Monday, April 6, 2015

Social Security Myths

On a somewhat less serious topic, I found this article interesting.
MSN Money Social Security Myths


So I started looking for other versions of the article:
Forbes SS Myths
SSA Myths and Misinformation Part 1
SSA Myths and Misinformation Part 2
RR Myths Debunked


Thoughts?

18 comments:

  1. They missed the biggest myth-- that there is any money in the "trust fund."

    ReplyDelete
  2. Unfortunately for those that disagree, words mean things. There is no money in the Trust Fund. They ADMIT it, saying it contains "special purpose Treasury notes." That means a promise to pay, it is NOT money unless Congress digs into its stash and redeems those bonds.

    It /IS/ going bankrupt in the sense that its only asset-- the Trust Fund-- will soon be depleted, and they will be operating entirely on an insufficient cash flow-- unable to "pay their bills," essentially.

    It /IS/ a Ponzi scheme in the sense that early entrants were paid more than they invested, out of money paid by later "investors," yet promises to the later investors cannot be kept because the number of investors required to provide the same returns to all keeps rising towards the infinite. Eventually there aren't enough people in the world to keep the money flowing. It's been happening for quite awhile now, with the number of workers per SS recipient slowly falling from 16 to 4, and eventually to 2. That's not going to work.

    ReplyDelete
  3. They missed the biggest myth-- that there is any money in the "trust fund."

    Bonds are in the trust fund. Or as those who want to dishonor them like to call them "IOUs".

    --Hiram

    ReplyDelete
  4. Bonds are simply IOUs, and they are worth only the amount of money someone wishes to pay for them. They are worthless unless Congress honors its commitments and somewhere finds the money to do so. That means they take it from other spending, raise taxes, or increase the national debt.

    And the problem with myth-busting is that it leaves the realities largely intact. The reality is that in 10 years or so, Social Security, Medicare and Medicaid will consume the entire federal budget. What do we do then?

    ReplyDelete
  5. "The reality is that in 10 years or so, Social Security, Medicare and Medicaid will consume the entire federal budget."

    Oh come now, don't so dramatic.

    SS Retirement, SS Disability and Medicare redeem their bonds for cash. The treasury issues new bonds to other investors. Net effect to the national debt is ZERO.

    The problem arises when the trust funds run out of bonds... Then the payouts will need to decrease and/or extra funding will need be found.

    ReplyDelete
  6. "Oh come now, don't so dramatic.

    SS Retirement, SS Disability and Medicare redeem their bonds for cash. The treasury issues new bonds to other investors. Net effect to the national debt is ZERO."

    That is two incorrect statements. I am only being "dramatic" if you think the CBO are a bunch of fabulists rather than realistic green eye shade types. I don't believe everything they tell me, but their charts ought to at least point out that we have a problem.

    The other thing you don't notice is that the Social Security bonds are "off the books" as far as the national debt is concerned, so if those bonds are redeemed by floating new, public treasury notes, the national debt DOES go up.

    Now, I worry about the national debt; it is too high, but I am even more concerned by the "unfunded liabilities" of the federal government, of which Social Security is the smallest. I think I have said this before, but if the federal government were to live by the rules it requires of private corporate retirement plans, they would need to raise federal taxes to 100% of income for eight years to fund those obligations. Another way to look at it is that a child born today is some $400,000 in debt. And I will wager that Social Security will not "be there" for her. That is a myth.

    ReplyDelete
  7. It seems you did not read the links I provided. You are working hard to propogate many of the myths they debunk.

    ReplyDelete
  8. I did read the links. Their debunking of the myths uses word tricks, smoke and mirrors. Believe who you want, but read between the lines of that cite and you'll find a lot of dissembling.

    ReplyDelete
  9. "Bonds are simply IOUs, and they are worth only the amount of money someone wishes to pay for them."

    That's somewhat of an oversimplification particularly where federal debt is concerned. To begin with, federal government bonds, unlike private bonds, are guaranteed by the federal government. Security is not an issue for them. In an orderly market, what determines their value is prevailing interest rates. And really, because security isn't a concern for them, that's what they are worth whether the market is orderly or not.

    --Hiram

    ReplyDelete

  10. SS Retirement, SS Disability and Medicare redeem their bonds for cash. The treasury issues new bonds to other investors. Net effect to the national debt is ZERO."

    When the government borrow Social Security money, it adds to the deficit. When it pays back the money it borrows, it reduces the deficit. Now that the cash flow in Social Security is negative, the effect of paying SS benefits will be to lower not raise the national deficit.

    --Hiram

    ReplyDelete
  11. HIram, The money owed the SS Trust Funds are not counted as part of the National Debt. Until recently, the excess SS taxes were counted as reducing the deficit, not adding to it. So, when we trade that "hidden" SS bond for a real Treasury note, the debt does in fact increase. Either way, in fact, there is an "unfunded liability" in SS, actually greater than the national debt, up until a few years ago, at least.

    ReplyDelete
  12. The money owed the SS Trust Funds are not counted as part of the National Debt.

    I believe that's incorrect, or at least should be. When the government borrows money, it creates debt. It doesn't matter from whom it borrows it.

    " Until recently, the excess SS taxes were counted as reducing the deficit, not adding to it."

    That wouldn't make sense because the government was borrowing the surplus, to create those bonds. A bond is a manifestation of government debt. That is, in fact what happens.

    "So, when we trade that "hidden" SS bond for a real Treasury note, the debt does in fact increase.+

    No, when we exchange one bond for another, the transactions is roughly a wash for Social Security. Again, when one borrows money, it creates debt. It doesn't matter from whom it's borrowed.

    --Hiram

    ReplyDelete
  13. Facts and Data

    Pew Research
    Heritage
    Baseline Scenario

    I think the last link said it best...

    "The real question is what happens when the trust funds run out of money, which is currently expected sometime in the 2030s."

    ReplyDelete
  14. "The real question is what happens when the trust funds run out of money, which is currently expected sometime in the 2030s."

    Maybe the real question should be what should we do now to avert the problems in the 2030s.

    ==Hiram

    ReplyDelete
  15. Apparently there are two ways of counting the Debt, one in which the SSTF is counted, and another in which it is not. There is no doubt, however, that SS is currently paying out more than it is taking in, so...

    The question is NOT "what happens when the TF runs out" but what should we do NOW with a program that pays out more than it takes in? Because that extra spending is depleting the "assets" of the TF, SS is in fact already contributing to the debt and deficit.

    ReplyDelete
  16. Because that extra spending is depleting the "assets" of the TF, SS is in fact already contributing to the debt and deficit.

    there is not "extra spending" in the sense of what is being spent is unpredictable or unpredicted. The shortfall was anticipated back in 1983 when Ronald Reagan reformed SS. The plan was that that accumulated surplus would be paid down when the baby boom generation retires. Again, the impact on the deficit reverses. The surplus added to the deficit as it was accumulated over the years. Now, as we pay off those debts, the effect on the deficit will be to reduce it.

    --Hiram

    ReplyDelete
  17. "The surplus added to the deficit as it was accumulated over the years. Now, as we pay off those debts, the effect on the deficit will be to reduce it."

    I must have missed class the day this peculiar school of accounting was taught. We know that as the SS surplus came into the treasury, it masked the deficit, because the excess money was spent, rather than spending general revenues. All of the money that came in to SS, surplus or not, got turned into those special SS bonds in the "trust fund" and sensible accounting would say added to the federal debt. So, deficits went down and debt went up.

    NOW, when SS income is LESS than needed to pay current benefits, you would expect that to be reversed, that the deficit would go up and the debt would go down. But that isn't the case. Because government is spending more than it is taking in (from SS), the deficit IS higher than it would otherwise be. But the debt is not going down because government is already running a deficit. Therefore, the Trust Fund bonds redeemed to make up the difference and pay benefits gets replaced by a general treasury note and the debt is unchanged. Actually, the debt is even a bit higher because Congress pays the interest on those bonds as well. So... currently, the deficit is higher and the debt is higher because of Social Security. What a wonderful scheme.

    ReplyDelete