I’ve become frustrated with what I’ll call the “forecasting” debate over social security. And my frustration has turned around into an additional argument against the PAYGO system.
It is now clear to me that the forecasting debate works by choosing your favored assumptions about growth, aging, immigration, etc., extrapolating into the future, and then arguing either that we are “headed for an iceberg” or that there is no iceberg, or at least there is no iceberg that can’t be evaded with marginal tinkering.
However, the fact remains that no one knows what the growth rate is going to be in ten years. No one can tell you whether there will be a huge jump in life expetancy due to technological innovation in 20 years. No one can tell you whether President Jeb Bush will usher in a new era of mass immigration. Maybe those fascistic millenials will have six kids per pair!
Whatever the case may be, whether or not social security-as-we-know-it is sustainable depends on a lot of what we don’t know and can’t know. We can and should try to see what the future will look like if certain trends continue, given various different assumptions. Yet, we don’t know how to assign probabilities to the assumptions or to the possible futures. It is likely that some unpredictable exogenous factor will render any such assignment moot.
But frustrations about the futility of the forecasting debate point to a deep flaw in the design of social security: the system is fragile. Brittle, even. The fact that the projected sustainability of social security is so sensitive to fairly small changes in growth rates, demographic change, unemployment rates and is a sure sign that it is extremely poorly designed policy.
Advocates of status quo-ish approaches are stuck arguing that the future’s going to thread the needle of conditions under which the system is viable. Now, I don’t know, and neither do they, whether their favored forecast will become reality. But it remains that a well-designed institution should be robust under a broad range of future conditions. Our PAYGO system just isn’t. Small differences in the rate of growth, rate of increase of life expectancy, and so on, shouldn’t make or break the system. Of course, there is no system that can reliably withstand dramatic changes in any variable. But we should at least aim for a system that is fairly adaptive and robust against moderate changes in growth, population, employement, and aging.
Consider the worst case under the current system:
Between 2018 and 2052, workers will see their SS tax rise from 6.2% to around 8%, and employer contributions will too.
Consider the worst case under the proposed SS ‘fix’:
Trillions of SS dollars will be siphoned up by financial institutions in administration fees and what is left in private accounts is wiped out by a stock market crash.
It is the proposed Social Security reforms that are brittle. They assume the money won’t be stolen by greedy officials and the stock market will continue to rise endlessly at 5-6% a year.
Monkyboy,
The current system allows greedy officials to steal the money. Citizens have no property rights to “promised” payments and congress can do whatever it wants with the funds and future benefits.
But, I think I disagree with Will’s implication that an important reason to prefer reform is that it will be more stable in the face of changes to the variables he mentioned.
If the current system could be made more stable than the reform plan by raising the contributions and/or reducing the benefits I would still favor reform. My problem with the current system is not so much that it’s a fraud and unstable (it is), but that it violates the autonomy of individuals by making it more difficult for them to control their own lives. I favor reform because it is a step towards more individual control, and perhaps reform will help people realize that they would be better off with no mandatory program at all.
It’s about collectivism vs. individualism; not actuarial tables.
I sympathize with you Gil, but I see taxes as just a symptom of an oversize federal government. Shrink the size of the government and lower taxes will follow.
I actually saw the current investment side of Social Security on the Nightly Business Report a few days ago. One pleasant women sitting at a desk in the Office of Public Debt. She sits at a computer and calculates how much extra SS took in for the day. Then she does a calculation and prints out a treasury bond for the ammount and puts in in a folder. Pretty cheap and simple.
Under all the proposed SS reform plans, a cadre of bonus baby bankers will be sucking at the government teat, drawing huge salaries while they buy what are essentially lottery tickets for SS accounts.
I don’t buy that the best way to make SS more stable is to create a huge new bureaucracy to gamble our money in the stock market. I think this latest reform push is just a smoke screen.
If the republicans pass this bill, they and their pals stand to make trillions off it. And even if they don’t, attention is drawn away from a federal budget that is loaded with pork and fraud and probably in the red $600+ billion this year.
I think we should trim as much as possible from the current government programs before trying to ‘fix’ a program that is in good shape for at least 40 more years…
Looks to me like the status quo folks have compelling arguments against the Bush proposal (to the extent that we know what it is at this point), but they have failed to convince me how the current system is any good, either.
Hey, I have an idea. Let’s ditch the thing entirely and take responsibility for our own damn retirements. I’ll happily abandon the 16 years of social security payments I’ve made to this point for the right to ditch out of the system.
Will,
Your argument proves too much. If actuarial forecasting is completely impossible, social security isn’t the only thing that has to go: all defined benefit pensions, indeed all insurance, are just fraudulent.
By the way, Social Security is not “Pay As You Go” and hasn’t been for twenty years.
Of course Social Security is PAYGO. The accounting fiction of the trust fund and its horde of T-bills does not change the fact that when tax receipts are insufficient to pay out liabilities, the difference will be covered by funds from the general treasury (“redeemed T-bills”), which is indistinguishable (economically) from what was going on before- current taxation (in FICA+General Revenue) to pay current liabilities. That is the essence of PAYGO.
No, Pay-as-you-go means that current receipts are determined by current outlays. That is not the case for Social Security.
ALL defined benefit plans, however well-funded, might someday require increased contributions to meet promised benefits. That does not make them pay-as-you-go. Even plans with a deficit are not pay-as-you-go if they have any built-up assets at all.
If the trust fund’s ownership of US Government Bonds is fictitious, why isn’t the Chinese Central Bank’s?
The problem is that the Right hasn’t updated its talking points on social security since Goldwater. This forces it into the ridiculous position of arguing that US government bonds aren’t real financial assets.
Surely you see the difference between loaning yourself money (bonds in the trust fund) and someone else loaning you money (bonds in the Chinese Central Bank.) If I have ten dollars and decide to loan myself five, I’ve still got ten dollars, even if I think of my wallet as the Wilkinson Beer Fund and think of my cookie jar as the Wilkinson General Fund. The piece of paper in my wallet is not an asset of the beer fund.
“If I have ten dollars and decide to loan myself five, …”
…then you’re a bit barmy.
Will,
I’m not sure I buy this. “Brittle” is an interesting description, because something that’s brittle shatters when placed under too much stress. But PAYGO systems never shatter. They atrophy and become sclerotic as the demands on them outstrip their resources and they’re forced to scale back the benefits they offer.
When making arguments of this sort, it’s important to keep in mind what baseline is being used. What makes the PAYGO systems (and defined-benefit pension plans) fragile is that it makes generous promises long before it’s known if the resources will be there to pay for them. Privatized Social Security systems (and defined-contribution pension plans) in contrast, solve this problem by jettisoning the promise altogether. You get what your personal account earns, and if that’s not enough to retire on, that’s tough for you.
But there’s no reason a PAYGO system couldn’t have this same property of flexibility. We could, for example, promise only inflation-indexed benefits, but then have a mechanism for adding bonus increases if and when revenues are sufficient to cover them. Then if the pessimistic scenario proved correct, we’d just all get slower growth in our retirement benefits, just as we would if the stock market performed poorly.
It’s the promising of generous benefit schedules decades out into the future, not any intrinsic property of PAYGO versus pre-funded systems, that makes Social Security brittle.
Tim, That’s right. If you indexed benefits to certain variables, then PAYGO could be robust. I suppose this is the point of DeLong’s idea of an independent panel–a Fed Board for Social Security– who periodically announce changes in the rate benefit increase, retirement age, and so forth.
Will,
You identify a real issue, but it isn’t that the system is Pay-As-You-Go.
Let’s suppose I am a trustee for my nephew’s college fund. The fund has a surplus. As trustee, I choose to lend the money to myself to deal with a cash-flow problem in my business.
Now, what I am doing is ethically and legally problematic, to say the least. However, a genuine transaction takes place. I lend “myself” money, but the money I lend is in trust. So, it is correct to say that the college fund has an asset (a debt owed by me). The value of this asset depends, in part, on my solvency, but if I have the credit rating of the US Government, then that value is pretty high.
What Bush is doing is the equivalent of my saying, in the example, that since the debt I owe to “myself” (qua trustee) is fictitious, my nephew’s college fund is really broke, and he is going to have to make do with a three month TV repair course. I would be repudiating the debt I (in my own interest) owe myself (as trustee for someone else).
The same analysis would apply to a company pension plan that owned company bonds. The company cannot just say “we owe them to ourselves” and then lawfully repudiate the claim of the pension fund on the general revenues of the company.
In effect, Bush is trying to reconcile his LBJ-style spending with his Coolidge-style taxation by repudiating a substantial portion of the US debt. I don’t understand why it is a libertarian position to support the federal government repudiating its obligations.
I don’t understand why it is a libertarian position to support the federal government repudiating its obligations.
For the same reason that libertarians reject Affirmative Action and reparations. Did whites oppress and exploit blacks in the past? Certainly. Does racial discrimination continue to this day, albeit in an implicit, less pernicious form? No doubt. Do people with white skin enjoy structural advantages while people with black skin suffer from structural disadvantages? Yes.
Does any of this justify punishing one group for the crimes of another, or rewarding one group at the expense of another? Not at all. And nothing justifies paying off government debt with stolen money. That is the libertarian argument in favor of the government “repudiating its obligations.” Being a libertarian is sort of like being a medical doctor: When fulfilling moral obligations, first do no harm.
Social Security rests on the notion that it is okay for high school seniors to torment and abuse freshman, because they themselves were tortured and abused three years prior. To comfort these freshman, we tell them that their suffering today is an investment for tomorrow, to be paid off with “Senior Privileges.” The cycle of violence repeats itself anew.
Haha Micha, “Senior Privileges.”
The people retiring now have been paying into Social Security all their working lives. That you equate SS with freshman hazing says more about your youth than about the actual SS system.
There was a time when the Libertarian Party would get a million votes and the occasional electoral vote in national elections. It’s attitudes like yours that make it the joke it is today…
The people retiring now have been paying into Social Security all their working lives.
Yes, they’ve been stolen from all of their lives. So now it’s their turn to steal from younger generations.
Nope, no similarity to senior privileges in high school whatsoever.
Hehe, are you in an English boarding school Micha?
SS is a popular program here in the U.S. There is no general outcry to end it, just a few greedy politicos trying to enrich themselves. Life is uncertain, a little insurance is a nice thing to have.
No general outcry? Did you miss the last election? Bush won partly on account of his calls to privatize the ponzi scheme. There was much talk prior to the election that this would be one of his major second-term projects. If people loved the program so much, they wouldn’t have voted for him.
The fallacy of argumentum ad populum cuts both ways.
86% of the people who voted for Bush thought Saddam had WMD.
60% thought Saddam was behind the 9/11 attacks.
It would be interesting to speculate about which candidate would have won if the voters had perfect knowledge of the world. Who knows, maybe it would have been the Libertarian guy…
Seeing as I haven’t been a Libertarian in over 20 years, I gotta know…what do you think the odds are that the U.S. government will halt transfer programs like Social Security in your lifetime, Micha?
I put the chances at less than 1%
86% of the people who voted for Bush thought Saddam had WMD. 60% thought Saddam was behind the 9/11 attacks.
So have you reached the conclusion yet that ad populum is not a valid form of argument?
Seeing as I haven’t been a Libertarian in over 20 years
Last thread you claimed to be an “old-school libertarian.” Times sure have changed since a few days ago.
The odds that Social Security will be partially privatized within the next four years look pretty good; much better than they’ve ever been in the last few decades of Cato agitation. Whether this will be a move in the right direction is an open question. Whether I take great comfort in knowing how much this will piss off self-righteous snots as yourself is, on the other hand, well settled.
When I was a paid up Libertarian, the battle was to keep the size and influence of the government at a reasonable level, a reality-based goal. I still believe that should be the focus of libertarians, my old-schoolyness.
Today’s Libertarians seem to spout marginal ideoligies like “all tax is theft” while at the same side, perhaps out of some pathetic need for any kind of victory, no matter how hollow, lend their support to plans that will increase the size of government.
Private Soical Security accounts will do nothing to change the fiscal realities of SS, but it will create a massive new bureaucracy in the federal government. Hardly a lower or upper case libertarian goal.
Transfer programs are going to be with us forever. There is plenty of waste and fraud in the government that all libertarians can agree should go. I’ll be happy to join you on the picket lines outside the offices of BearingPoint LLC or outside the Missile “Defense” bases in Alaska to protest.
And I’ll even blow my nose first…
The Libertarian Party’s motto has never been “standing athwart history, yelling stop.” There is another name for people who fight that battle, and it isn’t libertarian.
Everyone from the most hardcore libertarian to the most hardcore socialist believes that government waste and fraud should go. That is not a uniquely libertarian position, any more than “people shouldn’t eat babies” is a uniquely libertarian position.
Color me confused, Micha.
If “Everyone from the most hardcore libertarian to the most hardcore socialist believes that government waste and fraud should go. ” why does it exist?
Wouldn’t everyones time be better spent joining forces to first get rid of government fraud rather than fighting each other on divisive issues like SS reform?
Public waste and fraud exists because it is not in the interests of politicians as a class to eliminate waste and fraud. The costs of agricultural subsidies, for instance, are distributed across millions and millions of consumers, who do not have the cooridinating ability to join together and protest against a quadruple increase in the price of sugar. Even if they could coordinate, these costs are so small for each individual sugar consumer that they wouldn’t even bother. The benefits if this subsidy, though, are concentrated among the few firms that produce sugar. These sugur producers can easily join together, form a common interest group, and lobby a politician with political donations to create a subsidy for them.
Nobody supports these policies except the sugar producers and their hired political help, but they are the only people that matter. No politician is going to complain because no one else cares enough to vote for or donate to a candidate who calls for an end to these subsidies. A politician who make such a call would lose by a landslide, for challenging the “you scratch my back, I’ll scratch yours” mentality of Washington.
Wouldn’t everyones time be better spent joining forces to first get rid of government fraud rather than fighting each other on divisive issues like SS reform?
I’m not interested in making the mafia more efficient, less wasteful, and better functioning. One of the only values of government is that it achieves its goals so poorly.
You were almost there, Micha, and then you fell back to exactly where the politicians and the people who get rich from the government want you.
Sugar subsidies might be a bad first target for the Coalition of the Efficient. How about Lockheed first? Here is a company that gets almost all its funding from the government, yet its CEO, Vance Coffman, a virtual employee of the federal government, has made $70 million in the past few years.
Lets join together and call for an 80-90% tax on the salary of anyone who makes more than, say, 4 times the median US income at companies that exist suckling at the government teat. Hell, make it apply to anyone who worked for the government in the last 10 years and got rich because of it. And make it retroactive, hehe.
Let’s grab Bill Clinton’s $10 million book advance, Dick Cheney’s ranch, Rudi Giulinani’s $8 million a year in speaking fees and Jack Abramoff’s $70 million from tribal gaming interests…and let’s fund the private Social Security accounts with the proceeds.
I think we can all get behind a plan like that.
I just dont get it!
i dont understand the argument that opposes private accounts because it will create “fat cats” on wall street who will take the money and run. Exactly where they will run, i dont know. Also, they ignore that wall street people are tax paying Americans who will have to perform in order to make money. So jobs will be created. Also, the govt can pass a law limiting the type of funds, and the amount of fees that can be charged. “gasp”, liberals should know this better than anyone! In other words, it is a weak argument based on absolutely no factual basis. Just based on trying to create fears.
It’s true, Sean, that Corporate Executives and Stockbrokers are all a bunch of straight arrows who never break the law, but making them all even richer isn’t the only problem with private accounts.
What happens, for instance, if the stock market tubes and we’re all left holding a bunch of worthless paper?
Lets join together and call for an 80-90% tax on the salary of anyone who makes more than, say, 4 times the median US income at companies that exist suckling at the government teat.
With the end result being…only the companies with the crappiest, straight-out-of-Devry-weeknight-MBA-program CEOs will be willing to sell to the government. Great plan, Einstein. Instead of getting overprice aircrafts, we would get overpriced aircrafts that fly straight into the ground. Brilliant.
Let’s grab Bill Clinton’s $10 million book advance, Dick Cheney’s ranch, Rudi Giulinani’s $8 million a year in speaking fees and Jack Abramoff’s $70 million from tribal gaming interests…and let’s fund the private Social Security accounts with the proceeds.
I think we can all get behind a plan like that.
Unlike you, most of us don’t consider thievery and jealousy to be virtues.
What happens, for instance, if the stock market tubes and we’re all left holding a bunch of worthless paper?
What happens if foreign investors realize that the U.S. is bankrupt and cash out all their dollars and U.S. investments for Euros? Would you rather invest in an area of the economy which rapidly and decisively responds to the Enrons in their mists, or an area of the economy which actively and openly encourages Enron-type shenanigans by calling them Pay-As-You-Go retirement insurance?
It’s hard to imagine anyone who did more for America than Thomas Jefferson. He died a poor man. What does the current, corrupt system get us? Greedy little shits who risk nothing yet make millions off the government.
Yes, it would be nice for people to invest some of their Social Security funds in competitive US companies. Unfortunately, a few years worth of SS funds will buy a controlling interest in every single US company that fits that description. After that, the people would be getting shares in dog companies that only have a few years to live…
Look. You can’t have it both ways.
If we assume that the SS payroll tax is just another tax, and SS payments are just another government program, then it makes no sense to talk about Social Security going “broke”. Under these assumptions, the solvency of Social Security is just the solvency of the US Government, and Bush is to blame for any deterioration.
If we can talk about the solvency of Social Security at all, then we assume some distinct existence for the trust fund. Nothing wrong with that. But then calling it Pay-As-You-Go is just dishonest, because Social Security has built up substantial assets.
Micha’s fundamentalist position doesn’t make sense to me. Would he have any objection to a private defined benefit pension scheme? Would an insurance company who sponsored such a scheme wrong retirees if it refused to pay them promised benefits? Of course.
What is the libertarian position on government debt? Can it just be repudiated? What about other government contracts? Isn’t government morally and legally obliged to fulfill them? If so, then why isn’t it in the same position as a private insurance company which has sponsored a defined benefit plan?
What do libertarians do if the least expensive long-term insurer is the state? By the looks of this argument, they just deny that spreading risk has any utility and misrepresent pension systems.
Gareth, It’s not dishonest to call it pay as you go, since the government in fact pays as it goes. Paycheck witholding goes into to the SSA, who pays current obligations out of current revenues. The surplus revenues are then sent to the general fund, where it is spent, and replaced with a bookmaking notation in the form of bonds. No benefits will be paid out of the trust fund until obligations begin to outpace witholding revenues, in which time some percentage of benefits will be paid out of the general fund.
Micha’s fundamentalist position doesn’t make sense to me. Would he have any objection to a private defined benefit pension scheme? Would an insurance company who sponsored such a scheme wrong retirees if it refused to pay them promised benefits? Of course.
Of course, I agree. But would it be a lesser wrong for this private insurance company to pay its debts by stealing more cash? I don’t see why it would be. Government may have an obligation to pay off debts, but unless it can do so using the funds it already has, it is merely compensating one theft with another. That doesn’t strike me as a moral improvement.
What do libertarians do if the least expensive long-term insurer is the state? By the looks of this argument, they just deny that spreading risk has any utility and misrepresent pension systems.
If we believed the least expensive long-term insurer was the state, we probably wouldn’t be libertarians. That’s like asking, “What would libertarians do if the most efficient means of allocating scarce resources was central planning?” Well, if socialism was truly better than capitalism, then wouldn’t be many libertarians, and for good reason.
Given that China’s economy is growing radiply and may eclipse the US economy in size fairly soon, libertarians may have to ponder…is communism the most efficient means of allocating scarce resources?
Micha,
You do see that the logic of your position is that the Government shouldn’t pay its debts (since any of its revenues would come from taxation, which you consider “theft”).
I’d love to see what Cato’s funders thought of that one!
Given that China’s economy is growing radiply and may eclipse the US economy in size fairly soon, libertarians may have to ponder…is communism the most efficient means of allocating scarce resources?
You think China’s economy is communist?
You do see that the logic of your position is that the Government shouldn’t pay its debts
No, my position is that government shouldn’t pay its debts with more theft. If the government can pay its debts by selling the assets it already controls, that would be a moral improvement.
I’d love to see what Cato’s funders thought of that one!
Since many of Cato’s funders (not to mention a number of its employees) are anarchists, or at least acknowledge that taxation is at best a necessary evil (but an evil nonetheless), I don’t think they’d find it all that surprising.
This is apt:
“My political views seem natural and obvious—to me. Others find them peculiar. Their peculiarity consists largely of carrying certain statements, familiar enough in political oratory, to their natural conclusions”
- David Friedman, Machinery of Freedom
We recognize the moral error when high school upperclass men try to justify the tormenting of their younger peers with the excuse that they themselves were tormented. Yet we refuse to follow this same logic and apply it to senior citizens.
Yes, Micha, China is a communist country. That they have instituted a few market reforms doesn’t change that.
In its thousands of years of existence, China has frequently opened its borders to foreign businessmen, and then slammed them shut. That the next time they do it they will collect hundreds of billions of dollars is…almost comical.
So in China, there is no private ownership of the means of production? All economic activity is planned by the state? There is no free trade with capitalist countries? The cause of China’s impressive economic growth are those aspects of the economy which are truly communist, and not the newly instituted market reforms?
In its thousands of years of existence, China has frequently opened its borders to foreign businessmen, and then slammed them shut. That the next time they do it they will collect hundreds of billions of dollars is…almost comical.
So the best way to make hundreds of billions of dollars…is to restrict free trade? Free money! Every country should move towards autarky if they want to be rich, right?
Micha,
It isn’t hard to prove that the premise that taxes are theft leads to anarchist conclusions. One of these anarchist conclusions is that owners of US Government bonds would have to make do with a part ownership of the Lincoln memorial and the Yellowstone National Park.
If you are happy to be this consisent, good on ya. However, you will have to excuse me if I don’t take your intervention in contemporary policy debates seriously.
Micha, China currently has 25 billionaires. All are members of the communist party or the Red Army. There is a small percentage of the people who earn almost western wages, and then there are over a billion people living in poverty. In a way, China is a glimpse of America in the future…if the Republicans have their way.
If you are happy to be this consisent, good on ya. However, you will have to excuse me if I don’t take your intervention in contemporary policy debates seriously.
Would I be happier if I were inconsistent?
Earlier in this thread, you asked why it is a libertarian position to support the federal government repudiating its obligations. I demonstrated that this follows directly from the libertarian view of taxation is tantamount to theft. Why did you bother asking if you were not interested in the answer?
Micha,
As I understand it, not all libertarians think that government is illegitimate, and therefore that taxes are theft. The libertarian whose views I am most familiar with — Richard Epstein — definitely thinks the government must perform its contractual obligations.
Even an anarcho-capitalist might wonder about the transitional costs invovled in having the government default on all its obligations (except to the extent they could be fulfilled by selling Yellowstone and a few aircraft carriers).
So, I concede that my argument that government must meet its obligations to the SS trust fund does not work from your premises, since you don’t think the government must meet its obligations, to the extent these would be paid out of taxes. However, I would still be interested in how a libertarian who thinks the government must meet its contractual obligations addresses this problem.
Epstein deviates from many other libertarians in a number of areas, most notably with his support of eminent domain. I believe he is a more of a consequentialist than a deontologist, and yes, he does think government is necessary and moral. Other minarchists, however, share the anarchist view that taxation is tantamount to theft, but do not take this to its logical conclusion.
It’s not clear to me what problem a libertarian who thinks the government must meet its contractual obligations needs to address. By definition, this person opposes the federal government repudiating its obligations.
Micha,
I suppose it is unreasonable for me to ask you what someone you disagree with would say. But the problem is that if you take for granted that the government should meet its contractual obligations, why wouldn’t that include accrued obligations under Social Security? Bush’s plan might arguably be consistent with this, although it is hard to say because we haven’t seen it.
It would include obligations under Social Security; what makes you think it wouldn’t? Cato’s proposals don’t include repudiation of government debt.
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Consider the worst case under the current system:
Between 2018 and 2052, workers will see their SS tax rise from 6.2% to around 8%, and employer contributions will too.
Consider the worst case under the proposed SS ‘fix’:
Trillions of SS dollars will be siphoned up by financial institutions in administration fees and what is left in private accounts is wiped out by a stock market crash.
It is the proposed Social Security reforms that are brittle. They assume the money won’t be stolen by greedy officials and the stock market will continue to rise endlessly at 5-6% a year.
Monkyboy,
The current system allows greedy officials to steal the money. Citizens have no property rights to “promised” payments and congress can do whatever it wants with the funds and future benefits.
But, I think I disagree with Will’s implication that an important reason to prefer reform is that it will be more stable in the face of changes to the variables he mentioned.
If the current system could be made more stable than the reform plan by raising the contributions and/or reducing the benefits I would still favor reform. My problem with the current system is not so much that it’s a fraud and unstable (it is), but that it violates the autonomy of individuals by making it more difficult for them to control their own lives. I favor reform because it is a step towards more individual control, and perhaps reform will help people realize that they would be better off with no mandatory program at all.
It’s about collectivism vs. individualism; not actuarial tables.
I sympathize with you Gil, but I see taxes as just a symptom of an oversize federal government. Shrink the size of the government and lower taxes will follow.
I actually saw the current investment side of Social Security on the Nightly Business Report a few days ago. One pleasant women sitting at a desk in the Office of Public Debt. She sits at a computer and calculates how much extra SS took in for the day. Then she does a calculation and prints out a treasury bond for the ammount and puts in in a folder. Pretty cheap and simple.
Under all the proposed SS reform plans, a cadre of bonus baby bankers will be sucking at the government teat, drawing huge salaries while they buy what are essentially lottery tickets for SS accounts.
I don’t buy that the best way to make SS more stable is to create a huge new bureaucracy to gamble our money in the stock market. I think this latest reform push is just a smoke screen.
If the republicans pass this bill, they and their pals stand to make trillions off it. And even if they don’t, attention is drawn away from a federal budget that is loaded with pork and fraud and probably in the red $600+ billion this year.
I think we should trim as much as possible from the current government programs before trying to ‘fix’ a program that is in good shape for at least 40 more years…
Looks to me like the status quo folks have compelling arguments against the Bush proposal (to the extent that we know what it is at this point), but they have failed to convince me how the current system is any good, either.
Hey, I have an idea. Let’s ditch the thing entirely and take responsibility for our own damn retirements. I’ll happily abandon the 16 years of social security payments I’ve made to this point for the right to ditch out of the system.
Will,
Your argument proves too much. If actuarial forecasting is completely impossible, social security isn’t the only thing that has to go: all defined benefit pensions, indeed all insurance, are just fraudulent.
By the way, Social Security is not “Pay As You Go” and hasn’t been for twenty years.
Of course Social Security is PAYGO. The accounting fiction of the trust fund and its horde of T-bills does not change the fact that when tax receipts are insufficient to pay out liabilities, the difference will be covered by funds from the general treasury (“redeemed T-bills”), which is indistinguishable (economically) from what was going on before- current taxation (in FICA+General Revenue) to pay current liabilities. That is the essence of PAYGO.
No, Pay-as-you-go means that current receipts are determined by current outlays. That is not the case for Social Security.
ALL defined benefit plans, however well-funded, might someday require increased contributions to meet promised benefits. That does not make them pay-as-you-go. Even plans with a deficit are not pay-as-you-go if they have any built-up assets at all.
If the trust fund’s ownership of US Government Bonds is fictitious, why isn’t the Chinese Central Bank’s?
The problem is that the Right hasn’t updated its talking points on social security since Goldwater. This forces it into the ridiculous position of arguing that US government bonds aren’t real financial assets.
Surely you see the difference between loaning yourself money (bonds in the trust fund) and someone else loaning you money (bonds in the Chinese Central Bank.) If I have ten dollars and decide to loan myself five, I’ve still got ten dollars, even if I think of my wallet as the Wilkinson Beer Fund and think of my cookie jar as the Wilkinson General Fund. The piece of paper in my wallet is not an asset of the beer fund.
“If I have ten dollars and decide to loan myself five, …”
…then you’re a bit barmy.
Will,
I’m not sure I buy this. “Brittle” is an interesting description, because something that’s brittle shatters when placed under too much stress. But PAYGO systems never shatter. They atrophy and become sclerotic as the demands on them outstrip their resources and they’re forced to scale back the benefits they offer.
When making arguments of this sort, it’s important to keep in mind what baseline is being used. What makes the PAYGO systems (and defined-benefit pension plans) fragile is that it makes generous promises long before it’s known if the resources will be there to pay for them. Privatized Social Security systems (and defined-contribution pension plans) in contrast, solve this problem by jettisoning the promise altogether. You get what your personal account earns, and if that’s not enough to retire on, that’s tough for you.
But there’s no reason a PAYGO system couldn’t have this same property of flexibility. We could, for example, promise only inflation-indexed benefits, but then have a mechanism for adding bonus increases if and when revenues are sufficient to cover them. Then if the pessimistic scenario proved correct, we’d just all get slower growth in our retirement benefits, just as we would if the stock market performed poorly.
It’s the promising of generous benefit schedules decades out into the future, not any intrinsic property of PAYGO versus pre-funded systems, that makes Social Security brittle.
Tim, That’s right. If you indexed benefits to certain variables, then PAYGO could be robust. I suppose this is the point of DeLong’s idea of an independent panel–a Fed Board for Social Security– who periodically announce changes in the rate benefit increase, retirement age, and so forth.
Will,
You identify a real issue, but it isn’t that the system is Pay-As-You-Go.
Let’s suppose I am a trustee for my nephew’s college fund. The fund has a surplus. As trustee, I choose to lend the money to myself to deal with a cash-flow problem in my business.
Now, what I am doing is ethically and legally problematic, to say the least. However, a genuine transaction takes place. I lend “myself” money, but the money I lend is in trust. So, it is correct to say that the college fund has an asset (a debt owed by me). The value of this asset depends, in part, on my solvency, but if I have the credit rating of the US Government, then that value is pretty high.
What Bush is doing is the equivalent of my saying, in the example, that since the debt I owe to “myself” (qua trustee) is fictitious, my nephew’s college fund is really broke, and he is going to have to make do with a three month TV repair course. I would be repudiating the debt I (in my own interest) owe myself (as trustee for someone else).
The same analysis would apply to a company pension plan that owned company bonds. The company cannot just say “we owe them to ourselves” and then lawfully repudiate the claim of the pension fund on the general revenues of the company.
In effect, Bush is trying to reconcile his LBJ-style spending with his Coolidge-style taxation by repudiating a substantial portion of the US debt. I don’t understand why it is a libertarian position to support the federal government repudiating its obligations.
I don’t understand why it is a libertarian position to support the federal government repudiating its obligations.
For the same reason that libertarians reject Affirmative Action and reparations. Did whites oppress and exploit blacks in the past? Certainly. Does racial discrimination continue to this day, albeit in an implicit, less pernicious form? No doubt. Do people with white skin enjoy structural advantages while people with black skin suffer from structural disadvantages? Yes.
Does any of this justify punishing one group for the crimes of another, or rewarding one group at the expense of another? Not at all. And nothing justifies paying off government debt with stolen money. That is the libertarian argument in favor of the government “repudiating its obligations.” Being a libertarian is sort of like being a medical doctor: When fulfilling moral obligations, first do no harm.
Social Security rests on the notion that it is okay for high school seniors to torment and abuse freshman, because they themselves were tortured and abused three years prior. To comfort these freshman, we tell them that their suffering today is an investment for tomorrow, to be paid off with “Senior Privileges.” The cycle of violence repeats itself anew.
Haha Micha, “Senior Privileges.”
The people retiring now have been paying into Social Security all their working lives. That you equate SS with freshman hazing says more about your youth than about the actual SS system.
There was a time when the Libertarian Party would get a million votes and the occasional electoral vote in national elections. It’s attitudes like yours that make it the joke it is today…
The people retiring now have been paying into Social Security all their working lives.
Yes, they’ve been stolen from all of their lives. So now it’s their turn to steal from younger generations.
Nope, no similarity to senior privileges in high school whatsoever.
Hehe, are you in an English boarding school Micha?
SS is a popular program here in the U.S. There is no general outcry to end it, just a few greedy politicos trying to enrich themselves. Life is uncertain, a little insurance is a nice thing to have.
No general outcry? Did you miss the last election? Bush won partly on account of his calls to privatize the ponzi scheme. There was much talk prior to the election that this would be one of his major second-term projects. If people loved the program so much, they wouldn’t have voted for him.
The fallacy of argumentum ad populum cuts both ways.
86% of the people who voted for Bush thought Saddam had WMD.
60% thought Saddam was behind the 9/11 attacks.
It would be interesting to speculate about which candidate would have won if the voters had perfect knowledge of the world. Who knows, maybe it would have been the Libertarian guy…
Seeing as I haven’t been a Libertarian in over 20 years, I gotta know…what do you think the odds are that the U.S. government will halt transfer programs like Social Security in your lifetime, Micha?
I put the chances at less than 1%
86% of the people who voted for Bush thought Saddam had WMD. 60% thought Saddam was behind the 9/11 attacks.
So have you reached the conclusion yet that ad populum is not a valid form of argument?
Seeing as I haven’t been a Libertarian in over 20 years
Last thread you claimed to be an “old-school libertarian.” Times sure have changed since a few days ago.
The odds that Social Security will be partially privatized within the next four years look pretty good; much better than they’ve ever been in the last few decades of Cato agitation. Whether this will be a move in the right direction is an open question. Whether I take great comfort in knowing how much this will piss off self-righteous snots as yourself is, on the other hand, well settled.
When I was a paid up Libertarian, the battle was to keep the size and influence of the government at a reasonable level, a reality-based goal. I still believe that should be the focus of libertarians, my old-schoolyness.
Today’s Libertarians seem to spout marginal ideoligies like “all tax is theft” while at the same side, perhaps out of some pathetic need for any kind of victory, no matter how hollow, lend their support to plans that will increase the size of government.
Private Soical Security accounts will do nothing to change the fiscal realities of SS, but it will create a massive new bureaucracy in the federal government. Hardly a lower or upper case libertarian goal.
Transfer programs are going to be with us forever. There is plenty of waste and fraud in the government that all libertarians can agree should go. I’ll be happy to join you on the picket lines outside the offices of BearingPoint LLC or outside the Missile “Defense” bases in Alaska to protest.
And I’ll even blow my nose first…
The Libertarian Party’s motto has never been “standing athwart history, yelling stop.” There is another name for people who fight that battle, and it isn’t libertarian.
Everyone from the most hardcore libertarian to the most hardcore socialist believes that government waste and fraud should go. That is not a uniquely libertarian position, any more than “people shouldn’t eat babies” is a uniquely libertarian position.
Color me confused, Micha.
If “Everyone from the most hardcore libertarian to the most hardcore socialist believes that government waste and fraud should go. ” why does it exist?
Wouldn’t everyones time be better spent joining forces to first get rid of government fraud rather than fighting each other on divisive issues like SS reform?
Public waste and fraud exists because it is not in the interests of politicians as a class to eliminate waste and fraud. The costs of agricultural subsidies, for instance, are distributed across millions and millions of consumers, who do not have the cooridinating ability to join together and protest against a quadruple increase in the price of sugar. Even if they could coordinate, these costs are so small for each individual sugar consumer that they wouldn’t even bother. The benefits if this subsidy, though, are concentrated among the few firms that produce sugar. These sugur producers can easily join together, form a common interest group, and lobby a politician with political donations to create a subsidy for them.
Nobody supports these policies except the sugar producers and their hired political help, but they are the only people that matter. No politician is going to complain because no one else cares enough to vote for or donate to a candidate who calls for an end to these subsidies. A politician who make such a call would lose by a landslide, for challenging the “you scratch my back, I’ll scratch yours” mentality of Washington.
Wouldn’t everyones time be better spent joining forces to first get rid of government fraud rather than fighting each other on divisive issues like SS reform?
I’m not interested in making the mafia more efficient, less wasteful, and better functioning. One of the only values of government is that it achieves its goals so poorly.
You were almost there, Micha, and then you fell back to exactly where the politicians and the people who get rich from the government want you.
Sugar subsidies might be a bad first target for the Coalition of the Efficient. How about Lockheed first? Here is a company that gets almost all its funding from the government, yet its CEO, Vance Coffman, a virtual employee of the federal government, has made $70 million in the past few years.
Lets join together and call for an 80-90% tax on the salary of anyone who makes more than, say, 4 times the median US income at companies that exist suckling at the government teat. Hell, make it apply to anyone who worked for the government in the last 10 years and got rich because of it. And make it retroactive, hehe.
Let’s grab Bill Clinton’s $10 million book advance, Dick Cheney’s ranch, Rudi Giulinani’s $8 million a year in speaking fees and Jack Abramoff’s $70 million from tribal gaming interests…and let’s fund the private Social Security accounts with the proceeds.
I think we can all get behind a plan like that.
I just dont get it!
i dont understand the argument that opposes private accounts because it will create “fat cats” on wall street who will take the money and run. Exactly where they will run, i dont know. Also, they ignore that wall street people are tax paying Americans who will have to perform in order to make money. So jobs will be created. Also, the govt can pass a law limiting the type of funds, and the amount of fees that can be charged. “gasp”, liberals should know this better than anyone! In other words, it is a weak argument based on absolutely no factual basis. Just based on trying to create fears.
It’s true, Sean, that Corporate Executives and Stockbrokers are all a bunch of straight arrows who never break the law, but making them all even richer isn’t the only problem with private accounts.
What happens, for instance, if the stock market tubes and we’re all left holding a bunch of worthless paper?
Lets join together and call for an 80-90% tax on the salary of anyone who makes more than, say, 4 times the median US income at companies that exist suckling at the government teat.
With the end result being…only the companies with the crappiest, straight-out-of-Devry-weeknight-MBA-program CEOs will be willing to sell to the government. Great plan, Einstein. Instead of getting overprice aircrafts, we would get overpriced aircrafts that fly straight into the ground. Brilliant.
Let’s grab Bill Clinton’s $10 million book advance, Dick Cheney’s ranch, Rudi Giulinani’s $8 million a year in speaking fees and Jack Abramoff’s $70 million from tribal gaming interests…and let’s fund the private Social Security accounts with the proceeds.
I think we can all get behind a plan like that.
Unlike you, most of us don’t consider thievery and jealousy to be virtues.
What happens, for instance, if the stock market tubes and we’re all left holding a bunch of worthless paper?
What happens if foreign investors realize that the U.S. is bankrupt and cash out all their dollars and U.S. investments for Euros? Would you rather invest in an area of the economy which rapidly and decisively responds to the Enrons in their mists, or an area of the economy which actively and openly encourages Enron-type shenanigans by calling them Pay-As-You-Go retirement insurance?
It’s hard to imagine anyone who did more for America than Thomas Jefferson. He died a poor man. What does the current, corrupt system get us? Greedy little shits who risk nothing yet make millions off the government.
Yes, it would be nice for people to invest some of their Social Security funds in competitive US companies. Unfortunately, a few years worth of SS funds will buy a controlling interest in every single US company that fits that description. After that, the people would be getting shares in dog companies that only have a few years to live…
Look. You can’t have it both ways.
If we assume that the SS payroll tax is just another tax, and SS payments are just another government program, then it makes no sense to talk about Social Security going “broke”. Under these assumptions, the solvency of Social Security is just the solvency of the US Government, and Bush is to blame for any deterioration.
If we can talk about the solvency of Social Security at all, then we assume some distinct existence for the trust fund. Nothing wrong with that. But then calling it Pay-As-You-Go is just dishonest, because Social Security has built up substantial assets.
Micha’s fundamentalist position doesn’t make sense to me. Would he have any objection to a private defined benefit pension scheme? Would an insurance company who sponsored such a scheme wrong retirees if it refused to pay them promised benefits? Of course.
What is the libertarian position on government debt? Can it just be repudiated? What about other government contracts? Isn’t government morally and legally obliged to fulfill them? If so, then why isn’t it in the same position as a private insurance company which has sponsored a defined benefit plan?
What do libertarians do if the least expensive long-term insurer is the state? By the looks of this argument, they just deny that spreading risk has any utility and misrepresent pension systems.
Gareth, It’s not dishonest to call it pay as you go, since the government in fact pays as it goes. Paycheck witholding goes into to the SSA, who pays current obligations out of current revenues. The surplus revenues are then sent to the general fund, where it is spent, and replaced with a bookmaking notation in the form of bonds. No benefits will be paid out of the trust fund until obligations begin to outpace witholding revenues, in which time some percentage of benefits will be paid out of the general fund.
Micha’s fundamentalist position doesn’t make sense to me. Would he have any objection to a private defined benefit pension scheme? Would an insurance company who sponsored such a scheme wrong retirees if it refused to pay them promised benefits? Of course.
Of course, I agree. But would it be a lesser wrong for this private insurance company to pay its debts by stealing more cash? I don’t see why it would be. Government may have an obligation to pay off debts, but unless it can do so using the funds it already has, it is merely compensating one theft with another. That doesn’t strike me as a moral improvement.
What do libertarians do if the least expensive long-term insurer is the state? By the looks of this argument, they just deny that spreading risk has any utility and misrepresent pension systems.
If we believed the least expensive long-term insurer was the state, we probably wouldn’t be libertarians. That’s like asking, “What would libertarians do if the most efficient means of allocating scarce resources was central planning?” Well, if socialism was truly better than capitalism, then wouldn’t be many libertarians, and for good reason.
Given that China’s economy is growing radiply and may eclipse the US economy in size fairly soon, libertarians may have to ponder…is communism the most efficient means of allocating scarce resources?
Micha,
You do see that the logic of your position is that the Government shouldn’t pay its debts (since any of its revenues would come from taxation, which you consider “theft”).
I’d love to see what Cato’s funders thought of that one!
Given that China’s economy is growing radiply and may eclipse the US economy in size fairly soon, libertarians may have to ponder…is communism the most efficient means of allocating scarce resources?
You think China’s economy is communist?
You do see that the logic of your position is that the Government shouldn’t pay its debts
No, my position is that government shouldn’t pay its debts with more theft. If the government can pay its debts by selling the assets it already controls, that would be a moral improvement.
I’d love to see what Cato’s funders thought of that one!
Since many of Cato’s funders (not to mention a number of its employees) are anarchists, or at least acknowledge that taxation is at best a necessary evil (but an evil nonetheless), I don’t think they’d find it all that surprising.
This is apt:
“My political views seem natural and obvious—to me. Others find them peculiar. Their peculiarity consists largely of carrying certain statements, familiar enough in political oratory, to their natural conclusions”
- David Friedman, Machinery of Freedom
We recognize the moral error when high school upperclass men try to justify the tormenting of their younger peers with the excuse that they themselves were tormented. Yet we refuse to follow this same logic and apply it to senior citizens.
Yes, Micha, China is a communist country. That they have instituted a few market reforms doesn’t change that.
In its thousands of years of existence, China has frequently opened its borders to foreign businessmen, and then slammed them shut. That the next time they do it they will collect hundreds of billions of dollars is…almost comical.
So in China, there is no private ownership of the means of production? All economic activity is planned by the state? There is no free trade with capitalist countries? The cause of China’s impressive economic growth are those aspects of the economy which are truly communist, and not the newly instituted market reforms?
In its thousands of years of existence, China has frequently opened its borders to foreign businessmen, and then slammed them shut. That the next time they do it they will collect hundreds of billions of dollars is…almost comical.
So the best way to make hundreds of billions of dollars…is to restrict free trade? Free money! Every country should move towards autarky if they want to be rich, right?
Micha,
It isn’t hard to prove that the premise that taxes are theft leads to anarchist conclusions. One of these anarchist conclusions is that owners of US Government bonds would have to make do with a part ownership of the Lincoln memorial and the Yellowstone National Park.
If you are happy to be this consisent, good on ya. However, you will have to excuse me if I don’t take your intervention in contemporary policy debates seriously.
Micha, China currently has 25 billionaires. All are members of the communist party or the Red Army. There is a small percentage of the people who earn almost western wages, and then there are over a billion people living in poverty. In a way, China is a glimpse of America in the future…if the Republicans have their way.
If you are happy to be this consisent, good on ya. However, you will have to excuse me if I don’t take your intervention in contemporary policy debates seriously.
Would I be happier if I were inconsistent?
Earlier in this thread, you asked why it is a libertarian position to support the federal government repudiating its obligations. I demonstrated that this follows directly from the libertarian view of taxation is tantamount to theft. Why did you bother asking if you were not interested in the answer?
Micha,
As I understand it, not all libertarians think that government is illegitimate, and therefore that taxes are theft. The libertarian whose views I am most familiar with — Richard Epstein — definitely thinks the government must perform its contractual obligations.
Even an anarcho-capitalist might wonder about the transitional costs invovled in having the government default on all its obligations (except to the extent they could be fulfilled by selling Yellowstone and a few aircraft carriers).
So, I concede that my argument that government must meet its obligations to the SS trust fund does not work from your premises, since you don’t think the government must meet its obligations, to the extent these would be paid out of taxes. However, I would still be interested in how a libertarian who thinks the government must meet its contractual obligations addresses this problem.
Epstein deviates from many other libertarians in a number of areas, most notably with his support of eminent domain. I believe he is a more of a consequentialist than a deontologist, and yes, he does think government is necessary and moral. Other minarchists, however, share the anarchist view that taxation is tantamount to theft, but do not take this to its logical conclusion.
It’s not clear to me what problem a libertarian who thinks the government must meet its contractual obligations needs to address. By definition, this person opposes the federal government repudiating its obligations.
Micha,
I suppose it is unreasonable for me to ask you what someone you disagree with would say. But the problem is that if you take for granted that the government should meet its contractual obligations, why wouldn’t that include accrued obligations under Social Security? Bush’s plan might arguably be consistent with this, although it is hard to say because we haven’t seen it.
It would include obligations under Social Security; what makes you think it wouldn’t? Cato’s proposals don’t include repudiation of government debt.