No.

Not going into a Keynesian discussion here. This thread is about social security, though I encourage you to amend your last post as well. We can take it to P Ms if you wish though.

edited 13th Aug '11 1:51:03 PM by TheyCallMeTomu

Ahem, what I would like to say to rerail is that Social Security shouldn't be throwing all its money into t-bills. As safe as that may be, it's not an investment that is going to really help out the fact that when people get old, they expect the money they put in to have been properly invested and grown in appreciable size. Like I had previously showed, CPP has been well invested and in the previous 4 years, managed double digit growth rates (it wiped out losses due to the financial market collapses in 1 year). That reserve fund will serve to either be a big bank upon which CPP can draw upon if demographics become weird for a generation.

As for Tom's assertion that demographics will doom Social Security because of baby boomers. That lasts exactly 1 generation. Then you're back in business again. So it is a temporary setback at worst.

edited 13th Aug '11 2:05:15 PM by breadloaf

Social Security should not be invested in risky assets because it is an insurer of last resort. Making a killing playing stocks is not the point. The point is that it will still be there in a financial apocalypse.

Err, that's not how retirement investment works.

Contributions made early in your life should be invested in higher risk items, while contributions made later in your life should be invested in lower risk items. Social security represents the whole range of contributions due to its nature, meaning that a certain percentage of its holdings should be in higher risk items in accordance to the demographics of its contributors, in order to match the correct risk profile.

Or you could put your own savings into higher risk investments and let social security handle the low risk part.

So why would I deliberately make a government institution less than ideal?

Why should Social Security decide for you how much risk you should take? Why should your investments be determined by age? What if you want to leave more money for your heirs? What if you have to support ailing parents and cannot afford to take any risks? Everyone has their own circumstances, and it is not the role of Social Security to try to maximize profits, but to minimize risks.

And presumably benefit from economies of scale.

It is social security's job to make sure that when you retire, you get the maximum amount back in payouts you possibly could according to the amount of money you put in. You're asking to debilitate it for no reason.

If you want to donate more, change risk profile etc of your own retirement savings go ahead. Sure if you don't want sound financial planning, that is your prerogative and really that's why I support mostly government run retirement savings because most people just plain don't know how to invest. You're free to go ahead and invest more money in personal savings in whatever manner you want.

Well, even I, the OMFG SOCIALIST, think that there's some question about the idea of the government owning corporations just because it's the most effective means of investment.

Response?