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sagemerlin

sagemerlin
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JULY 7, 2010 2:10PM

When Did Social Security Become an “Entitlement”?

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This is a message for anyone who has reached, or is approaching, his or her 62nd birthday: 

Don’t wait to retire!  Pull the plug as soon as you can and, if you have any grounds to get on disability – do it.

Social Security is under attack from both parties, which see the enormous Social Security bill for the Baby Boomer Generation as the straw that will break the economy’s back.

House Minority Leader John Boehner, in a June 29 interview with the Pittsburg Tribune Review, advocated increasing the retirement age from 66 to 70 for worker who are not scheduled to retire for another 20 years.

That’s a very misleading way of saying that workers who are now 50 years of age or less would have to wait until they are 70 years of age to retire if they want to receive full benefits. That means these workers would be forced to continue paying into the Social Security Fund for an additional four years in order to balance the Social Security Administration’s fractured budget.

Assuming that the same early retirement provisions would apply, this means that the minimum retirement age would increase from the present 62 years of age to 66 years of age for anyone born before between 1943 and 1954.  (If you were born after 1954, retirement ages will be higher.)

Before you assume that the Democratic Party, at least, has your back when it comes to protecting Social Security, think again, because the Democrats have put Social Security on the chopping block as part of their effort to reduce the federal budget by 3% by 2015.

The war against the American middle class is rapidly becoming a genocidal event.

Once upon a time, Social Security was sacrosanct to the extent that anyone who proposed changes in the Social Security laws was promptly voted out of office in most jurisdictions.

Things have changed.  Today, the only difference between Republican and Democratic party theorists is how they propose to restructure the program.

Congress has tinkered with Social Security over the years and, during the Bush regime,  proposals were floated to privatize the whole thing….but none of those adjustments have triggered the ire of the electorate to the extent that these new proposals should.

Any attempt to abrogate the terms of the Social Security laws, however, will lead to the largest class action suit in the history of this country….and one that the government is almost certainly destined to win given the 5-4 conservative edge on the Roberts Court…but one where the moral right would belong with the plaintiffs.

The proposals for restructuring Social Security range from increasing the minimum retirement age – currently 62 years of age – to reducing the monthly stipends for newly-retired recipients.  Between those extremes, a number of other alternatives have been floated by various parties…but everyone seems to have given tacit approval to the idea that Social Security must be cut back to balance the federal budget.

In making these suggestions, the political elite – which doesn’t have to depend upon Social Security – repeatedly describes Social Security as an “entitlement” program…but the way in which the term is used makes is a pejorative epithet rather than a simple description of the program’s functionality.  Republican pundits, pandering to their TeaBag Accessories, have been redefining “entitlement” for years by lumping legitimate entitlement programs together with other aid programs that they view as unjustifiable claims against our collective revenues by those who have not contributed to the revenue stream.

But, entitlement programs are precisely that….programs to which the recipients are entitled by virtue of a previously existing agreement between the federal government and the citizens of this republic, as documented by the original Social Security legislation.  Any attempt to curtail either the eligibility or the stipends paid to Social Security recipients represents the worst kind of contract breach that undermines the very fabric of the Republic.

Social Security isn’t charity.  It’s not welfare.  It’s our own money coming back to us from the same government that took it from us by force in the first place.

According to the Social Security Administration, I have paid $64,183 into the Social Security System, which was matched by an equal contribution from my various employers from 1968 to 2008, when I lost the last job I ever expect to hold.   That comes to a total of $124,366 that was paid into the fund on my behalf.

That comes out to an average of just $3109 per year that has been taking out of my total earning power and invested on my behalf but, when invested at a very conservative average rate of 3% per year, in four quarterly payments of $777.29 and compounded quarterly, my theoretical $124,366 investment is presently worth $1,423,014, which demonstrates the power of compound interest.

What do I get in return for that investment?

If I retire at 62, I will receive $1,363 per month.  At that rate of return, it will take 1044 months – or 87 years – to break even by amortizing the value of my contributions over the past forty years.   If I retire at 66, I will get $1808 per month, which reduces the breakeven point to 787 months.  That’s equivalent to 65 years.  

I don’t expect to live that long.

Nevertheless, by retiring at 62 and accepting $1363 a month, I would be losing out on the $1808 I would get if I waited until I reached 66 before I pulled the plug.    That’s a difference of $445 a month, and that’s beginning to sound like a lot of money to me in my present circumstances.  

But wait!   There’s more. 

If I were still working for a living, based on my historical earnings average, I would pay an additional $12,436 into the Social Security Retirement Fund.   Add the $1363 I didn’t receive each month over that four year period, and the total cost of waiting an additional four years comes to $77,860.

The breakeven point on that $77,860 is 43 months.  That’s how long it would take me at $1808 per month to earn back the $77,860 I paid into the fund while I was waiting for my 66th birthday.  In other words, I would be pushing 70 before I saw any benefit from delaying my retirement to age 66.

So, all things considered, then, maybe George Bush was right….maybe we should have privatized Social Security forty years ago….because at this point, I could retire with a comfortable little nest egg to live on for the rest of my life.

The problem is the Social Security Administration didn’t invest my contributions at a paltry 3 percent, or even a miniscule 1 percent.  On the contrary, the Social Security Administration lent that money to the Federal Treasury, which spent it as quickly as it came in, and now lacks that ability to return those funds from the General Treasury to the Social Security Fund.

As you already know, the present generation of wage earners is smaller than the preceding two generations….and, on average, is earning less than their predecessors did. 

All of this means just one thing….the money isn’t there to cover the Social Security Administration’s obligations.

In the early 1980s, the Federal Government woke up to the fact that people were living longer and, in 1983, passed an amendment to the original legislation that raises the full retirement age for Social Security recipients. 

Right, now, if I retire when I reach 62 years of age in October, I will receive 75% of my full retirement benefits.  If I wait until I am 66 years of age to retire, I will get 100% of that retirement stipend based upon my contributions. 

If I wanted to play the system, I could attempt to get certified as 100% disabled, which isn’t really far from the truth, at which point I would qualify for the higher payment of $1808 per month.    Between cancer, emphysema and a laundry list of other ailments, I should qualify, right?

Well, no.  I went down that road a couple of years ago.  The Social Security Administration sent me to a psychiatrist, who determined that I wasn’t mentally ill.  If I were mentally ill, I would be eligible for disability but, because I am of sound mind, I’m not disabled.

That $445 monthly difference is the difference between a sustainable lifestyle and one that isn’t but, hey, if I’m not entitled to disability, I shouldn’t get it, right?

Once upon a time, I would have agreed with that statement.  No longer.  Now, what I see is that we have been ripped off by a government that took our money, wasted it, and now wants us to contribute more in order to receive less than we were promised.

There are many ways to evaluate a society.   One of the most prescient standards of evaluation is to consider how that society treats it’s senior citizens. 

A society that provides sustenance and support for its seniors is civilized.  A society that doesn’t provide for its senior citizens is not civilized. 

It’s barbaric but there’s not much we can do about….except to retire as soon as we can (always assuming that you’re not a member of  the well-off work force for which this isn’t even an issue.)

Taking early retirement is a wise decision for people in similar circumstances….and a gradual movement toward early retirement would send a real message of non-confidence to the ruling parties.

Finally, let me give a shout out to those who believe that Society Security will bankrupt America.

Turn that equation around.  Take the money that’s now coming in from this generation of workers and INVEST it in secure instruments.  

Within 10 years, the system would be able to cover all new costs from existing revenues.  Within twenty years, the system would achieve permanent solvency.

If we did that RIGHT NOW, we would find that we have all the money we need to cover everyone who has ever paid into the system in perpetuity….as long as we pass and sustain laws that require the Social Security Administration to administer the funds it receives in this manner.

So far, I haven’t heard any proposals to this effect.   I wonder why.

 

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Sorry, folks, but the poetic streams have dried up. Must be the hot weather.
When I was declared 100% disabled 10 years ago, I couldn't believe what they expected me to live off of the rest of my life. Without my Veterans pension to add to it, I couldn't. Still, you are on a lifetime budget, and it will never get better. This year we didn't even get a cost-of-living raise, the first time in 20 years. When they do give you a COL, everything goes up, from doctor's fee's to prescription costs. I wish everyday I could go back to work. Not being a productive member of society is no way to live. But, it's better than millions have and for that I am grateful.
So are you pro or anti "Tea Party"? This is precisely the sort of arrogance and financial irresponsibility that is at the heart of the Tea Parties demand that the Federal Government NOT take "Such Good Care" of us. We want to be free to make our own mistakes with our money. That;s the basis of the Tea Party in 13 words.
I thought you'd lost your mind and swung right when I saw your title. Now I get the quotes around "entitlement." Good report.
Scanner, I hear you. My father's disability pension made the different between a comfortable retirement and a painful one. Now, I am about to secure the survivor's benefit to pay for my mother's care....but he paid for that money with blood, sweat and tears.

Matt, I didn't even get the potentially misleading application of the quotation marks. I will have to rethink that.

Token: my animus toward the so-called Tea Party adherents is their callous disregard for the rule of law. The social compact between ruled and ruler requires that promises must be kept. When the government started taking 6.5% of my income out of my pocket back in 1968, they did so with the promise that as much or more money would be waiting for me when I reached retirement age.

It is obvious beyond any shadow of doubt that there are many millions of Americans who depend upon their social security stipends for their subsistence, and who deserve to receive the benefits for which they have paid.

Unfortunately, both Democratic and Republican Administrations have used Social Security like a piggy bank, taking money out whenever it suited them to do so. As a result, Social Security has become the largest Ponzi scheme in the history of the world...and, now that retirement benefits are being paid out of current revenues, the federal government must begin to repay the monies that were "borrowed" from social security to honor the commitment that was made when the program began.

There is an ethical, moral and probably a legal responsibility for the Government to reimburse Social Security. Unfortunately, the law was written in a manner that enables the government to eschew its responsibilities.

The failure to recognize this as a binding obligation is what places the Tea Party movement firmly in the camp of the barbarians, who euthanize their elders by denying them the basic sustenance to which they are entitled.
Sagemerlin

I am not trying to “yank your chain” and I say this with no animus at all, but ( Realizing that it is a true grass roots movement and comes in many flavors) what part of the Tea Party program do you see as abandoning our elders?

I don’t actively Tea Party, but I have a brother who does, and we just got through with the heartache and financial strain of my father and mothers final years, and my father had a relatively generous Goodyear pension. It isn’t that the tea party absolves the government from it’s contractual obligation to honor social security, it’s rather that they see the federal government (Republican and Democrat) as metaphorical incorrigible ponzi schemers- we despair of getting any of the money contractually owed to us

( Wouldn’t it be nice if that were possible- but as you point out, that would have required that the federal government actually doo as the social security act required and invest our funds, which as you also note, they didn’t. )

We just don’t want them to keep robbing the new recruits to their ponzi scheme in order to pay us ( Yes I am of an age that I could Retire if I could afford to, I can’t- especially not on SS)

We just want them to stop robbing ALL of us who work for our living – (and don’t come back on me about not caring for those who can no longer work- my brothers and I will be paying off our parents final expenses for a while yet- and we do feed and donate to those who can’t work- see my comment on Lunchlady’s blog)

Again I mean no offense, but I Know the people of the left are not “Ogres”

I get tired of being accused of being an Ogre because I believe the actions of caring individuals are more effective and more just than the actions of government controlled hirelings.

(no offense to individual government workers- but I’m certain each and every one of you can immediately picture someone you know is a total waste of a generous public paycheck. –difference is in private enterprises/small business such can be told to shape up or ship out)
I keep a close eye on all my retirement and it worries the hell out of me. Years ago Schwarzenegger tried to tap into Pers ( public employees retirement)...all hell broke loose. He wanted to "borrow" it then pay it back. This seems to be along that line, only the government just took it. I just made the cut being born in '53 but that doesn't mean I won't need wait until I'm 66 to retire. IF I can physically continue to do my job.... This is just sometimes overwhelming.
I THINK LUNCHLADY2 MISSED MY POINT:

To reiterate: The point of my article is that, if you are now approaching early retirement age, it makes no sense to wait until you reach 66 to retire because, by the time you reach 66, the fully vested retirement age for Social Security will almost certainly have been bumped up to 70, which means that if you wait until you are 66 to retire, you will end up getting the same 75% you would get if you retire now at 62.

The government is encouraging people to work longer because that increases their payments into the system and increases the likelihood that they will die before they are able to collect. It's a cynical, callous policy that leaves no room for graceful retirement.

Like millions of other people, I have seen my retirement savings wiped out by financial misdealings, leaving me with no options other than social security and good luck.
Back to Token Again: Handsome is as Handsome does. When the Tea Party advocates line up, as they do, behind Republican ideologues like John Boehner, who are already advocating increasing the retirement age to 70, then they are already in league with the devil....and, hence, suspect.

I see little effective difference between the Tea Party agenda and the agenda of the Libertarian Party, both of which are long on complaints and short on solutions. I once thought I was a Libertarian, until I accidentally attended the 2004 National Convention of the Libertarian Party in Atlanta. (I was running a blood drive in the same hotel.)

After attending the plenary sessions of the Convention, and speaking to some of the leaders of the party, I realized that they were largely fundamentalist Christians and anarchists to boot.

Advocating against the existing system without first proposing a rational alternative is tantamount to advocating anarchism because, unless you have a better system to put in place, advocating against the current system is equivalent to advocating no system at all.

Tea Party Advocates are actually practicing the politics of personality, believing that changing the people in the system will change the way the system operates, when the problem is quite obviously the system itself, which allows elected and appointed officials to misbehave, rather than the people in the system.

In an effective and efficient system of government, it doesn't matter who the people in power are because the system itself proscribes inappropriate behavior and motivates participants toward appropriate behavior...but such systems have always in the past degenerated into dictatorships when a leader emerges who refuses to relinquish power.

Aside from that, I have no issues with them. The present system is irretrievably broken but I have no idea how to fix it so I am going to follow my own rule and shut up about it.
I will reread your post and see where I have misunderstood what you were saying. Sorry I did not quite grasp what was being said.
Not to be disagreeable, but I respectfully disagree about the difference "people" make.

For instance, I, at the very least am still awed by the concept of "a million dollars"- and to contemplate that in "petty cash- to be wasted" as our representatives do- says to me they've had power too long.

There is always something to be said for turning out experienced villains so that we can turn in a less experienced, and perhaps less jaded set. I propose that we would be better governed by the random selection of government officials from voter registration polls than by our current system which won't even consider a candidate that hasn't proven himself a liar and a principle less scoundrel ( i.e. a lawyer and a politician). The system isn't broken. The parties who have taken it over are.

Make no mistake. The only reason Tea Partiers support Republicans is that they are perceived to be less likely to try to run our lives than Democrats. Like them? Agree with Them? Only in the sense that the enemy of my enemy is my friend.

The criminal class ( as Mark Twain christened them) who has entrenched itself in the seats of power is most of the problem. It's time to start breaking in fresh scoundrels of small experience.

That's another salient complaint. It is an abomination that anyone should be able to make a living as a politician, let alone espouse it as a "Higher Calling".

The solution isn’t “Changing the system” . it is going back to the limited government our founders envisioned- and throwing the rascals out.- ALL of them.
Sage, it is scary how much you and I think alike on most if not all that you post, and I never agree with anybody on anything for the most part!
The only thing that I would add is that we can lay the current SS looming crisis at L.B.J.'s feet since it was he who raided the SS funding and fed it to the regular budget so he wouldn't have to tip his hand on the true costs of the VietNam undeclared war.
Can't wait to see how lalalalala in Iraq comes out when the bill comes...wait, that's what you're telling us isn't it. Oh well.
(R)ated for an excellent and cogent layout of a subject that has been so confused and conflated politically that making sense much less projecting sense into the future is quite an achievement.
"The enemy of my enemy is my friend" is one of the great fallacies in strategic thinking.

History demonstrates that the enemy of your enemy is almost always your next enemy.

The "limited" government our forefathers envisioned has always been a major league myth.

Washington himself was no proponent of limited government. On the contrary, he was largely in accord with Hamilton's centrist policies and, when the Whiskey Rebellion broke out, he wasted no time putting down the first challenge to the federal government's taxation policies as an armed insurrection. Had he been president in 1860, he would have done exactly what Lincoln did to preserve the union.

Adams, often regarded as a Centrist, was actually quite the opposite, actively opposing Hamilton's Centrist policies, while also clashing with Jefferson over his anarchic tendencies because he shared both Hamilton's fear of the crowd and Jefferson's fear of the bureaucracy.

But, as soon as he became president, Jefferson's pragmatic nature came out when he decided to make the "Louisiana Purchase" despite the fact that the Constitution gave the federal government no authority to make land purchases, thus becoming the first president to so vastly increase the managerial responsibilities of the government as to make the development of bureaucracy both necessary and inevitable.

Government is a substitute for violence in which groups of people with different belief systems vie with each other for control of the political process rather than taking up arms against each other.

Once you understand that government is nothing more than institutionalized violence, you also understand that our protestations about "limited" government are simply fallacious.

"Limited government" is nothing more than a polite, political pseudonym for anarchy because government's appendages develop in direct response to economic, social and technological changes within the civilization.

Most, if not all, of the problems we're facing in this society today stem from LACK of effective command and control structures stemming from the basic nature of all bureaucracies, which is to perpetuate themselves.

The moment a law is passed, control passes from our elected representatives to the bureaucracy created by the legislation.

A bureaucracy means literally "the power of the desk," and was coined in 1818 to refer to the system of management that evolved during the Napoleonic Wars, as England struggled to develop a system of political and social controls to match the one developed by Napoleon to manage his burgeoning empire.

Once Napoleon was defeated, England discovered that it could no longer operate their nation without the enormous bureaucratic structure it developed to wage what was the first real world wide war.

In fact, with each war we've fought, direct democracy has lost ground to the bureaucracy. The War of 1812, for example, resulted in the creation of a permanent standing army....something that still violates the Constitution. (The Original Constitution called for a standing NAVY, but limited land forces to volunteer and conscripted forces with a maximum lifespan of two years.)

In the aftermath of the Civil War, an enormous federal bureaucracy, created to help wage the war, was pressed into service again to administer Reconstruction.

The end of Reconstruction coincided with the first great world wide depression, caused when the factories that were built to provide the provisions required to fight the Civil War, and subsequently remained busy turning out the provisions required to reconstruct the country, finally fell silent.

From 1879 onward, our economic history has been a continuing effort to deal with the bubble created in our mercantile structure by the Civil War, and then from the successive waves of overbuilding that have coincided with each of our subsequent wars.

With each war, technology grew exponentially and, as technology developed, additional command and control requirements emerged.

And I must break off here. I have other things to do and while the history is interesting....it doesn't solve today's problems.

Suffice it to say that the world we live in today is simply too complex to go back to some mythological "limited" government that our technological civilization forbids.

Bureaucracies are where political freedom ends because that's where appointed officials - who, at the highest levels of a bureaucracy, are answerable only to themselves - implement the loosely constructed regulations created by legislators who, not being professional managers, have no idea how to structure the departments charged with implementing their laws.

This is a basic, built-in flaw within all governmental systems from anarchy to monarchy....because, no matter whom we elect to public office, the bureaucracy remains unchanged since our civil service regulations forbid us from cleaning house as administrations relinquish their powers to their successors.

The management structure under which bureaucracies operate have a built-in fallacy of their own. At the head of each government department are political appointees chosen by the party in power, but these appointees are largely ignorant of the operating mechanisms that activate their own departments, leaving the actual command and control of their departments to professional managers who, under civil service, remain at their posts in virtual perpetuity.

Whenever the legislative branch tampers with the bureaucracy you get abortions like the Space Shuttle program -which was imposed on NASA by Congress - and which set back space exploration for an entire generation by jacking up the costs of space travel by several orders of magnitude over what might have been achieved with a Russian style capsule program. (Note, we are mow moving toward a Russian style capsule system, which proves the point.)
Interesting post. Social Security was never designed to be a true insurance scheme, and was never designed to be a social welfare program, but rather a curious hybrid.

The money went somewhere, and that somewhere was in pay as you go indexed increases in payments.

And even though it is difficult to get disability payments, people that suffer obvious and horrific illnesses and injuries get a subsistence living, including payments for their children. You were covered by this insurance (the type that everyone hopes to never need to collect on) for your working life, and received the expected value of this benefit as implicit premiums.

Social security is still a good program, in the sense that your benefits are indexed to some extent and are guaranteed by the US government, which is a AAA credit. You really couldn't a truly comparable product in the marketplace.

The system can easily pay out for quite some time without coming under severe stress. The true problems regarding governmental unfunded liabilities are Medical and State and Local Government pension plans.

It is a popular program, and rightfully so. I am in favor of it.
By the way, to estimate what it would take to replace your Social Security with a fixed payout @ 3%, it would be (1 363 * 12) / .03 = $545,200, as a perpetuity.

To add inflation protection would cost more -- a life annuity with no guarantee would cost less. I don't know the exact numbers, but you paid in $64,000 to receive this benefit.

By the way, I realize that you were computing the value of benefits to illustrate that it isn't charity. I'm totally in agreement with that assessment.

With minimum benefits that aren't tied to earnings, there are transfer payments involved in its economics. But the idea that everyone who has worked should have something seems to me to be reasonable.
Nick, I agree with most of your points, and your math is quite correct. I paid in $64,000....but my employers also paid in $64,000 on my behalf...which brings my total investment to $128,000. It makes no difference that the second $64,000 came from my employers, or that it was mandated by federal law. The fact remains that it was paid into my account on my behalf....and therefore constitutes part of my investment. It might be argued that if the Social Security deduction was eliminated that I might have gotten an additional 6.5% added to my income....but it might also be true that my employers would have simply kept the difference.

However, you are quite incorrect about the solvency of the Social Security System. Until recently, the Congressional Budget Office predicted that the Social Security Administration would suffer a cash deficit as soon as 2106 and 2020.

The Atlantic Monthly is currently reporting that the CBO now predicts the Social Security Administration will go into the red - paying out more money than it takes in - this year. The reasons for this are that more people are taking early retirement - as I advocated in this article - which increases the payout and reduces revenues for the system.

Add to this the fact that 15 million Americans are out work, and that as many as 10 million may be permanently out of work, and you can readily see how Social Security is almost certain to be a deficit program for the foreseeable future.

For some reason, the CBO predicts that SS will go back into the black in 2014 before permanently going into the red in 2018. There's simply no logical basis for any prediction of improved performance between 2014 and 2o18.

The bottom line is that we are already in a deficit situation with respect to Social Security...and the bulk of the baby boom isn't scheduled to begin retiring until 2o16, which is why the system is going to go into the red permanently in 2018.
Correction: The Atlantic Monthly Report dates back to March.
I must be missing something. Here is an article by Paul Krugman. http://krugman.blogs.nytimes.com/2008/03/28/about-the-social-security-trust-fund/

Part of our $13 trillion national debt is owed to the Social Security Trust Fund. As long as that obligation is honored, the system is sound going forward for a long time.

It has always been 'the plan' to run the system at a surplus in order to fund the cash deficits that were obvious decades ago.

The Trust Fund is just as real as any other Federal obligation.

It is interesting that it is so politically popular to pick at one relatively successful program -- although usually as more of a rhetorical point. The idea of privatizing and investing in capital markets has been shown to be a potential disaster. Now the idea that this is the one area that must show financial austerity is equally silly.

The only real solution to future problem involving unfunded benefits is to grow the economy. That is why we are deficit spending right now and why we have to reverse it when the economy recovers.

I don't think we actually disagree, Sage.

It gets back to the attractiveness of attacking something that is relatively benign -- first with the ownership society/privatization arguments and now with the austerity arguments.

So leave the damn thing alone!
Fee fi fo fum
I seek the blood of a congressman.
Be he alive
Or be he dead
I'll grind his bones
To make my bread.
Far be it from me to disagree with so august an economist as Paul Krugman....but he happens to be dead wrong on this matter.

The little matter of the 13 trillion dollars of unfunded obligations requires raising something around 33 trillion to pay off that debt over time...from tax revenues in a shrinking economy; this requires a six-fold increase in the gross domestic product, which is extremely unlikely.

Professor Krugman's 2008 blog entry on the Social Security Trust Fund was actually written in 2005....before all of the economic reversals hit our economy. It was also based on estimates from the Social Security Administration, which has a vested interest in presenting a positive picture.

The numbers I cited are based by a 2010 report from the the CBO, one of the few financial agencies with which no one ever seems to disagree.

The reality is that the economy has worsened dramatically since 2005. All of the factors I mentioned come into play: dramatic decreases in Social Security revenues resulting from the displacement of 15 million workers, a deluge of unexpected early retirements, and a long term prognosis that suggests these conditions will continue for perhaps the next decade.

Krugman is quite correct. Greenspan and his cohorts did indeed slip us a mickey, floating a significant increase in Social Security taxes, then siphoning off those funds to underwrite the federal government, postponing the day of reckoning.

Evidence for this is obvious. Both parties are now talking about reducing the Social Security benefit schedule and raising the retirement age. This is nothing less than a breach of contract, but it doesn't rise to the level of the actual abandonment of the Social Security program...but castration is imminent.

Krugman depends upon Social Security's investment in federal bonds. The bonds in question cannot be sold or redeemed through the usual process and everyone, including Alan Greenspan, has acknowledged that the bonds in question can only liquidated by further borrowing by the federal government, which depends upon the government's credit rating when new bonds are to be floated.

I could go on...but as much as I respect Paul Krugman, and I do, I have always thought that he had his head up his ass on this one.

Ultimately, the only thing standing between Social Security and insolvency somewhere between 2010 and 2020 is the the faith that the federal government will actually redeem the bonds. I could go on but...
Sage, the $13 trillion isn't an 'unfunded liability' but rather simple, AAA grade US government debt. Since the US borrows in its own currency, it has at least one 'get out of jail free' card by simply inflating the currency -- it doesn't have to be hyper inflation -- but just enough to erase a decent chunk of the debt. The policy of the Fed is to target 2 or 3 percent inflation.

A 'hard' default is highly unlikely. A 'soft' , partial default via some inflation is much more likely.

We are all dependent on the US economy turning around. The US needs a weaker dollar to compete globally.


So, your SS payment is indexed and all beneficiaries are at least partially immunized from it It is a 1/2 empty vs 1/2 full situation, and
My guess is that this has become a more or less private conversation, Nick.

My reaction your last comment starts off with the fact that the real gross domestic product is somewhere between $13 and $14 trillion...which means that, right now, our debt and our economy are almost exactly equal.

The problem is that the debt will grow exponentially while the economy will only growth arithmetically, if at all.

Using the standard three to one proportion between debt and amortization, it will require approximately $39 trillion in revenue to retire $13 trillion in debt, when you factor the debt carriage costs in the cost of debt retirement.

According to the OECD, the United States revenues from taxes hover at around 28.8 percent of the gross national product.

With the economy hovering at $14 trillion, the annual tax burden for all government operations is $3.75 trillion. The federal government's share for 2010 is $2.38 trillion. The federal budget for 2o1o is $3.55 trillion.

This math indicates we are falling in the balance between debt and income by $1.17 trillion per year.

Given that we need $3.55 trillion to operate the federal government, and the federal government's income is only $2.38 trillion, then we to increase our revenues by $1.17 trillion just to break even.

This, alone, requires increasing federal revenues by 49% over the present level of taxation.

This would increase the overall taxation rate to more than 50% of the gross domestic product. This, is of course, a financial impossibility that would have a devastating impact on the world's economy.

I don't understand the idea that we are simply borrowing our own currency because, in fact, our currency is back by the sale of treasury notes that are held by many different parties. It is indeed our own currency that we're borrowing, but we're borrowing it from third parties, not from ourselves.

If you think that social security is indexed to inflation, ask anyone on social security who didn't get a cost of living increase this year.

The numbers are staggering and terrifying to me. I agree with you that the only way out of this dilemma is for the US to generate a growth spurt....but growth spurts require funding, and that's what we don't have.

I'm smart enough to work on the scope of the problem, but I'm simply not smart enough figure out a rational solution, in part because I don't think there is one.

It's not simple, nor is it amenable to the kind of bubble juggling we've done in the past.

The reality, however, is that, since we can't pay off the debt, we simply won't. That's exactly the advice I used to give my clients...not to pay off debt but rather to let it ride.

Since we can't pay off the debt, we simply have to figure out how to carry the debt while we reduce expenditures because we can't possibly increase revenues enough to cover costs.

And that's when Social Security will be modified into oblivion.

Unfortunately, the political will for this doesn't exist.

We are going to be living with the carrying charge on this debt for the rest of our lives, and probably for several generations to come.
I can see where you are coming from. The problems are real, but I think the range of probable outcomes is wider than you may think.

1. We are running a serious deficit now for all the right reasons. This is basic Keynesianism. The alternative to deficit spending is a deflationary spiral. Once it starts, it is about as bad as it can get. Check out Irving Fisher and his work in the last Depression to get a sense of how it can unravel.

2. The deficit can close by a combination of withdrawing stimulus spending and an increase in GDP and accompanying tax revenues.

3. Note that current real interest rates are below zero. Government bonds pay essentially zero unless you go long.

4. The amortization of government debt is not unlike your example, but the debt can shrink by the combined impact of inflation and growth. A combination of growth and inflation of 6% would cut the ratio of this debt to income by 3/4 in 24 years. That is without paying down any principal.

5. The real entitlement that counts is health care. It potentially dwarfs Social Security. It can and will become cheaper simply because it has to. Short term, there is nothing that can be done. Longer term, the out years can change dramatically. If we can move total cost closer to the World average of 10% of GDP from what is projected to be 20% of GDP, we will be fine. Just think about Walmart and the fact that Health Care is the last segment of our economy that runs on paper. There is a lot of low hanging fruit if there is the political will to snatch it. It will happen because it has to happen.

6. The advantage the US has is that it borrows in USD. Most developing countries need to borrow in a Dollars or Euro, so they have to go on an IMP imposed austerity program.

7. The rational way to raise more money is to go to a VAT. This would help our trade competitiveness. We are one of the few countries that fully taxes exports.

If you don't like the way things look in the US, then look at our competitors. The EU has a disconnect between monetary policy (set for the EU) and fiscal policy (set by the individual country). Overall, it is fragile.

Both the EU and China have demographic time bombs. The US population is still growing (barely). For all the problems we have, we are still the largest economy in the world.

It would help us if the USD were devalued to some extent. Look at what Korea has done to Japan re automobiles. The same thing that Japan did to us.

Basically, the US has developed some very bad habits simply because it could afford them.

The fact that we have to rationalize tax policy and health care to survive globally doesn't guarantee it will happen. But the converse is true -- without pressure they would never get rationalized.

In our lifetimes, farms have been pretty much depopulated and large areas of employment like secretaries have disappeared. On the other hand, there were no computer programmers in 1950 because there were no computers.

Personally, I think the future for the US will be a lot like its past. Which has been pretty good.
Holy batshit! I now have something else to be afraid of (not that I think I will leve that long). I am very ill now (I hate saying that shit) and people keep telling me to declare myself disabled, but I was denied when I was first diagnosed b/c my husband (a military enlisted man....not a high ranking officer) "made too much money." I am being told to try again with an attorney to help me. I have been dragging my heels. No wonder my Dad refuses to retire. He is 70 and won't sit his ass down. Says he can't afford to. I am now a believer. Thanks. Rated.
I haven't followed this discussion, as I tend to get lost pretty quickly in the details. I just wanted to address my earlier comment about you putting "entitlement" in quotes. I see that what you were doing was referring to the pejorative use of the word by the right, whereas I consider Social Security a true and legitimate entitlement.

BTW I just posted a comment on Scanner's blog today with a link to Kenneth Rogoff's new book. Here, if you will, is the comment:
I was listening to an interview yesterday on NPR - I think All Things Considered - with Kenneth Rogoff, a Harvard economics professor, a conservative who'd advised McCain's campaign, who's co-authored a new book, This Time is Different: Eight Centuries of Financial Folly, and who said he believe Congress should extend the federal unemployment insurance benefits, that our economic crisis probly won't turn around for the next couple of years. Rogoff said some of the assholes (my word) in Congress who are voting and speaking against this extension, claiming it's a disincentive for people to find jobs, are "stretching" a traditional conservative philosophy beyond reason. He said there simply aren't enuf available jobs and that without the additional help, economic recovery could take even longer.
Matt, this is another example of fuzzy thinking. The statement that "there aren't enough jobs" reveals that we are trying to find jobs to occupy people who are now unemployed. The impolite definition for that kind of job is "make work." A society always as exactly as many jobs as the society needs to operate because if it needed more workers, the jobs would automatically become available. The real issue is economic. Capitalism is based upon the fallacy of a constantly expanding economy. The only way that a society - or an entire civilization - can maintain a constant rate of growth is through population increases because, sooner or later, your existing population already has all the goods and services it can consume. Absent increasing markets, recessions always occur, and with them job losses.

Emotionally, I agree that extensions for unemployment payments make good sense....but, intellectually, I know that this is merely postponing the problem. Sooner or later, the payments have to stop or else we end up in a welfare state, with half the people working to support the other half.
Having turned 62 on July 7, the date you posted this, I can relate. My wife started her early "benefits" last Nov. I will wait and may start drawing half of her benefit when I am 66. Then finally at age 70 take my full benefit. Here to a long life for us all!
The favoritism toward the money center banks now affords the following, aside from simply looking
at the crash of '08.

To see what would happen if theRepublicans privatize Social Security, just see what's happening already to all who made good decisions and retired successfully. Many or most feeling tax-locked in variable rate annuities, they're seeing payments slashed to the bone by way of Bernanke's minimal interest rate policy aimed at feeding the shadily and shoddily run money center banks.

Aside from Social Security, what about health care access and affordability (as opposed to what's being done
for the entrenched health insurance cartel:)

Obviously the Republican Party's stated intention of repealing the Health Affordability Act chills the confidence of those with health risk factors, essentially everyone upper middle aged or higher, that they will be freed from being monopolisitically locked into one coverage contract, regardless of the premium the insurer conjures up, that contract's availability confined to one state. Among the consequences is a complete brake on movement between states by persons on independent plans. A simple failure to fund the act, the Republican's realistic secondary intention, would essentially yield similar consequences.

http://sites.google.com/site/evernewecon
When Did Social Security Become an “Entitlement”? When we voted for the wrong people and gave them power to mandate. :(