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Pay no attention to the people behind the curtain

Thursday, September 23, 2010

Dissing Social Security sure is Ponz-ular

or, No One Ever Went Broke Scaring You Into Thinking Social Security's Going Broke

by folkbum

Every six months, I send a big chunk of dough to American Family to insure my car. That money doesn't go into a safe with my name on it. Instead, that money goes into 1) a set of investments designed to increase AmFam's long-term financial stability and 2) the settlement payouts of other clients found to be at fault. Someday, I will (sadly, not too long ago, I did) need AmFam to pay for an accident myself. When that happens, the payout will come from the immediate cashflow of the company--the premiums their other customers are paying at that moment.

If you're Ron Johnson, or Rick Esenberg, or Nick Schweitzer, or any one of countless others on the right, that makes American Family insurance--hell, any insurance--a Ponzi scheme.

For after all, Social Security, which all of the above have happily (though RoJo's backing away? maybe?) called a Ponzi scheme, does exactly the same thing. We pay into it, the SSA invests some, and they use the rest to pay out benefits to other people.

Hell, the RoJos and Esenbergs and Schweitzers of the world would have beaten George Bailey to death in the bank, screaming at him about putting their money in Joe's house.

No, actually probably not. See, there's a political advantage to trashing Social Security that doesn't exist in trashing banks and insurance companies and every other operation that exists with a similar structure. We have been told for decades that Social Security is going bankrupt and will not be there for (me, you, your children, the creepy guy next door who peeks in your window, take your pick), and it has worked. Polls consistently show that people believe remarkable falsehoods about Social Security. And when you have people scared about Social Security, there's a campaign issue for you.

To be fair to the bloggers above, they try offering arguments. Probably because they, too, believe the falsehoods and have to twist and turn to make sense. Esenberg:
People like Jay who defend the system like to say that the government won't or can't default on those bonds. It certainly can. Congress could repudiate the bonds, although it likely won't. The problem - the one that Jay elides by saying that the trust fund "can pay" out benefits for a number of years - is what it would take to pay those benefits.

The trust fund can't just write a check. It must redeem those bonds, i.e., call in the government's IOU to itself. The government can't just write a check to honor the bonds because it doesn't have the money. It must either raise taxes or borrow more money. To the extent that this cannot be done, benefits must be reduced. Thus taxpayers who have paid "extra" as "we went" really have nothing to draw on. They must either forego benefits or impose even higher taxes on younger people.
Let's pretend for a second that the trust fund isn't really what is and instead is, like my mythical AmFam payments sitting in a safe. Every dollar spent from that trust fund would have been deficit spending (or higher taxes) over the last thirty years. If it was okay (or would have been) to deficit spend back then--on star wars, the war in Iraq, "ending welfare as we know it," whatever--why is it suddenly anathema to raise taxes or deficit spend to keep a promise we've made to our elders and poor? And it wouldn't take much: Social Security will continue to draw revenue that nearly meets the promised benefits for many years, bottoming out at between 75% and 80% of benefit levels. Small tweaks now--lifting the cap on taxable income, or redefining income to include more than just wages, or pushing the payroll tax up a smidge--would make future work to meet those promises much easier (either because you believe in the trust fund or because current deficits will be lower).

Schweitzer:
My question [. . .] is... where is the choice with Social Security? Yes, Social Security doesn't deceive anyone... everyone does in fact know how it works... or at least should. But Social Security has one advantage that no privately run Ponzi Scheme has... there is no choice in whether or not you participate. I belong to an entire generation of people who truly believe that we will not get anything from Social Security. [ed: see! I told you!] I am planning my retirement on the idea that Social Security will not pay me one red cent. I have to. I know exactly how Social Security operates, and I can also see demographics and how population is changing. There simply won't be enough people to pay me once I rise to the top of the pyramid.
For this, I defer to erstwhile Republican Charlie Crist, who makes a salient point: "There are other ways we can help fund it, by creating a pathway to citizenship. [. . . I]f we have those 11 to 14 million people productively participating in the American economy and paying the payroll taxes that would be attended to it, that would help Social Security." There is a labor force in this country willing and waiting to contribute to our financial health--and Nick's financial future--but the same forces scaring the pants off of you about the safety of Social Security are also busy scaring you about the Brown Menace because, you know, that too makes a good election issue. What's good for the country is bad for electoral fortunes.

And it's those fears that RoJo and his political allies are counting on, and apparently winning, in their quest to return to the freewheeling Bush years of no regulation and vast income growth for the already well-off. Esenberg and Schweitzer have become willing tools in that quest.

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