The Ticking Fiscal Time Bomb of Social Security

May 11, 2015

If you don’t think the health of Social Security is a big problem, consider this one fact: when adjusted for inflation, the shortfall is $40 trillion, with a “T.” The next president has to deal with this mess, whether he wants to or not. In fact, events may force him (or her) to deal with it. And because we’ve let it go so long, it’s going to hurt.

International Liberty

America has a giant long-run problem largely caused by poorly designed entitlement programs such as Social Security, Medicare, and Medicaid.

So when I wrote last month about proposals by some Democrats to expand Social Security, I was less than enthusiastic.

…demographic changes and ill-designed programs will combine to dramatically expand the size of the public sector over the next few decades. So it’s really amazing that some politicians, led by the clownish Elizabeth Warren, want to dig the hole deeper. …I’m surprised demagogues such as Elizabeth Warren haven’t rallied behind a plan to simply add a bunch of zeroes to the IOUs already sitting in the so-called Social Security Trust Fund. …If Hillary winds up endorsing Warren’s reckless plan, it will give us another data point for our I-can’t-believe-she-said-that collection.

But it turns out I may have been too nice in…

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Social Security’s Looming Fiscal Nightmare

August 10, 2014

Just a reminder of another fiscal bomb set to go off.

International Liberty

With all the controversy over the failed and costly Obamacare program, it’s understandable that other entitlements aren’t getting much attention.

But that doesn’t mean there aren’t serious problems with Medicaid, Medicare, and Social Security.

Indeed, the annual Social Security Trustees Report was released a few days ago and the updated numbers for the government-run retirement program are rather sobering.

Thanks in part to sloppy journalism, many people only vaguely realize that Social Security is actuarially unsound.

In reality, the level of projected red ink is shocking. If you look at the report’s annual projections and then adjust them for inflation (so we get an idea of the size of the problem based on the value of today’s dollars), we can put together a very depressing chart.

How depressing is this chart? Well, cumulative deficits over the next 75 years will total an astounding $40 trillion. And keep…

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Worried about Inequality? Then Focus on Helping the Poor, not Punishing the Rich

June 2, 2014

Privatized retirement accounts are such a sensible idea. No wonder Washington won’t agree to them. :/

International Liberty

I haven’t spent much time writing about Thomas Piketty’s inequality book for the simple reason that my goal is economic liberty, not equality.

That being said, I think that Piketty is fundamentally misguided even if the goal is helping the poor. Simply stated, long-run growth is the best way of reducing poverty and boosting living standards. Piketty, by contrast, focuses on redistribution – even though this would require punitive taxation, thus undermining growth and hurting the less fortunate.

This is very obvious when we look at economic performance in market-oriented nations and compare it to economic performance in countries where government plays a bigger role.

Most recently, I showed how Poland is out-pacing Ukraine.

I’ve compared South Korea and North Korea.

The data for Chile, Argentina, and Venezuela is very powerful.

I’ve shown how Singapore has eclipsed Jamaica.

And we can see that Hong Kong…

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May 2, 2012

The arguments for privatized retirement accounts are so compelling, from Australia and elsewhere, that only fools can oppose them. And by “fools” I mean Democrats and other Statists who demand control of other people’s money.

International Liberty

There are two serious problems with America’s Social Security system. Almost everyone knows about the first problem, which is that the system is bankrupt, with huge unfunded liabilities of about $30 trillion.

The other crisis is that the system gives workers a lousy level of retirement income compared to the amount of taxes they pay during their working years. Younger workers are particularly disadvantaged, as are African-Americans because of lower life expectancy.

These are critical issues, but perhaps looking at a couple of charts is the best way to illustrate why the Social Security system is inadequate.

Let’s start by looking at some numbers from Australia, where workers set aside 9 percent of their income in personal retirement accounts.

This system, which was made universal by the Labor Party beginning in the 1980s, has turned every Australian worker into a capitalist and generated private wealth of nearly 100…

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Why Social Security is a Ponzi scheme, and how to fix it

September 13, 2011

My blog-buddy ST did a great job yesterday calling out former Governor Romney and Congresswoman Bachmann for their hypocrisy in attacking Governor Perry for calling Social Security a “Ponzi scheme.” As she pointed out, not only have liberals been saying that same thing, but so have Romney and Bachmann. While it’s disappointing, it’s hard for me to work up outrage over this; politics ain’t beanbag, as they say, and primaries in particular seem to lead people to say anything to win. On the other hand, when what they say is dishonest, it needs to be called out.

And this was dishonest.

Anyway, as a follow-on to that post, here’s a video from Dan Mitchell of the Cato Institute showing why Social Security is not only a Ponzi scheme, but also a flat-out terrible deal for current workers, retirees, and especially ethnic minorities. Then Mitchell introduces the way to fix the system — private retirement accounts:

Be sure to read Mitchell’s related post.

The way forward to a stable retirement system is clear, but it will take tremendous efforts to get past the Left’s demagoguery and the fear it engenders.

And we certainly don’t need conservatives adding to it.

RELATED: Well, if demagoguing Social Security wasn’t bad enough, Michele Bachmann may be torpedoing her own campaign by seeming to join the “Jenny McCarthy Anti-Vaccination Club for Kooks.” Even if if she’s only repeating misinformation she heard, it’s still bad. Her campaign needs to get this clarified, fast. See also Moe Lane.

(Crossposted at Sister Toldjah)


Want to save Social Security? Privatize it.

January 16, 2011

Everyone who hasn’t been hiding under a rock knows that the two main pillars of our social welfare system, Medicare and Social Security, are in big trouble and threaten to wreck the nation’s finances. With regard to Social Security, Dan Mitchell suggests the way to save the program is to let everyone have private accounts:

Mitchell mentions several countries that have had success privatizing their social pension system. Chile is just one example of a country where privatization has worked wonders. Isn’t it time we took a hard look at doing the same thing, instead of just demagoguing the issue?

RELATED: Jimmy Bise at The Sundries Shack says “We’ll fix Social Security Over Their Dead Bodies.” Take no prisoners.

(Crossposted at Sister Toldjah)


Obama spin zone: local edition

January 4, 2011

I received an email from my employer (an organization of devout statists)  this morning about the new, reduced Social Security tax withholding rate. The part that struck me read:

On December 17, 2010, President Obama signed into law the Tax Relief Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

As if everyone was all smiles, bluebirds sang in the trees, and unicorns pranced outside the West Wing. The President was just so happy to cut taxes for his overtaxed people!

Yeah, right. This really should have read…

“…signed into law as bile rose in his throat and over the screams of progressive Democrats in Congress and his Socialist base in a deal with Republicans (who had kicked his and his allies’ butts in the most recent election) to avoid the largest tax increase in US history and thown the economy into a second recession, all because his party’s congressional leadership were too stupid to do this when they had the chance.”

But, I guess they forgot that part. How odd.


Privatize Social Security?

December 29, 2010

If empirical observation shows a better solution to old-age pensions and public debt, shouldn’t we take a serious look at it? It’s worked wonders in Chile:

Pinera’s proposal began with scrapping the payroll tax on the country’s social security system and inviting all workers to take the money they were contributing and move it into a private pension.

Workers would be free to choose the fund, how much to put in, and at what age they would retire, with a minimal safety net built into the design. Past contributions would be refunded to workers by government bond. And anyone who didn’t like the idea was free to remain with the system as it was. It was a huge success: 95% of Chile’s workers chose the private system.

Pinera told the public to expect a compounded 4% rate of return under the private plan. But as of 2010, the average annual rate of return was 9.23%, far higher than promised.

By contrast, the U.S. social security system, which today accounts for a quarter of the U.S. government budget, is slated to give retiring workers in the next decade a 1% to 2% rate of return. And those entering the system today will see a negative return.

Chile’s implicit pension debt fell to just 6% of GNP — compared with 100% in the U.S., 300% in France and 450% in Italy, leaving Chile with no net debt.

Better still, the accumulated savings in the pension funds fueled Chile’s spectacular economic ascent, taking real incomes from about $4,000 per capita in the early 1980s to $15,000 today, and GDP to the 6% range most years for nearly 20 years. With that record, is it any surprise that Chile this year earned itself a membership card into the club of rich nations, the OECD?

We know our current system is heading for collapse, so, other than fear fed by the demagoguery of the Left, what’s to stop us from looking at a model similar to Chile’s? Shouldn’t workers be able to keep their own money in their own retirement accounts, instead of relying on handouts from a government-run Ponzi scheme?

via Fausta

LINKS: Further observations at No Runny Eggs


A social security system that works

August 25, 2010

I’ve long advocated  privatizing Social Security, our nation’s public pensions system. The current set up, while supposedly a trust fund, is really just a piggy bank that lawmakers of both parties have raided time and again over the decades to pay for their grandiose programs while promising to pay it back later.  The fact is, the system is broke. It’s just a giant Ponzi scheme in which current workers are paying retirees in the expectation that future workers will pay the current workers when they themselves retire.

The hash that government has made of Social Security should be reason enough alone to take the money out of the politicians’ hands. But there are also positive reasons, too: rather than depending on the labor of others to pay for retirement at a rate determined by a distant bureaucrat, a worker builds up his own funds that he can use as he wishes, even leaving it to his children to augment their nest-eggs, and it treats citizens as responsible adults rather than infantilizing them.

We also have an empirical example of a private social security system that has worked, and worked well, for decades:

Unlike the United States and most European nations, Chile does not face a long-term Social Security crisis. This is because lawmakers shifted to a system of personal accounts almost 30 years ago. As a result, Chile’s economy is much stronger, the financial system is healthy, workers are better off, and taxpayers are protected. It also turns out that a system of personal accounts has a positive impact on the labor supply of older workers. Instead of getting lured into retirement by a punitive tax-and-transfer government system, they remain active to reap the rewards of a system that rewards them (rather than tax collectors) for continued work.

Seeing the problems of our own system, the even worse ones facing European public pension systems, and then contrasting them with the private Chilean system should make the choice to transition to a private Social Security system easy. But, when Bush tried even a moderate reform in 2005, the statist Democrats and their big donor groups fought it tooth and nail, and won.

Our system is only going to get worse as our population ages, requiring a huge tax burden on current and future workers to pay the benefits of those in the system or soon to enter it. A transition to a private pension system will be hard, but it will be even harder in the future. Unfortunately, with the (Social) Democrats in charge, we’ll have to wait until at least 2013 before any meaningful reforms can be made.