Monday, September 20, 2010

Rant: Social Security

There’s two core issues with arguments over Social Security’s viability.
1.       The existence of the “trust fund”
A key premise of the “Social Security is broke” crowd is the line “there is no ‘trust fund’, it’s just a Ponzi scheme.”
One may contend that there will be trillions of dollars in the fund a la federal bonds, ready to carry it on for decades to come.
One may contend that those dollars are merely self-owed IOUs, with the money having already been spent.
Roughing the numbers...
You pay two dollars of FICA tax.
Those dollars go to the Social Security Administration.
One dollar, allocated to current costs, goes right back out to pay dad’s SSI check this month.
Other dollar, being surplus, buys a US Treasury Bond as long-term stable investing – to wit, the “trust fund”.
That bond purchase routes that other dollar right back out to facilitate deficit spending.
The only “investment” at that point is a promise by the left hand that it will pay back the right hand.
This can only happen if
-          there is sufficient revenue at the time payment by the left hand is demanded by the right
-          another dollar of debt is created
-          or another dollar is printed.
Notice there is no actual investment, to wit tangible or legal property, involved in this “trust fund”.
The only way money goes out is if there is enough money coming in, either directly from FICA taxes or from general revenue used to pay off the bonds involved.
The “trust fund” is just shuffling the books with “I O Me”s.
It’s a Ponzi scheme.
2.       Political axioms and their impact on solutions
The reason some of the “myth”s originally enumerated were phrased the way they were is that if one holds certain axioms, there is no other way to put them. This, of course, strikes as odd those who hold different/conflicting axioms. Example:
"Myth: Benefit cuts are the only way to fix Social Security."
If, for assorted legitimate reasons, one holds that tax increases are not a valid option, and that budget re-shuffling is unviable, the short way to put the point is that, indeed, the only way to fix the problem of long-term Social Security viability is to cut benefits. Hold that axiom, and there is no other realistic option.
This, of course, seems odd to someone who does not hold that axiom. The response advocates that which a large fraction of the population opposes:
"Reality: ... If the very rich paid taxes on all of their income, Social Security would be sustainable for decades to come.5 Right now, high earners only pay Social Security taxes on the first $106,000 of their
income.6  ..."
Hence what is plainly reasonable to some is legitimately outrageous to others. Their differing opinions are the natural consequence of differing axioms.
There’s an old computer science joke: “two plus two equals five ... for very large values of two.” To call some of the points “myths” is to create straw-man arguments: remove the foundational principles and definitions creating the wording, and look surprised and delighted when the wording crumbles.

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