The AARP’s new TV ad campaign in which innocent little children earnestly lecture the audience about how “important it is to keep promises” fills me with a blind rage every time I see it.
The sheer gall of a bunch of retirees lecturing the rest of us on how “we” must keep “our” promises stuns me when I consider that “we” didn’t make any promises. Instead, today’s retirees made promises to themselves as they voted over the last half-century. More accurately, they promised themselves to tax the bejeezus out of generations yet unborn in order to fund their own retirements. It was a staggeringly selfish act, and now they dare to lecture the rest of us on why we must assume their obligations!
And I don’t want to hear hear any, “but the government made promises!” crap either. Last time I checked we are a government OF the people. The people made promises to themselves. A person who retires at 65 today has been voting for at least 44 years. (Voting age used to be 21 in most places.) If they don’t like the present system or don’t think they will get enough out of it, they have only themselves to blame.
It looks like Gen-X and Gen-Y will not only be on the hook for the boomer’s Social Security ponzi scheme, but also for the many federally insured corporate pension plans created in the day when leftists convinced everyone that big corporations could just raise money at will and would continue to do so forever. Perhaps we have no choice but to pay for the mistakes of our elders, but being lectured by those who created the mess in the first place about our moral obligation to assume obligations created before we were even born jams in my craw.
The fact that they use children too young to vote as their mouthpiece just rubs salt in the wounds.
That’s all correct. But, until the younger cohorts choose to vote, the older ones will stay in control.
Elliot,
…until the younger cohorts choose to vote, the older ones will stay in control.
That also presumes that 20-somethings have a sufficient intuitive feel for the effects of policies that only unfold over the course of decades. Something that I personally doubt. Moreover, Social Security is the kind of simplistic feel good solution that appeals to the young. By the time a person has enough real-world experience to know better, it may be to late to make much of an impact.
Besides, given the Boomer’s knot-in-the-python, they can swamp other age groups at the polls.
The great tragedy here is that it should be the responsibility of those with many decades under their belt to warn those younger about a play-today-pay-tomorrow mentality.
I don’t hold any brief for the AARP, but Social Security–for those who have been paying into it for decades–is indeed an implied promise that should be honored. The frequent references to huge SS “expenditures” are misleading–a return of capital is not an “expenditure.” When you put money in a bank and later withdraw it, the transaction does not show up on the bank’s ledger as an “expense.”
SS payments of course also involve an imputed interest component, and from what I’ve read this interest rate is considerably lower than what the government would have needed to pay to fund its debt through the ordinary debt markets.
Courts have ruled that individuals have no legally enforceable right to receive their expected SS payments, and this points up a major problem with the system. There is no true entitlement, such as their is with a government bond; hence, retirees are dependent on the political process–which is exactly what the Democratic Party wants, of course.
The treatment of all SS payments as “expenditures” also points up the need for the government to apply some form of accrual accounting.
I cancelled my AARP membership a long time ago. All they do is shill for insurance companies and pimp for every big entitlement program that comes down the pike.
The demographics, however, are interesting. X and Y are smaller, as predicted, but the milleniel generation, the “boom echo” is much larger than anyone anticipated. That’s why some of the predictions of a worker shortage that were all the rage in the 90’s re: SS no longer get as much airtime.
If and when the younger generations come to grips with the foolishness and narcissism of the boomers, and reach their own political “power-age” stage, there may very well be some significant changes in the benefits funded by taxes on young working families and redistributed to aging, non-productive retirees.
Eventually, and I imagine I’ll be dead long before this happens, the relentless logic of the ponzi scheme called SS will force drastic action, either significantly higher taxes to pay for the enormous benefits promised in Medicaid/Medicare, or a drastic restructuring of the whole program.
I’m not particularly worried, since it’s my kids, not the non-existent kids of the DINKs, who’ll be making the decisions when that time comes. They’ll figure it out just fine.
David Foster,
…a return of capital is not an “expenditure.”
Social Security is in no way any type of investment or saving vehicle. Its purely redistribution with immediate consumption. Money comes in from workers and then immediately goes back out as payments to retirees. The “rate of return” is determined purely by political fiat. Treating SS payments as expenditures is apt.
…is indeed an implied promise that should be honored.
That depends on whether you think that someone else is responsible for fulfilling the promises you make to yourself. It’s as if I said that “I solemnly promise that David Foster will pay me $1000 every month until I die,” and then become enraged when you baulk. Current retirees “promised” themselves that if they payed for retirees during their working life then future generations of workers (who had no say in the matter) would pay for theirs and now lecture the current generation of workers for not keeping “their” promises.
I don’t think we really have any other politically realistic option than to pay social security as it is structured but I do bitterly resent some retiree who spent their entire voting lives creating the current system lecturing me on my obligation to follow a plan the retirees created long before I was even born.
I for one love social security and get all I can and at the earliest possible age…as for the future, and the young kids, and those who com e afgter: that is, as they say, your problem and not mine. I got mine, Jack.
First of all, AARP is not run by retirees. The retirees are a means to an end for AARP’s socialists – young socialists. Great work if you can get it; Push a whack agenda and then have someone else take the heat for it.
Shannon…there have been protracted periods of time when SS ran surpluses, and these surpluses were used for general government expenditures. Had SS not existed, the government would have issued treasury debt for these, and they would need to be repaid. It’s not at all clear that taxpayers will pay more with SS than they would under that alternative.
David: Well bully for the past. There will not be one day in the future where it’s a “surplus”. SSI does not exist.. it’s a phatam.
Bush did the responsible thing in trying to get a rethink about it, but the Democrats shut him down (as usual).. now the problem will be pushed off until the time when it becomes a crisis. And I doubt that will be the only crisis that will raise its head at that time.. so instead of taking care of the problem now.. before there is a crisis or 10… the Democrats ensure that we have to have a national emergency before anything will be done about it
every day this program goes on unreformed, the crisis only builds.
Every time I see that commercial, and they say the line “SO why can’t they fix Social Security?” I think “Because the AARP will wreck any attempt to do so.”
david foster,
The “surpluses” of social security are nothing but an accounting gimmick. Put simply, the government cannot borrow money from itself. No entity can issue itself its own debt instruments. (That is literally what Enron did and look how that turned out.) Its like raiding your own piggy bank but claiming to be responsible because you put an IOU in there that says, “I own myself $3.50” In the future, you can’t stop working and just live off the IOU’s stashed in your piggy bank. IOU’s have to be paid by somebody still doing productive work. If that person is you, you can’t ever retire.
Government bonds are paid out of the tax revenues of the year in which the bonds mature. End of story. So, if the SS “surplus never existed then future SS payment would come straight out of future SS taxes. With the bonds, the payments come out of future SS taxes and future general taxes such as income taxes. Big whopping difference. Future workers will fund future retirees with their taxes.
With personal saving and investing, people delay consumption and the resources they do not consume go into creating more productive systems. Then years down the road, they live off the excess wealth those systems provide. With SS there is not delayed consumption. SS takes the taxes of workers and gives it to retirees who then immediately consume the wealth and destroy it. When someone paying SS retires the general economy has just as much productive capacity as it would have if the person had blown all their SS taxes on booze and whores.
Its ugly but that is the truth. Like I said, I see little alternative to continuing the present system, at least for the immediate short term but I really resent the very people who voted for this clusterf*ck lecturing me on my moral obligations to keep screwing myself over.
David,
There have, indeed been times when the Social Security ran a surplus, and those funds were used for general expenditures. This is what starkly distinguishes Social Security from a capital investment program. Had it been a capital investment program, those surpluses would have been invested.
Money paid in the past was not a capital investment, so it can’t be returned as a capital investment. It was a tax to support the people who were currently receiving government checks.
We have a federal tax on earnings. There is a floor of 15%. This 15% is divided into two 7.5% pieces. One is called employee contribution. The other is called employer contribution. Additional tax is a function of income level. This floor is called Social Security. Anything above the floor is called income tax. (Forgive me if my percentages aren’t exact, and I have not considered all earnings taxes.)
When we look at the flow of the funds from this tax, we see there is no difference between the various labelled components. It is all collected in one year, and it is all spent in one year. One spending item is checks to retired people. The government has no means to save or invest.
Some say Social security is invested in Treasury Bonds which are kept in a lockbox. The box is a metal filing cabinet in Virginia. It holds special Treasury Bonds. They are special because they cannot be sold on the open market like any other Treasury Bond. They can only be redeemed at the Treasury. They will be redeemed with general revenue funds.
I have adopted this system to send my kids to college. each payday I put my check in a mason jar labelled “College Fund.” Then I borrow from that fund, but I am sure to put an IOU in the mason jar. The IOU’s earn interest at 5%. The jar now contains several hundred thousand dollars of IOU’s. I point to the jar with pride and tell the kids they will be able to attend any school they choose.
My foolish neighbot has another system. He buys stock in various companies and puts those stock certificates in his mason jar. He even has some CD’s in the jar. In a fit of madness he once put some cash in the jar from a March Madness pool.
However, my mason jar is far more valuable than his. When it comes time for the kids to go off to college, he will sure have some egg on his face.
Shannon…there have been protracted periods of time when SS ran surpluses, and these surpluses were used for general government expenditures. Had SS not existed, the government would have issued treasury debt for these, and they would need to be repaid. – David
I’m not at all sure that this is true. SS is part of the growth of government which began with the New Deal. Government expenditures before then were less than 20% of GDP. The New Deal unleashed a now decades long spending spree on largely useless programs which necessitate ever-increasing funding by taxpayers. If SS didn’t exist, the other programs you speak of probably wouldn’t exist either.
However, even if the other government programs did exist, the massive SS liability which now looms dwarfs any temporary lack of funding for them that may have existed from time to time.
Eliot,
Brilliant. If you don’t mine, I’m just going to copy-paste your post the next time the need to explain this arises.
Regarding “borrowing from oneself”…while it is true that one agency of government cannot sue another agency of government, the idea of notional debt is not automatically therefore useless. For example, multidivisional corporations do interdivisional transactions all the time, and these transactions must be accounted for to reflect the underlying economic reality even though no legally enforceable contract is created between the divisions. The same principle applies here.
David Foster,
The same principle applies here.
The key point is that there is no delayed consumption with SS. When people put money into private pensions, the resources that the people would have consumed and destroyed instead go into creating productive systems like buildings, factories, student loans etc. As a result of their delayed consumption the future economy can use the increased production to support the retirees without having to burden future generations. SS by contrast simply moves consumption from worker to retirees here and does nothing to increase the overall production of the economy. When workers become retirees, the economy doesn’t have any extra productive capacity to allocate to them. That means that the allocation must come from taking it from someone else.
Corporations may move debt between subdivisions but in the end that is just internal bookkeeping. Its profitability comes solely from the money it takes in, not way in which it does its accounting. Likewise, governments may use debt instruments as accounting tools between different departments but the money that it will send out to retirees will come from the taxpayers and nowhere else. The SS trust fund is just a political gimmick that allows the politicians of today to exploit the regressive SS tax while promising that future politicians will pay future SS obligations partially from general revenues.
David,
Large companies do engage in various internal accounting. However, none of the accounting changes the consolidated net worth of the company. Accounting transactions do not provide resources; they provide a way of viewing and interpreting the financial health of the company. A debit on the books of one division creates a credit on the books of the other division. They net to zero.
However, I use this type of accounting in my College Fund. As the earner, I am organized as one division within the family. The kids are organized into another division. The mason jar is an asset of the kids’ division. The accounts receivables of their division holds the mason jar. As a family corporation, we strictly adhere to generally accepted accounting principles.
My stupid neighbor doesn’t know much about modern accounting. He knows even less about government accounting. I can’t wait to see his kids going off to state schools on the bus while my kids go to Harvard in their new BMW.
From Booklist
*Starred Review* With Boomsday looming as 77 million baby boomers get ready to retire and crash Social Security, Cassandra Devine, a sarcastic spin doctor by day and a ferocious blogger by night, calls for a revolution. Why should the under-35 crowd pay higher taxes to support the
Review of Boomsday by Christopher Buckley (“Thank You For Smoking”):
h/t Blogfather
[Comment moved to correct thread–Shannon]
And here I thought I was the only person whose blood pressure skyrocketed when viewing that commercial. I am a fairly new member of AARP and will not be renewing, specifically because of this commercial.
I think it is disingenuous, to say the least, to have children pitch about fixes that they will have to bear the burden for. The only fixes are cut benefits, and the kids can’t vote to cut grandma’s and grandpa’s check (or likely wouldn’t even if they could); raise payroll taxes on workers (kids will work, retirees won’t); or some combination of both. One wonders how the people who paid for the commercial sleep at night.
The AARP’s new TV ad campaign … fills me with a blind rage every time I see it.
Me, too!
“SS takes the taxes of workers and gives it to retirees who then immediately consume the wealth and destroy it. ”
Shannon, this sentiment is wrong headed! Apparently you think the retirees put the SS check on their plates, cut it up, and eat it for breakfast, lunch and dinner.
It seems to me that, especially if the funds are used immediately, the fund transfers that occur as the money spent by the retirees completely returns to the economy helping to provide a market (as necessary as investment is) – and directly back to the “young” workers. The “wealth” is certainly not used up as if coins were thrown into the ocean. Economic benefit may or may not be maximized (it’s beyond my ken) but capital is certainly rewarded and retiree spending puts the long green right back into circulation.
Having said this, the SS sys. is an all around screw job for the working people – and the way things are and have been, especially to the retiree who paid in money earning negative returns, eventual paybacks having long lost value to inflation. A dollar today buys what a dime would thirty-five years ago. The system to a large extent, like some other modern institutions, rewards only the ignorant, inept, and careless who would have nothing otherwise.
Tyouth: the wealth that is being destroyed is the investment gain that could have been acomplished were the system not a scam.
James, no argument here about at least a portion of “investment gain being lost” (or, one might have said “economic benefits may …. not be maximized”) but this is a far cry from “the resources that the people would have consumed and destroyed instead go into creating productive systems like buildings, factories, student loans etc.”
Well it’s true. the money that could have been invested in those things in addition to providing the savings needed to keep a person retired and monied isn’t going there. instead it’s consummed by the government overhead and then given to the receiver who buys food and pays rent with it. I doubt they’re using the money to invest in things.
Tyouth writes: “It seems to me that, especially if the funds are used immediately, the fund transfers that occur as the money spent by the retirees completely returns to the economy helping to provide a market (as necessary as investment is) – and directly back to the “young” workers. The “wealth” is certainly not used up as if coins were thrown into the ocean. Economic benefit may or may not be maximized (it’s beyond my ken) but capital is certainly rewarded and retiree spending puts the long green right back into circulation.”
First of all, the money doesn’t return directly back to young workers because a redistribution of wealth costs. An inefficient government has to employ a huge and inefficient beaurocracy to redistribute existing productivity, whithout creating any wealth in the process. This is a highly Inefficient use of resources and certainly, capital is NOT rewarded. Thus, the amount of greenback the retirees put back into circulation is much less than the greenback taken from the pockets of productive labour.
Also, let’s not forget that social security is not a simple redistribution of greenbacks from one pocket to another. Social security also pays for “payments in kind”, which is to say in goods rather than money. There is little dispute that payments in kind are are far more costly than simple cash redistribution. Productive labour ends up paying far more than it would pay if actual money were just taken out of one pocket and put in another.
Redistribution of wealth does not create more economic activity, as your post implies. If it did, France and Germany would be obscenely wealthy.
Tyrouth,
It seems to me that, especially if the funds are used immediately, the fund transfers that occur as the money spent by the retirees completely returns to the economy helping to provide a market (as necessary as investment is) – and directly back to the “young” workers.
That’s a very Keynsian perspective and it is flawed.
Think of it this way: What is the economic differences between retirees spending the money and the workers spending the money? Well, none. If the workers paid no SS tax and simply spent the extra %15 you would see at least the same stimulus effect as the current system. Even from a Keynsian perspective, SS doesn’t stimulate the economy because it doesn’t cause the economy to move money around any faster than it would have otherwise. Keynsian stimulus only works when it causes people to spend money that they otherwise would have saved. (Even then Keynes envisioned it as only a temporary measure to be used during economic downturns.) You can’t spend your way to long term prosperity.
Now, if workers where saving so much of their income that they were becoming a positive drag on the economy (which in theory can happen) then SS would arguably have a stimulating effect on the economy. However, that is not the situation we face today nor one we have faced in the last 70 years.
The simply fact is that we prepare for tomorrow by doing without today. We take resources that we would have destroyed by consuming them and instead use them to build tools and infrastructure which will produce a surplus of resources in the future. When we no longer produce ourselves, we then consume those resources. Money has nothing to do with. Its just an accounting tool.
SS does nothing to increase the overall productive capacity of the economy. It does nothing today which will lead to surplus resources tomorrow.
Shannon writes: “Now, if workers where saving so much of their income that they were becoming a positive drag on the economy (which in theory can happen)”
Shannon, isn’t that just “secular stagnation”? Hasn’t that old Keynsian theory been disproven as well, in part by the permanent income theory? I realize this was not the point of your post, but…
“….the money spent by the retirees completely returns to the economy helping to provide a market (as necessary as investment is) – and directly back to the “young” workers.”
Methinks and Shannon,
Yes, I must admit that I really disagree with my use of the words “completely” and “directly” in the above. “to an extent” and “indirectly” are more like it.
In criticising Shannon’s extreme position I seem to have taken an oppisite extreme here; I see nothing to disagree with in the last two comments at all.
Methinks,
Hasn’t that old Keynsian theory been disproven as well, in part by the permanent income theory?
As much as anything is proved in economics. I was thinking more from the perspective of the Keynisian model itself rather than if the model in entire was correct. The idea that people will save so much as to slow the economy is one of those hypothetical constructs that I don’t believe anyone has actually witnessed in the real world. The only circumstance in which I can think of it happening on any large and sustained scale would be during a period of severe deflation. People would hold onto their money because they believe it will be worth more tomorrow.
Tyouth,
I think we may be talking passed one another. I didn’t mean to imply that moneys redistributed had no positive economic effect. Instead, I wanted to point out that they had the identical economic effect as if SS never existed in the first place.
Suppose we didn’t have SS taxes. Every worker would take home %15 more income. What would they do with it? They would spend most of it. For arguments sake, let us say they spend it all. Now, it is readily apparent that if they did not save that income then when they came to retire not only would they not have a nest egg as individuals but society at large would not have the surplus resources to care for them.
SS basically does this with redistribution. It takes %15 from workers and gives it retirees for the retirees immediate consumption needs. Indeed, it probably leads to greater consumption and less investment because retirees don’t save or invest at their time of life.
SS is not an investment plan. It does not create future surpluses. It merely moves money from working Peter to retired Paul in the here-and-now. In that regard it has the same economic effects as if Peter just spent the money himself.
Ah, yes! Periods of severe deflation – like the great depression. People would not only hold onto their money because they think it’ll be worth more tomorrow but they would also be reticent to invest it in new business.
Thank you, Shannon.
Shannon, you mix things up. There is a local and global view on investments. For a person, investment means bringing money into some sell able goods, like stock market, bank account, pension Fonds certificates etc. NO one says those organizations will aid global investment – which consists of improving schools and science, infrastructure etc. Social Security is indeed there so people have something when retired, it does not pushes economy forwards. But saving schemes do neither – the money is also used for consuming, just by other people. And in the end, economy is for consumption I consume something You make, You something I make and so on, and we both have something of it.
//Methinks Says:
Redistribution of wealth does not create more economic activity, as your post implies. If it did, France and Germany would be obscenely wealthy.
//
Everything can be too much, of course, you need a middle ground. On the other hand:
In the past 20 years there was 1(One) school shooting (that is a pupil took a gun and killed his classmates and teachers) in Germany. How many were in USA?
Is it coincidence? Or is it rather that American capitalism makes people angry and evil?
Economy without welfare brought the Great Depression. Is it good?