Comments Posted By Anthony

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Social Security: Point/Counterpoint

Carol, I do recognize you allow for reform, but we differ on the degree of reform you and I individually believe is necessary, and initially I could not tell whether or not you support Bush’s proposal (you have since come out against it with currently known, available facts). While you advocate “tweaks” in your own words (and have yet to share with us what exactly you believe is sufficient, and why), others like myself are trying to point out to you and others on your side of the discussion that the system itself is so beyond prudent fiscal redemption that any responsible reform veers wildly from from “tweak”-land into “not as we currently recognize it”-land.

By the way, you quoted the Concord Coalition in your second citation of the group’s two main concerns for any reform, but a Google search fails to bring up what you quoted. Can you please point us to your source material if it is on the Web, other readers reading this discussion can be on the same page as you?

My personal position is if we drastically curtail eligibility to those who are facing Third World level shanty-town destitution, then the programs can thrive without endangering our economic superpower standing. Anything short of that will incrementally bleed off the productivity of America until at some point we can no longer catch up with more vigorous economic blocs, and we will then be fortunate to count ourselves a perceived has-been superpower like the U.K. (even though they still wield enormous power) or worse, a Second World nation.

I have pointed you to the actual numbers that the SSA Trustees themselves computed for long-term (75 years and up) sustainability, and these numbers and methodologies were not challenged by pension specialists, so they are generally accepted to be accurate. Unless you reject these projections, and can defend why the projections are incorrect, we can start discussing what reform makes sense in light of those numbers. These numbers spell the fiscal doom of even the most financially powerful nation in not just the world, but the world’s entire history whether measured in absolute or comparative terms. Not doomed today, not in ten years when you retire, perhaps not even in 40 years when you are likely to have passed from this mortal coil.

But in 60-75 years hence, the numbers tell us that we face a stark choice. Either we effectively give up all national economic progress for the next 2-4 generations (and every year of economic progress not spent on social programs mortgages future generations further into debt), or give up on a set of social programs as currently constituted that however well meaning, simply cannot be afforded. That doesn’t mean we can’t have any such programs whatsoever; that’s a discussion for another day. But any amount of demanding that “taxes are taxes” or raging at tax burdens is not going to repeal numeric reality. That reality says we must consider drastic actions to even hope to retain a sustainable program that is even a shadow of its former self. This is assuming we have the luxury of not having our currency’s users force a decision upon us any sooner, an assumption that the sad history of many long-dead currencies cannot support.

Your generation and older generations today can demand and successfully defend your benefits. You can even magnanimously allow the passage of “tweaks” and convince yourselves that you saved the system. You will be long gone and turned to dust when the reckoning comes to the fore in full force.

If the Federal Reserve chooses to respond to the future reality with inflation, we risk forever losing America as a democratic representative republic. There are no recorded instances of any First World level republic surviving hyper-inflation of its currency. John Law’s Mississippi Bubble-era France and Weimar Republic-era Germany are two major examples; neither nation’s governing systems survived the hyper-inflationary responses to the fiscal crises of their day intact. They remain republics today largely through exacting a terrible price in blood from internal (in France’s case) and external (in Germany’s case) strife.

The Federal Reserve cannot force the nation to respond to the reality by paying up and simultaneously enacting emergency cuts in expenditures; only Congress and through them, the citizens, can make that choice. History’s lessons are very bleak indeed here as well; no First World level nation has ever chosen a path out of ruinous level national debt that instantly guaranteed devastating depression, which most central bankers are convinced is an economic death spiral.

The chains the older generations are heaping upon the younger generations if they are successful (as I sardonically expect) in retaining or largely retaining their benefits are chains that will force a future soul-rending national decision turning upon whether we shall enter a struggle to survive the fires of hyper-inflation or the icy depths of depression. We as a nation are fiscally fouling our own nest in a tragic drama that the ancient Greeks would have forked over copious amounts of electrum to watch, all the more so because unlike the Greeks with their maddeningly cryptic Delphinic oracles, our oracles have shown us with breathtaking clarity the future that lies in store for us if we continue on our spendthrift ways.

As an optimist in human endurance I know that the nation will survive. But it would be foolhardy to believe that we would be the exception to the historical empiricism that once a superpower loses its perch it never regains it again without a wrenching change in national and cultural identity.

Dying to defend freedom is relatively easy because often someone else like an enemy soldier makes that decision for you. Living with tangible and/or intangible privation to retain liberty is much more difficult because you have to volunteer for an unheroic, unremarked upon, and even harsh life, except possibly in the eyes of your family and friends. Saying you pay your own way and take care of your own is so much more mundane and far less dramatic (but far more ennobling for lovers of liberty) in our celebrity-soaked era than saying you fight for investing in the people while leaving the actual decisions in other people’s hands.

It is far more soul satisfying to seize the moral high ground and demand “social justice”. Nobody likes to delve the arcana of finance, investment theory, money theory, etc. and come back with dry answers for the price of that lofty real estate.

This is my last participation on the discussion; you have the last word Carol if you desire. I have some clients with major projects to serve in the next several months and by the time I’m done this thread will be long dormant. In any case, I literally can afford to not care about any adverse outcomes, and any veiled threats of “social justice or else you won’t like the revolution” simply don’t impress me. Coming from a family that escaped one of the most murderous regimes in history that used rhetoric as blithely unaware of economic laws and human nature as we hear today from supporters of bankrupt social programs, we’ve been planning and preparing for a long, long time for similar follies to befall our beloved adopted nation, ever since we sadly (but not surprisingly, now) noticed the same familiar echoes. We’ll speak out for as long as we can, but when the mortal madness grips the crowds, we’ll be long gone and not to be found by those crowds.

» Posted By Anthony On 07/February/2005 @ 8:38 am

Thanks Ashley for lucidly explaining my apparently too subtle rhetoric for Kenneth Almquist.

Carol, you are evaluating a compromise, made necessary and desperate by the stranglehold the older generations have on this issue. What you leave out is what would happen without the compromise, and we went about business as usual, or even with any “tweaks” you so heartily approve of but fail to share with the rest of us benighted souls. You are applying a solvency test for the proposal when solvency simply does not exist for the system as constituted today.

The SSA Trustees’ own words damn your condemnation of the proposal. Unfunded liabilities identified in their reports exceed the total net worth of the nation. By almost two times over.

More relevant to your personal situation is the termination liability of Social Security and Medicare. Assume that Social Security and Medicare will be closed to all new entrants, starting January 1, 2004 (last year). Determine what today’s workers and retirees are due to receive in future benefits over and above what those same workers and retirees are due to pay in future contributions. That comes to about the net worth of the nation.

You are due to retire within 15-20 years, 10 years by your own words in an optimistic time frame. I guarantee you that this nation will not find the productivity to capitalize an expense equal to its own net worth out of pocket in either of those time frames, and the majority would have to be funded through debt issuance. While you are “connecting the dots” over a $3.4 trillion symbolic gesture (because that is the most your generation and older will even even take under consideration), a $30 trillion freight train is bearing down on us all.

Greenspan is not indicting Bush’s proposal. He is indicting the entire edifice.

From the Concord Coalition’s explanation of termination liability:

This number represents the subsidy that today’s adults expect from future generations, which is another way of saying that it measures the extent to which future generations will fail to get a fair return on their contributions. It also tells us the cost of transitioning from today’s pay-as-you-go entitlement system to a new funded system. It is the sunk debt that future generations would have to liquidate before they can invest their own contributions free and clear.

In good years, if you treat America as an investment vehicle, the nation throws off about 3% of annual growth that could conceivably be reinvested. Taking only the termination liabilities (perpetuity calculations of liabilities more appropriate to public financing and accounting discussions balloon to almost twice as much), Social Security and Medicare on their own have effectively consumed the next 33-1/3 years of national growth, assuming the national economy hits on all cylinders for the next three decades (a foolhardy assumption). In investment climate terms, imagine facing what is effectively 1970’s stagflation over the long haul, pretty much your entire working life if you are just graduating college today.

Evaluated with the same eye as any practiced investor or trader, or more appropriately with the same eye as a pension fund administrator, Social Security and Medicare already are past the point of insolvency. If you care that is, as most Gen X and younger generations do, to not bequeath a debt-soaked legacy to your children and grandchildren, and not simply run the numbers for only the period you happen to expect to live.

The liberals are right. There really isn’t a solvency problem with Social Security or Medicare. If you plan on dying within the next 30-50 years. Beyond that, our Treasury instruments will start glowing radioactive, and investors will touch it only at their peril.

The proposal was never meant to tackle the solvency problem in any substantive way. It was meant to open the eyes of the citizens to the murky map of the future, especially that section beyond the impassable mountain range of our deaths leading to the golden plains of our childrens’ lives, there is a little legend the map maker wrote down, reading: “Here there be dragons.”

» Posted By Anthony On 06/February/2005 @ 2:11 am

Carol said:

If the government can renege on its promise to me then what makes you 2- somethings think they won’t renege on promises made to you?

If conservative trends on American college campuses are any indication, most 20-somethings have already figured out that government as constituted today is not their friend, and has already welshed on whatever empty promises have been made.

If you don’t want to be a true sandwich (supporting kids and parents) era then you best look at protecting your parents interest as well as your own.

That’s simply thinly veiled extortion, and one with no credible force to back it up. Even the most partisan leftist assessment of ages 18-34 confidence in Social Security pegs it at 40%. That article comments upon the Third Millenium survey. The survey corresponds more closely to my personal experience. Either way, a plurality already believe that irrespective of whether or not they are looking after their parents’ interests, the government has already reneged.

You can’t threaten someone with the loss of something they consider already lost.

In the current policy climate we are not talking about abolishing Social Security. When you say, “I support personal accoutns and I beleive that social secrity is in need of a tweak [sic]”, I can’t tell if you are in support of the President’s proposal.

Whatever your position on his proposal, your concern over someone “robbing” you of your Social Security “investment” (even though there is no such thing as an “investment” in Social Security) is completely unfounded. Nothing in the proposal would lead to such an outcome. I’m guessing that you might understand this already, but because you have demonstrated that you do not understand your contractual rights under the current Social Security legislation (that is, none whatsoever), I want to pursue an explanation in case you don’t understand the proposal, and for the benefit of others following this discussion.

The president’s proposal is really just a test. It tests the resolve of American citizens to live as free and responsible participants in a nation that honors the premise and promise of liberty over the illusory quick salves of debt. It is a voluntary program. No one will be compelled to participate.

Conservatives, Gen X and younger generations are in effect saying, okay, we acknowledge there will be nothing to pay out when today’s young reach retirement age. Not only are we accepting that, we’ll pay to fund this test. We’ll pay in the form of higher interest rates in the future, because the older generations will out vote us if we asked them to try to help us fix this problem. Read that again. Under the proposal, we’re already assuming Boomers and older won’t help us fix this at all. We’re saddling our children through these interest rates, once again, with the tab. But we’re willing to take the risk that this test might just be enough to start a debate on migrating off of the Social Security plan in time to lift at least much of the burden off of our grandchildren, long, long after the last Boomer passes away.

That’s it. The Boomers are not being asked to help. The impact of the interest rates will only hit them in the last waning years of their life, and perhaps not even then if more business-friendly reforms are accepted. The younger generation is just asking for the chance to pay for and test a scaled down version of an escape valve before the entire system melts down, and takes the entire economy with it.

We are not even talking about a one-for-one replacement of private accounts to Social Security. It is just a fraction of an individual’s Social Security contributions. That’s why it is a test, and not true reform.

So everyone who is against the President’s proposal is saying that they don’t care that their benefits won’t be touched, and they don’t care we are voting for even more debt to ensure their benefits won’t be touched. They want such an iron grip guarantee that there isn’t even the remotest iota of a chance of benefits adjustments, that seeing their children’s nation sink ever deeper into the muck and mire of ruination is preferable to letting their children try a test version of a reform that a non-superpower has already adopted full on without pushing elders into eating cat food in the streets.

By the way Carol, while I realize you were being sarcastic with your altruism remark, that was like tossing a prime rib out into a pack of ravenous dogs if you are hanging around a conservative/libertarian crowd. I have often said that I would be willing to forfeit any claim on Social Security, completely write off all contributions into it, if I could be let out of the program. Cutting everyone off the gravy train sounds rational to libertarians, or Liberty Caucus Republicans.

The younger generations 20s, 30s, and 40s are more about consumption and living for the moment than saving for the future.

Sure, there are plenty like this in every generation. But I would like to see some stats to back up your assertion, because my personal experience doesn’t coincide with yours. In my experience, my generation (30’s) and younger are far more sophisticated and worried about financial planning than our parents or grandparents; perhaps that is simply unique to my circle of friends. While Boomers are worrying about saving $400K and up. My circle of friends and I have already saved $300K minimum per family, and we all agree that $1M is the bare minimum because of anticipated inflation and taxes in the future given current domestic policy trends; we plan for our children’s young adult financial future before they are even born; we learned about equities, bonds, options, forex, and commodities years and sometimes decades before our parents did in their lives; most of us have run the numbers in college or earlier and figured out that the only realistic hope of getting out relatively unscathed from anticipated future taxation rates is to run our own business, and the plurality of us who own businesses are actively investigating basing our businesses offshore (retaining attorneys and accountants to assess the impact serious, not just reading about it). This exact profile might not describe the younger generations as a whole, but even when I lived in a hippie’ish student co-op in college the need for aggressive, obsessive and early financial planning was known by every resident, yes, even the most rabidly liberal ones.

Any senior generation intransigence about “nobody is stealing my Social Security investment!” may well out-vote the younger voices. But there is one individual out there who outguns us all. When he speaks, he will make us an offer we can’t refuse. His name is Mr. Market. The day confidence in our currency collapses, is the day that all the voting you care to throw at the problem won’t keep a catastrophic implosion of all government services from happening. What happened after the Soviet Union fell will seem a picnic by comparison. If you think this is hyperbole, then you haven’t been following the GAO reports, CBO reports, forex markets, central bank reports, and foreign investment flows. It will be a couple decades yet before we reach the point where this is a possibility that even the man on the street can perceive, but major players are already placing their bets and jockeying for position.

» Posted By Anthony On 04/February/2005 @ 6:08 am

Carol said:

I wasn’t aware that I or my generation of boomers had voted ourselves a largesse.

Social Security’s deficiencies were known when Boomers were in their 20’s, 30’s, and 40’s. Boomers are arguably the best educated American generation to date (and will continue to be so long as the NEA has their despicable special interest claws deep in the sides of our children’s education), so why did your children and grandchildren’s generation figure out the scam before the Boomers? As I said to John McCrarey, our gracious host here, because we are citizens of a representative republic, inaction to remedy ills of the state does not excuse the citizens from shouldering responsibility for addressing those ills. You cannot cherry pick what you like about liberty, and leave the messy parts for someone else to face.

I am also aware that that the money that I paid into social security was an investment I made into my country but I still have ownership. The deal was I paid in and in return I would get a pay out in my old age.

You could not be more wrong, Carol. American citizens have been so amiss in their civic duties that it is not surprising large numbers of people believe this. As I said before, you do not possess legal title to what you paid in. There was and is no “deal” that you alluded to in your post.

» Posted By Anthony On 04/February/2005 @ 6:05 am

John said:

Peace?

John, it was not my objective to send vitriol your way, so definitely, peace. If you support the President’s proposal, we are both on the same team on this issue.

» Posted By Anthony On 04/February/2005 @ 4:54 am

Carol needs to read the relevant statutes. The money she paid into Social Security is not legally hers (she bears no title to a numbered account, and she is not party to a contract that entitles her to the benefits, for example), and it no longer exists (the joys of a pay-as-you-go system).

John McCrarey, we live in a representative republic. Saying it wasn’t your fault doesn’t cut it. It most certainly is your generation’s responsibility that you collectively shunned the issue when you were younger, and are leaving the hard decisions to your children and grandchildren, who took to the trouble to educate themselves and advocate for reforms that won’t leave their children with a Weimar Republic-style tab. Living with 60% less unacceptable? Cry me a fucking river. If 100% less, which the vast majority of generations beyond the Boomers are expecting and planning their financial futures upon, is good enough for your children, speaking of hardship on 60% less is ludicrous.

If the backers of Social Security reform were clever, they would threaten to fold the thrift plan into Social Security, retroactively. What? Is that the sound of millions of startled federal government employees? Hey, if Social Security is good enough for the proles, and it is as rock solid as the Democrats claim, it is surely good enough for you guys! If Social Security really is less risky and better than a thrift plan style reform as the Democrats claim, then who needs the thrift plan? We would be doing the federal employees a favor by putting them back on Social Security! The reality is the federal employees would fight tooth and nail to retain the thrift plan and stay out of 100% vesting into Social Security, as they should. This would expose the Democrat’s deception, and cleave off a major voting bloc (unionized federal employees) at the same time.

We’re all Americans and I hate to see generation warfare just as I hate to see class warfare. But the continued wilfull denial of the senior generations to acknowledge that starting with Gen X’s retirement, or very shortly afterwards, the programs will simply implode as long as world wide and national fertility rates continue downward decades-long trends, with immigration weakening the funding structure even further…it makes me wonder if the older generations even grasp the meaning of the price of freedom.

You pay the full price of freedom not when you vanquish an enemy army, but when you come home afterwards and still take responsibility for yourself no matter how hard the consequences.

» Posted By Anthony On 03/February/2005 @ 8:14 pm