Friday, February 20, 2009

Social Security Madness

Is it just me, or since President Obama took office has there been an increase in the bits and pieces of insanity out there? Case-in-point this column in the UK Guardian urging President Obama to declare social security solvent today, tomorrow, and forever in an effort to boost spending by baby boomers who may be cautious with their money because of concerns over social security.

In some ways this is an interesting point, playing into the view that economics is about mass psychology and that people's perceptions of larger economic issues help to shape economic conditions. But if you want the government to lie to people about social security, why not just have them lie about the economy in general? If lying about social security's financial status could give the economy a temporary stimulus, why not go on tv and tell everyone that the recession is over and the economy is improving?

I use the term "lying" about social security because it most certainly would be a lie to say social security is just fine. At some point in the next 10-15 years, there will be a point where social security will need to pay out more benefits than it collects in payroll taxes and something will need to be done to maintain the system. To say the system is fine ignores all facts and all objective reality. Now there are certainly potential fixes to the upcoming crisis, but not one of them would be very popular. Those possible solutions include:

# Raising the eligibility age. Would not be popular among boomers looking to retire (especially when these are the folks who's retirement savings have taken such a hit as the market has fallen.)

# Decreasing payouts to beneficiaries. Not popular for obvious reasons.

# Increase payroll taxes on everyone. This would be a drain on businesses in a bad economy and would hit the poor hardest of all.

# Eliminate the individual payroll tax cap, which is a popular solution amongst the left. Right now, social security is taxed on only your first 90,000 some odd dollars of income, but eliminating the cap would bring in significantly more revenue. This would be a huge tax hike, but more importantly, it would end the illusion that social security is a government sponsored retirement program. Social security has proved popular because it's supposed to be a government sponsored retirement program, where the benefits retirees receive is based on the money they paid into the system while they were employed. People who don't work and don't pay social security taxes won't receive any benefits. If the social security cap is lifted without a corresponding increase in benefits for those paying the increase in taxes, than social security becomes not a retirement program, but a welfare program. Not that there's anything wrong with a welfare program, but there would be no real reason to maintain the fiction that social security was somehow a separate system.

4 Comments:

Anonymous rose said...

Nice find.

So let me guess this straight. Liberals, in shutting down Bush's SS privitization attempts, didn't want to give inidivduals any control of how their social security savings are invested, because in their mind, the average person is too irresponsible. Confiscating people's money isn't enough to protect them from themselves, they can't even be trusted to decide how to invest their money. This is what liberals basically said.

But some now advocate tricking people into spending money that they'd otherwise, RIGHTLY, be saving for retirement.

It's rare that you have such a perfect example of hypocrisy and such a strong argument against letting the government get their grubby little hands on anything we've rightly earned and own.

1:15 PM  
Anonymous rose said...

"there has been a concerted effort over the last quarter of a century to undermine confidence in the programme"

It's called analysis and a consensus of economists agree that SS is unsustainable in its current form.

Mind-boggling. The guy believes that there is some sort of conspiracy against SS. How are these people allowed to write for major publications?

What are the odds that Obama attempts to tackle SS in his 4-8 years? Zero? How can there be any pressure to when you can still deny that there is a problem and be taken seriously?

1:29 PM  
Blogger lonely libertarian said...

If social security is supposed to be nothing more than a government-sponsored retirement program, why can't I opt out of the system? Even if you want to make the argument that we need some sort of retirement system to avoid a situation where old people can't afford to take care of themselves, then why can't I have some say in where my retirement money actually goes? That's the BS of social security and the system's supporters want to have it both ways.

2:24 PM  
Anonymous rose said...

Exactly. So the point I wish I made more clearly is this:

The only way govt. justifies forcing you to buy a government annuity (which is what SS is), is because you might be too dumb to save for yourself.

Say you buy into this kind of paternalism.

The government loses all credibility when they refuse to acknowledge the flaws of the program and insist on lieing to you about the uncertainty of this retirement annuity ultimately being available to you.

So even if you believe that people need a 3rd party to nanny them, and even if you have no regard for economic freedom, the government continues to prove itself less responsible than individuals.

4:08 PM  

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