The Secret Language Of The Social Security Debate

[head of joaquin]

I'd like to see someone name a corporation that can guarantee solvency for the next 50 years the way SS can.

BINGO.

Any company that could promise full pay out of benefits for the next quarter century, plus at least 80% of pay outs for the next half century after that, would have stock higher than Apple.

A quarter century is at the margin of our ability to make useful economic predictions. In this context, SS is basically solvent for ever.

 

[JoeTheEconomist]

For one.. certainly reducing the cap remedies social security. That's well established.

Not according to the Social Security Administration. I have posted links to their analysis. Do you have a better source than SSA?

 

[JoeTheEconomist]

Yeah.. that makes no sense... So you are saying that if I am making 120,000 a year... and my taxes go up by 1.5% on Fica.. that the better decision for me would be to retire and give up the whole 120,000? That's another example of perpetuating the lie.

If you lower wages (ie increase taxes) people will work less. You can call that a lie, or like the rest of us you can call it Economics 101.

Believe it or not high-wage workers have alternatives to work, particularly older ones who may prefer to spend more time with family.

 

[JoeTheEconomist]

Second.. divert trillions of dollars from deficit reduction? Look at that doublespeak. First,,, aren't you claiming that social security adds to the deficit? So isn't using money to pay for those promises you made when you took peoples money.. paying down a debt you owe?

Of course you don't want to consider that...

What you want to do.. is count getting rid of social security benefits toward the deficit... so then... magically there is less deficit and less need to decrease non social security spending.

Social Security is not counted in the deficit. So there is no deficit magic in cutting benefits.

If we raise taxes (however they are collected) we have the ability to use the money to reduce the deficit or outstanding debt. We can eliminate the cap, and raise taxes. The question is how the money is used. Putting fresh tax base into Social Security while we continue to run up the debt on future generations is exactly like putting your 401K contribution on your child's credit card.

Social Security has no debt according to the Supreme Court. Benefits are whatever Congress says that they are. In 1983, the entire workforce found out that benefits are not guaranteed and there is nothing you can do about it.

 

[sangha]

If you lower wages (ie increase taxes) people will work less. You can call that a lie, or like the rest of us you can call it Economics 101.

I call it neither. I call it an unproven assertion, and probably "overly and unrealistically simplistic"

 

[AlabamaPaul]

Social Security is not counted in the deficit. So there is no deficit magic in cutting benefits.

If we raise taxes (however they are collected) we have the ability to use the money to reduce the deficit or outstanding debt. We can eliminate the cap, and raise taxes. The question is how the money is used. Putting fresh tax base into Social Security while we continue to run up the debt on future generations is exactly like putting your 401K contribution on your child's credit card.

Social Security has no debt according to the Supreme Court. Benefits are whatever Congress says that they are. In 1983, the entire workforce found out that benefits are not guaranteed and there is nothing you can do about it.

Did you review this before choosing Submit Reply?

 

[JoeTheEconomist]

I don't buy the "higher taxes leads to hob losses" argument. Sure, some people will retire earlier and there is a cost associated with that but someone leaving the work force opens up a job for someone else. In the end, jobs are determined primarily by demand and the economic environment. Of course, taxes is a part of that environment, but only one part.

That is a bad assumption. Many will simply sell their business to a corporation, and you will see job losses as the businesses are brought together. It isn't just the high-wage earner that will lose his job here. As that job opens, it will be filled in many cases, by someone less experienced who will command a much lower salary. I think you look at labor as a commodity, and it isn't.

 

[JoeTheEconomist]

I'd like to see someone name a corporation that can guarantee solvency for the next 50 years the way SS can.

As I pointed out in the article, guarantee in the Social Security debate does not mean what it means in the English language. Keep in mind Jimmy's Carters 50 year guarantee didn't last 6 years.

Every business in America give the same guarantee of solvency for 1,000s of years in the exact way that SS does. It assumes that future workers will lend it money on the exact same terms. This is no different from Coke saying that it will sell 50 billion cases of soft drinks in 2050. If businesses could ignore known events like the insolvency of medicare. This is no different that cigarette manufacturers ignoring the cost of future law suits.

 

[JoeTheEconomist]

Did you review this before choosing Submit Reply?

Yes, the highlighted parts are completely unrelated.

The deficit is a budget calculation of the federal government. It does not include the revenue nor the expense of Social Security.

Social Security can't borrow money from the public markets. It borrows it from future retirees. So it has no debt in the traditional sense of the word. It makes promises, but there is no force of law behind them. The Supreme Court ruled in Flemming V Nestor that benefits are not an earned interest. Benefits are whatever Congress says that they are.

 

[JoeTheEconomist]

I call it neither. I call it an unproven assertion, and probably "overly and unrealistically simplistic"

Economics uses the word law loosely but the law of supply is a fundamental principle of economic theory which states that, all else equal, an increase in price results in an increase in quantity supplied." The inverse is the same when prices are lowered.

 

[JoeTheEconomist]

This is false. Social Security is a guaranteed payment contingent upon survival to a certain age (or certain types of disability). If you don't survive to retirement age, you get nothing. Your spouse and minor children get certain benefits, but not all SS beneficiaries have a surviving spouse or minor children. Indeed many don't.

Of the population who pay SS taxes, some get no benefits (they die before qualifying and have no qualified survivors), some get less than they put in, and some get more.

Social Security functions like insurance. You do not have to collect to get the benefit of insurance. Insurance works off of expection not collection. If someone is dead, and collects a paycheck posthumously then it is free money. For people who work more than 35 years, the money is to some extent free money. Everything else is borrowed.

 

[Hard Truth]

The OP was written by Brenton Smith and posted at Why Social Security is Falling Apart, Explained in Language You Can Understand

 

[Hard Truth]

just to point out.. Social security is funded not financed. that's why it was able to run a surplus for decades, up until 2010 or so (depending on how you calculate interest). That surplus is why SS is technically solvent until 2033.

The problem is that the surplus that the baby boomer generation paid in.. was used to finance the spending for our national debt......

Correct, which is why this statement in the OP is essentially a lie:
"For example, when someone says "Social Security does not contribute to the deficit", they really mean "Social Security is not counted toward the deficit". These are vastly different things."

 

[Hard Truth]

Reform is usually a code word for eliminate, reduce and/or privatize.

 

[JoeTheEconomist]

certainly not complex. I remain unconvinced by those who worry about the impending "disaster" that SS insolvency poses.

Keep in mind that the people who are downstream of Social Security do not adapt well to economic change. Any crisis will quickly become a disaster because these people have no other options.

I remain convinced that we will ignore the problem until the system implodes much as Bear Stearns did. Bear Stearns operated much like Social Security does today. They borrowed money, and made assumptions that the line of credit would be forever open. As long as the line remained open they were fine. They would be fine today if lines had been available.

Bear was around longer than Social Security. So you should be careful about the name a corporation that has done as well as Social Security. Keep in mind that Social Security hit insolvency in 1983. I don't think Bear had. It was valued at $130 or $140 a share mere months before being completely insolvent. When the dam breaks it is a matter of minutes, but the wear and tear has been going on for decades.

 

[sangha]

That is a bad assumption. Many will simply sell their business to a corporation,

I'm not buying that either.

and you will see job losses as the businesses are brought together. It isn't just the high-wage earner that will lose his job here. As that job opens, it will be filled in many cases, by someone less experienced who will command a much lower salary. I think you look at labor as a commodity, and it isn't.

Lower salary, lower expenses, lower prices, increased demand.

 

[JoeTheEconomist]

Correct, which is why this statement in the OP is essentially a lie:
"For example, when someone says "Social Security does not contribute to the deficit", they really mean "Social Security is not counted toward the deficit". These are vastly different things."

It is easy to throw around the word lie when you don't have to back up your words. Social Security isn't counted in the deficit. The revenue collected and the expense paid is not part of the budget. That doesn't mean that the system doesn't add to the budget deficit. It is a tax on wages. That will make goods and services more expensive, and is a factor in offshoring work. The high cost of payroll taxes require a direct subsidy in the form of the EITC. That cost the general taxpayer about 60 billion in 2011. The cost of the payroll tax holiday was roughly 250 billion. It is easy to throw around lie when you don't have to back it up.

You aren't very clear about why you think that they are the same thing. Here is another article on policymic which says that it not only adds to the deficit, but will become a much larger contributor.

Think Social Security is Unaffordable Now? Just You Wait

 

[JoeTheEconomist]

I'm not buying that either.

Lower salary, lower expenses, lower prices, increased demand.

Lower productivity is the reason for lower salary. Again labor is not a commodity.

If you are interested I can point you to the research that says that increasing the cap may not generate a penny of solvency. It is at least as sound as the material from CBO on raising the cap.

 

[sangha]

As I pointed out in the article, guarantee in the Social Security debate does not mean what it means in the English language. Keep in mind Jimmy's Carters 50 year guarantee didn't last 6 years.

Every business in America give the same guarantee of solvency for 1,000s of years in the exact way that SS does. It assumes that future workers will lend it money on the exact same terms. This is no different from Coke saying that it will sell 50 billion cases of soft drinks in 2050. If businesses could ignore known events like the insolvency of medicare. This is no different that cigarette manufacturers ignoring the cost of future law suits.

I understand the guarantee "provision". However, as we both agreed earlier, there is a valid theoretical basis on which to make such projections, and in the case of for-profit corporations, they do not support such guarantees.

It's not like SS in that until we have eliminated poverty in all age ranges, there will always be a demand for income support for seniors. Coke, not so much.

The solvency of medicare, on the other hand, is something I think is cause for concern, but mainly due to excessive costs of medical care in the US. IOW, it's a qualitatively different problem than SS

 

[sangha]

Economics uses the word law loosely but the law of supply is a fundamental principle of economic theory which states that, all else equal, an increase in price results in an increase in quantity supplied." The inverse is the same when prices are lowered.

True, but my issue is with "all else equal". The thing is, it never is

 

[sangha]

Keep in mind that the people who are downstream of Social Security do not adapt well to economic change. Any crisis will quickly become a disaster because these people have no other options.

I remain convinced that we will ignore the problem until the system implodes much as Bear Stearns did.

I don't know what you mean by "downstream of SS" but nevertheless, I disagree with your conclusion. With Bear Stearns, the people had an incredibly profitable (for themselves) reason to believe that things would just keep on going as they had. There's an old saying about convincing someone of something when their paycheck depends on believing the opposite.

 

[sangha]

Lower productivity is the reason for lower salary. Again labor is not a commodity.

I didn't say that labor is a commodity. I just don't agree that productivity is directly linked to salaries. Profit, yes.

If you are interested I can point you to the research that says that increasing the cap may not generate a penny of solvency. It is at least as sound as the material from CBO on raising the cap.

I'm not an economist, so I'm not sure if that would be worthwhile, but if you do post, I'll take a look. Not sure if it would be convincing, to be honest.

 

[JoeTheEconomist]

I understand the guarantee "provision". However, as we both agreed earlier, there is a valid theoretical basis on which to make such projections, and in the case of for-profit corporations, they do not support such guarantees.

It's not like SS in that until we have eliminated poverty in all age ranges, there will always be a demand for income support for seniors. Coke, not so much.

The solvency of medicare, on the other hand, is something I think is cause for concern, but mainly due to excessive costs of medical care in the US. IOW, it's a qualitatively different problem than SS

I think that there is a theoretical basis for the Trustees work. It looks at the system projected into the future with economic inputs. I use the material because the material provided by the Trustees say that Social Security is horribly broken. My gut tells me that the situation is much worse than they protray. The assumptions that they use are overly optimistic. If you look at the real interest rate assumptions they aren't even possible. It is no different than Coke saying that they will sell 50 billion cases in year X.

I don't know anything about medicare other than it is heading for insolvency, and when that happens Congress will have three choices : (a) pull payroll tax base away from Social Security (b) pull general taxbase away from debt control (c) redefine medicare benefits.

 

[JoeTheEconomist]

I don't know what you mean by "downstream of SS" but nevertheless, I disagree with your conclusion. With Bear Stearns, the people had an incredibly profitable (for themselves) reason to believe that things would just keep on going as they had. There's an old saying about convincing someone of something when their paycheck depends on believing the opposite.

The people downstream of Social Security are the elderly and disabled.

My daughter was in 3rd grade when Bear collapsed, and she could do the math behind the dangers of 33 to 1 leverage. These people were idiots. Now if the government doesn't bail-out Bear - and it did - all of the employees would have evolved into something more social productive. They can adapt. The elderly and disabled not so much. So let's hope that you are right.

 

[JoeTheEconomist]

I didn't say that labor is a commodity. I just don't agree that productivity is directly linked to salaries. Profit, yes.



I'm not an economist, so I'm not sure if that would be worthwhile, but if you do post, I'll take a look. Not sure if it would be convincing, to be honest.

My moniker is a attribute to value of economists.

I have sent a note to Andrew Biggs, who is the one that originally cited the study. It looks at what happens if people leave the workforce as their pay is decreased. Beyond lower SS revenue, the govt will lose medicare funding. The study looks at revenue in total not in parts. I will send it to you if Biggs is the source.