The Happy Carpenter

And now, more deep thoughts on Social Security

Check out Rob's good but belated comments to this discussion (just scroll down to the comments button and click it).

Plus, he had this intersting statement which is worth of some long thought:

In my view, there are important differences to socializing unavoidable risks (aging and illness), as opposed to socializing variable risks (e.g., employment and prosperity). ...

I'm intersted to hear what those differences are.  But back to social security.  I see a three part solution:

1. Gradually raise the retirement age to 70.
2. Intorduce Medical Savings Accounts.
3. Privitization, voluntary up to a limit guaranteed to provide the bare minimum.

Next?

Intersting thoughts on Social Security

Rob has some very interesting thoughts on social security.  Not surprising -- Rob is a thoughtful guy.  I think we should take his points as brainstorming, and not be horrified by things like this:

Globalization changes the cost structure of expensive programs like nursing care – we export our elderly to Bangladeshor the Philippines where they can receive top-notch care for pennies on the dollar.

In general, his point is that a lot can change between now and the projected crisis in Social Security, and anyway those nasty conservatives just want to dismantle the system anyway so they can "push the maximum amount of risk onto the shoulders of individuals and families".  He's right, of course, that a lot will change.  However, assuming everything will change in a direction that will save the present form of SS is reckless.  And, sigh (again), he's at his weakest when he projects evil intent onto his political opponents.  I wish he would stop doing that.  It really weakens his arguments.  Well, he's young, still.  Maybe he'll grow out of that.

Here's his list of things that might change, with my comments added:

• We improve the productivity and reduce the costs of healthcare in a number of ways (seems likely to me, as technology barely touches the healthcare system right now – there’s ample room for improvement) .  As someone who just had an open scan MRI done to my knees, I'd have to say healthcare is in some ways at the cutting edge of technology.  Yes, there's room for improvement, but give the devil his due.  Also, new technology in healthcare has not so far lead to lower costs, but rather higher costs with better care.  I would expect that trend to continue -- for instance, all those cool nanobots we sci-fi'ers are always reading about that will scrub our blood are not going to come cheap.
• People live longer, healthier lives. Some statistics point this direction. Reduced rates of smoking among younger people could translate to big medical savings in the future. Also, health regulations that improve food, water, air and environmental quality could cut down on environmental health risks.  Yes, we're living longer, but healthier?  Maybe we are healthier, but at a price -- MRI's, artificial organs, advanced medications, etc.  This trend costs more, not less.  I've heard it argued that smokers save the rest of us money by dieing early. 
• People work longer into old age, deferring the date when they start to draw down from the system and are covered by mandatory employer-paid health plans instead of Medicare. (This seems likely, if only because fewer Americans will be able to afford to retire) It’s also the case that people who lead active lives into later years have fewer health problems.  Ah, you've come very close to the obvious and simple solution to the problem of saving the system more or less intact. 
• Demographic patterns change – say, we allow more immigration of working-age people, driving down the average age of the country and reducing pressure on entitlements for the elderly.  This we can do, but please, let's be much smarter about who we let in and under what terms.
• Fertility rates increase – possible because we don’t have enough info on fertility rates of immigrant populations. More young people paying in and producing in their prime years could offset the relative costs of the system.  Everywhere prosperity has increased, fertility rates have decreased.  New immigrants, that is first generation folks, will have high rates, yes, but as they prosper they'll slow down just like everybody else.  Rob is right as far as he goes here, but does he recognize he's talking about stepping onto a treadmill that will never slow down? 
• Overall economic growth exceeds projections. If the Fed relies on the median OMB projection, then they are highly likely to undershoot actual economic performance by 0.8 – 1.2% over a 25 year period, according to the track record of the median projection over the past 70 years. If that’s the case, the numbers are not nearly as bad as they look.  Unarguable. 
• We have a fundamental shift in the way medical care is delivered, with more incentives for preventative care and less for heroic end-of-life care. Apparently people incur 90% of their lifetime medical costs in the last 6 months of life.  This is the heartbreaker, and I really don't know what to do about it.  Maybe the best we can hope for is improvements in the diagnostics of oncology, so those heroic doctors can give their patients truly realistic odds, and then maybe many of them will choose to go gently into that good night.  But me?  I'll be kicking and scratching all the way, and damn the expense.  At least that's how I feel about it now.  Preventative care will make us healthier longer, yes, but that 90%/6 month problem seems more likely to get worse to me.  Damn. 
• Globalization changes the cost structure of expensive programs like nursing care – we export our elderly to Bangladeshor the Philippineswhere they can receive top-notch care for pennies on the dollar.  Am I the only one who thinks this sounds Stalin-ish?  I'm all for exorting our prisons, but not our nursing homes.
• Reform of the payments system encourages greater competition, which drives down costs.  Three words:  Medical Savings Accounts.  They would be huge and are our greatest hope.
• Medicare or some other government health program becomes a monopsony [thx. Matt!], dictating pricing terms to health care providers in the same way that Wal-Mart dictates pricing terms to its suppliers, effectively putting the breaks on medical inflation.  This is already the case to a huge extent.  Thursday night I was out with a bunch of friends, including two doctors who run the emergency rooms at a couple of hospitals.  For some reason (I missed the beginning of this conversation, being distracted by Duke vs. Virginia hoops) we all whipped out our insurance cards for the good doctors to look at.  They were funny, saying "Stay away" to some cards, and "You should visit us every week" to others.  Rather than turning to a monopsony (?), which would probably just make everything worse, couldn't we at least try Medical Savings Accounts? 
• We change the way we finance entitlements, by collecting more at the front end.  I'm not sure what Rob means, but it sounds scary to me. 

I'd love to see personal ownership of social security.  That doesn't make me an evil conservative, just smart.  But in the meantime, we can hack at least half way through this Gordian knot by simply raising the retirement age to reflect those long healthy lives we're enjoying and introduce Medical Savings Accounts to bring price feedback into the system.

Not social security again.

Franklin Roosevelt, a Democrat, introduced the Social Security (FICA) Program.  He promised:

1.) That participation in the Program would be completely voluntary,

2.) That the participants would only have to pay 1% of the first $1,400 of their annual incomes into the Program,

3.) That the money the participants elected to put into the Program would be deductible from their income for tax purposes each year,

4.) That the money the participants put into the independent "Trust Fund" rather than into the General operating fund, and therefore, would only be used
to fund the Social Security Retirement Program, and no other Government program,and,

5.) That the annuity payments to the retirees would never be taxed as income.

Since many of us have paid into FICA for years and are now receiving a Social Security check every month -- and then finding that we are getting taxed on 85%
of the money we paid to the Federal government to "put away," you may be interested in the following

--------------------

QUESTIONS
Q: Which Political Party took Social Security from the independent "Trust" fund and put it into the General fund so that Congress could spend it?
A: It was Lyndon Johnson and the democratically controlled House and Senate.

--------------------

Q: Which Political Party eliminated the income tax deduction for Social Security (FICA) withholding?
A: The Democratic Party.

--------------------
Q: Which Political Party started taxing Social Security annuities?
A: The Democratic Party, with Al Gore casting the "tie-breaking" deciding vote as President of the Senate, while he was Vice President of the U.S.

-------------------
Q: Which Political Party decided to start giving annuity payments to immigrants?
A: Jimmy Carter and the Democratic Party. Immigrants moved into this country, and at age 65, began to receive Social Security payments!

So what are you going to do about it?

Porph speaks about Project Sisyphus -- that's just how I feel

You might have noticed a bit of slacking off here at The Happy Carpenter lately.  That's because I feel exactly like my ol' blog buddy Porph does:

This is one of the things that has contributed to my lack of blogging recently. By no means the only reason I haven't blogged, but a significant one. Repeatedly having to rebut "BUSH LIED"! and all the other bogus distractions that act as a substitute for intelligent civic discourse is not my idea of the best use of time. I know it has to be done, and I can link to all the things, be they on WMD, intelligence, ties to terrorism (see below) and the like which refutes the litany, have done it before and likely will do it again, but this Sisyphean task grows wearisome.

Indeed.  Plus, it's August.  Go with it.  Even though, down here in Florida, the kinder are back in school, it's still the summer doldrums.  It's 93 degrees and 93% humidity, and the damn boat is sinking, so I've got to go.

Social Security from the Comments Section

I know most of you don't visit the comments section, so when I get some good stuff there I like to cut & paste it to the top for two reasons:

1. I hate to pass up the chance to glom on to the good writing of others
2. I hate to wast more than 60 seconds worth of typing where y'all won't see it

So, on the topic of Social Security, this exchange between me and Rob, my favorite socialist progressive:

Social Security is funded by US Treasury Bonds, backed by the "full faith and credit" of the US government - the same ones that are held by millions of people around the world who believe they represent a stable financial asset. If those are no good, then this country has a lot bigger problems that the Social Security fund.

As to the question of how we will pay those obligations coming due in 2018 and beyond, when money going out of the SS system starts to exceed money coming into the system from the wage tax - we will do exactly what we always do. We will borrow it. Adding $2 trillion to the national debt over the period of 2018-2052 is not excessive - it's actually fairly modest by today's standards. Meanwhile, if productivity grows by 2.2% instead of the 1.8% projection that the SS actuaries are using (it's been growing by about 3% since 2000), then there will be no funding problem at all.

Seems to me that boosting that productivity number (by means of technology and better management) is the easiest and most painless way out of this fix, and it's something both sides can agree on. Among other things, it will increase the profitability of US businesses, meaning better returns on private investment, so that those who use existing government-sponsored private investments (e.g., tax-advantaged accounts like 401(k) and Roth-IRAs) will benefit as well. I am confident we can make progress if this issue is actually about results, not ideology.

Posted by: Rob Salkowitz | May 27, 2005 03:10 PM

My response:

Hi Rob, thanks for stopping by.

As to the "full faith & credit" and the "if that's no good then we've got much bigger problem" arguments, I look at it like this.

Suppose a corporation, let's say General Electric, has on its books a large number or corporate bonds, which are simply a promise from a corporation to pay out a certain amount of money on a certain future date. And suppose GE holds bonds from Shell Oil, Lockeed, Mitsubishi, and Daimler-Chrysler. No problem. Then there's another corporation, let's say Enron, that also has a large portfolio of corporate bonds, only in Enron's case its portfolio is composed of bonds from just one corporation -- Enron.

See the difference?

GE's ownership of other corporation's bonds is a legitimate investment. Enron's ownership of its own paper is a fraud. Social Security's pile of IOU's from the US government is much more analagous to Enron than to GE. And to make matters much, much worse, SS is a compulsory system returning one of the lowest long term investment rates of any investment vehicle.

Fraudulent, compulsory, bad investment.

Let's fix it because it stinks, rather than quibble over projections of productivity gains over decades.

I suppose the idea of personal ownership and choice is an ideological issue compared to collective ownership and compulsion. The ideological argument is unavoidable. Let's be honest about that. That's what elections are about, and that's why the fight is so bitter, as it ought to be.

Posted by: pedro | May 28, 2005 08:15 AM

[  emphasis added ;-)   ]

We should be clear on this

Well put:

Our pension system (Social Security, for those following along at home) isn't underfunded--it's unfunded. And there isn't any way to fund it, in the sense of storing up assets to cover the liabilities, unless we change the law so that the government can hold stocks or other assets. As P.J. O'Rourke has said, "the people of Eastern Europe had some very pungent names" for government ownership of economic assets.

Given the current legal structure under which our government operates, then, either big tax increases, or big benefit cuts, will be needed to make inflows and outflows balance in the future. Congress hasn't failed its fiduciary duty; the crime is that it has allowed people to think that there is a pension system in the first place.

That is why anyone using the phrase "trust fund" is a lying sack of you-know-what and it should be legal, indeed compulsory, to whack such individuals upside the head.  Hard.

It's about choosing between alternatives, not wishful denial

Unlce Miltie, age 92, speaks

This guy, one of my heroes, makes so much sense with so few words it's scary.  Sad that his words are not listened to more closely in Washington, and elsewhere.

Q: If the federal government does move to private accounts, does the $3 trillion that President Bush says he would have to borrow to get that moving cause a greater stress on the American economy?

A: No, because we already have that obligation. What we are talking about is replacing an unfunded debt with funded debt. We already have an obligation to all the people like myself who are currently on Social Security. The difference is it is not written out as funded debt. So when you talk about borrowing, they are not really changing the total government debt, they are only changing how much they recognize, and what is open and above board and how much of it is hidden in other funding. ...

Q: Since most of the immigrants to the United States are Mexican, what kind of effect is that having on the Mexican economy?

A: At the moment the Mexican economy is benefiting from the salaries that the Mexican immigrants are sending back home. The Mexican economy is, of course, losing its labor force, but the Mexican economy has not done a good job at creating jobs or job opportunities that these people would be suitable for. The real problem in Mexico is its policy as reflected in the whole economy. There is too much monopoly, too much regulation, too much restriction. All of that needs to be changed to get the Mexican economy growing at a rapid pace....

Q: Should the U.S. federal government look toward moving away from an income tax-based system to a consumption-based tax system?

A: That would be a very good idea. The disadvantage to taxing income is that it establishes a disincentive for savings, because income that is saved is going to be taxed twice. It is taxed initially when you earn it and save it, and again when (that savings) earns income, because that income is taxed again. With a consumption tax, you would tax it only once, when it is spent, not when it is saved.

Q: Do you believe like some people argue that that would put an unnecessary burden on the poor?

A: Who benefits from the saving? What's really helped the poor over the long period is having a productive economy with a larger amount of capital producing goods and services. The consumption tax, in so far as the people who receive an income don't spend it, in so far as they devote it to investment and savings, they are not eliminating what the poor have. On the contrary, they are building a platform that creates income for everybody....

Q: Do you think that as the U.S. moves to a service-based economy from a manufacturing based-economy that the country will continue to create the same type of high-paying jobs that the manufacturing sector did?

A: Absolutely. They have. Just look at the salaries that are being paid in Silicon Valley.

Let's go back to the basics. What is the real problem so far as the poor is concerned? In my opinion it is the lousy school systems we have, a school system in which something like a third drop out before they finish high school. And why do we have such a poor educational system? Because it is a government monopoly that, with the exception of some private schools, is run by the government, and like everything run by the government, it produces a product that is expensive and of a low quality. So if you want to do something about the poor, the most respective thing you could do would be to privatize the school system and allow parents to have a choice as to where their children would go to school.

Q: Nearly 50 years ago you were the first proponent of school vouchers. Why do you feel vouchers would help?,

A: Where in the country can you find a great advancement that has been produced by a government monopoly? All the great advancements we've had in automobiles, in telephones, the radio, you name it, all of those advancements have come about through private enterprise. Through competition in an attempt to make money from a better and cheaper product. But that has not been allowed to operate in the case of schooling. The government has monopolized the production of schooling. It's through parental choice that you will provide more competition. Then you will produce the kind of increase in quality that only private enterprise and competition is capable of doing.

Well worth reading the rest of the interview here.

Because it's MY money

Analog Kid makes a good point.  Even if the Democrat social security calculator is true (a damn big IF):

Give it a test.

I came up just under $5000 shorter under the Bush plan than I would get the current system.

You know what, I’ll take that.

Do you know why?

Because this will be MY MONEY.

Remember, these numbers are most likely computed under the most conservative guess possible of rate of return. It is highly possible that I could get double the amount from my private account than this calculator shows. Or triple or quintuple.

That, and MY MONEY would not be subject to “The Widow Tax”.

Under the current system, if I actually make it to retirement age and then die a couple years afterwards, the Analog Wife will then then have to choose between her current SSI payment or the SSI payment I was getting before I died. Oh, and she gets a one time $250 check.

Under the Bush plan, she gets her check and everything in my private account.

It simply is not possible to be able to read & write yet not get this point.  The Democrats are lieing in order mainly to hang on to their last socialist power base.  Sorry, but it's that simple.  They are liars.