Ravenwood - 10/30/03 09:43 AM
This can't be good.
A Social Security Administration spokesman said U.S. and Mexican officials are continuing "informal discussions" about a potential agreement that would allow millions of Mexicans working here to collect U.S. Social Security benefits in Mexico.Also notice the mention of the mythical "Social Security trust fund".The controversial proposal has riled Republican lawmakers. They worry that it could reward scores of undocumented Mexican immigrants with a U.S. pension, draining the country's Social Security trust fund at a time when its future solvency is in doubt.
I don't know why the social security trust fund keeps coming up. The money is spent right away, sure; but the government has absolutely no choice in the matter owing to the fallacy of composition. If the government puts the money in a social security trust mattress, then it simply reduces the money supply. The economy's liquidity dries up, and unless the Fed prints more money to replace it, goes into deflation and depression. The money the Fed prints to replace it is exactly what it put into the trust fund mattress. That is, it instead just spends the money it takes in.
Whether that spending takes the form of social security payouts or any other payment doesn't matter in the slightest. The government can't save money. It must spend or return it right away.
It the Mexicans want to buy an annuity from the US government, that's not a problem. That's what social security is: an annuity. But one whose payout can be changed as it turns out it has to be, say by raising the retirement age so the math works out when the time comes. An insolvency is not pointed to by the actuarial imbalance, but rather a future law change. It's not a crisis and will not be a crisis. Everybody can retire for the average last 12 years of their lives, just not at age 65. As lifetimes go up, so must the retirement age.
Posted by: Ron Hardin at October 30, 2003 5:04 PMIt sounds like a big ponzi scheme to me.
Well, if the old people can't work, people who can work have to support them. Those are younger people. Nothing bad happens as long as there aren't too many old people, so in particular it doesn't blow up like a Ponzi scheme. Raising the retirement age will absolutely happen, as much as necessary to make it work.
Incidentally that will happen whether it's privatized or not. If everybody has their 401k instead, the average return on investment will fall enough so that too many people don't retire too long before they die. The mechanism will be too many sellers and not enough buyers, at the lower retirement age.
Posted by: Ron Hardin at October 30, 2003 5:55 PM(c) Ravenwood and Associates, 1990 - 2014