Ravenwood - 02/26/04 06:00 AM
Federal Reserve Chairman Alan Greenspan made a suggestion yesterday that caused just about every politician on Capitol Hill, Democrat and Republican, to shriek in horror. Greenspan looked at the rising federal deficit, spend-thrift politicians, and ever increasing entitlements, and recommended that politicians knock it off.
As a young professional, I came to terms long ago that I'll never see a dime of the thousands of dollars I'm pouring into social security each year. By confirming my suspicions, Greenspan is likely to be fired, especially if the Democrats take the White House in November.
Democratic front-runner Sen. John Kerry said the way to address the deficit was to roll back tax cuts for the wealthy and "the wrong way to cut the deficit is to cut Social Security benefits. If I'm president, we're simply not going to do it."While the federal budget deficit worsens the social security problem, the relation between the two is not as direct as Kerry and Edwards would have you believe. Raising income taxes on the rich won't fix the inevitable social security bankruptcy. Social Security runs a huge surplus ever year, but the money is quickly snatched up and spent by power hungry politicians on both sides of the aisle. The IOUs of all the money taken from Social Security add up to somewhere in the neighborhood of $26 Trillion. Balancing the federal budget is only the first step in solving the problem.Sen. John Edwards, D-N.C., called it "an outrage' for Greenspan to call for cuts in Social Security while at the same time endorsing making Bush's tax cuts permanent. Rep. Dennis Kucinich, D-Ohio, went even further and called for Greenspan to resign as Fed chairman, saying his comments were "a disgrace."
Social Security has never been more than a huge ponzi scheme. If a private company tried to run a similar scam, they'd be thrown in jail faster than you can say "lock box". The aging baby boom means that more and more people are going to be drawing social security benefits, with less people paying into the fund. The end-game is a point when there aren't enough of us young people paying in to cover the expenses. That means that unless the benefits are cut, taxes are dramatically increased, or the money is privatized to take advantage of a higher rate of return, those of us in Generation X and Generation Y are just pouring money down a rat hole.
Category: Fall of Western Civilization
Comments (6) top link me
I was going to comment, but it turned into a rant....
one quick thought: fixing the SS "problem" is political suicide... unless it's done yesterday, BEFORE any leaks get out that you're tackling it.
Posted by: Jim S at February 26, 2004 12:00 PMYour anger is misplaced. The government _must_ instantly spend the Social Security contributions. There's no way on God's green earth that they can save it for the future. It's not because they're the government but because they represent everybody, and everybody cannot save at once. The same problem would occur if they privatized Social Security.
If they put the money in a mattress, it reduces the money supply, and the Fed simply offsets it by printing more money, with the same effect as spending it. In 30 years, when they take the money out of the mattress to pay it to you, it increases the money supply, and the Fed instantly offsets that by selling debt. Nothing has been saved and nothing has been achieved by trying to save.
In effect, it's spent no matter what when it's received, and that's that. It's not even a policy question.
The Social Security problem is that future services will be provided by future workers for future retirees, and if there's too many retirees for workers, it cannot work no matter how it's financed.
If you privatize Social Security, then everybody buys today (there is a surplus after all) and sells in thirty years, thus investing against a huge hill of similar-minded people, reducing the average return on investment. To what level? Why, to that very level where you can't retire until an age when there's few enough retirees for the workers to support them. That, raising the retirement age, in other words, is the single and only solution, and it doesn't matter whether the government does it in Social Security or the market does it by reducing average returns to private investment.
It's not that you can retire after 65 years of your life, but that you can retire for the last thirteen. As lifetimes increase, so must the retirement age.
Posted by: Ron Hardin at February 26, 2004 1:38 PM"Saving" money is still a way of investing. When you put money into a bank account, you are basically giving the bank the money to sell to investors. It doesn't sit down there in a vault until it is needed.
That said, any type of investing is going to get a better rate of return than does government spending. If you keep the government from immediately spending the money, and instead sell the money to someone else to spend (which is essentially how an "investment" works) you get a higher rate of return on the money.
Setting all that aside, I would much rather not put anything at all into social security, and not draw anything from it. I would much rather keep those dollars under my control, and invest them how I see fit. If I become destitute, so be it.
Posted by: Ravenwood at February 26, 2004 2:16 PMIt's a fallacy of composition (if everybody stands on their toes, everybody can see better). Somebody has to want the money now and not want it later, for you to save it now and spend it later. If everybody is the same, it won't work. If most people are the same, it still won't work, because the needed opposite parties will be able to bid a really really great deal for themselves. What great deal? Your return will be so low that you won't be able to retire at 65, along with everybody else in the same saving predicament.
It's not a matter whether it's private or Social Security trying to do it, but the absence of enough parties with orthogonal needs to trade with.
One guy can easily save for retirement at 65. Everybody cannot. Not with the current lifespans.
Posted by: Ron Hardin at February 26, 2004 2:43 PMSorry, Ron but, that's just bogus. You have taken a narrow academic view of a zero sum trading game and blown it up as the whole world. The real world builds with savings and investment. The pie gets bigger.
Posted by: Fred Boness at February 26, 2004 5:01 PMFred, if the pie grows, it just means that the rare persons who take the other side of the trade get a better deal yet. It's a buyers' market problem. There are too many people of one kind (wanting to save now) so they drive their return to zero by bidding against each other. Growth doesn't matter.
Posted by: Ron Hardin at February 27, 2004 6:09 AM(c) Ravenwood and Associates, 1990 - 2014
