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Mathematics of the Social Security "Crisis"

CmdrTaco posted about 10 years ago | from the brace-yourself-for-fun-and-excitement dept.

The Almighty Buck 1910

ScottyB writes "Here's a good start for reading into the economics and history of the much-discussed 'crisis' in Social Security. It's from the NY Times magazine, so you know the drill...'A Question of Numbers.'"

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Shocked, shocked I am (0, Flamebait)

loraksus (171574) | about 10 years ago | (#11399204)

What is there to know? we (the under 35 crowd) are fucked, no matter what happens.

I can fix the problem (5, Insightful)

crunk (844923) | about 10 years ago | (#11399253)

How about instead of private accounts we just get to keep our money instead?

Oh I forgot, they never put any of this money away for people's retirement like was originally planned. This money is part of their everyday operating expenses. It's just another way to get more tax money.

Re:Shocked, shocked I am (3, Insightful)

Quill_28 (553921) | about 10 years ago | (#11399279)

What you need to know is that if you are under 35, it doesn't take that much saving to be set by the time you are 65.

And don't depend are social security, I know that I am not.

Re:Shocked, shocked I am (1)

Citizen of Earth (569446) | about 10 years ago | (#11399441)

What you need to know is that if you are under 35, it doesn't take that much saving to be set by the time you are 65.

The unwashed youthful masses could stand to read some books on the subject, such as The Automatic Millionaire [amazon.com] as an example. For as little as $5 a day, you, too, can sponsor an otherwise dirt-poor retiree--yourself.

Re:Shocked, shocked I am (0)

Anonymous Coward | about 10 years ago | (#11399319)

I agree, we're screwed... just somewhat annoying that, from my youth days, I remember one of the richest kids in high school's allowance was his mothers soc.sec. check... They were absolutely loaded and still collected. This generations Greed helps fuel our generations Suffering.

Uh, try under 65 crowd. (1, Interesting)

Anonymous Coward | about 10 years ago | (#11399385)

It's a ponzi scheme.

Time to face the truth.

The last ones in must pay the price.

The facts (-1, Flamebait)

Anonymous Coward | about 10 years ago | (#11399416)

1. Social Security has no trust fund
2. Social Security money is 'invested' in government issued IOUs (i.e., federal government issued bonds)
3. Social Security taxes are paid into the general revenue of the government
4. The government budget or surplus includes the Social Security taxes paid in
5. Social Security tax money is spent on things other than Social Security
6. People 40 or younger get a negative return from Social Security.

Re:Shocked, shocked I am (0)

Anonymous Coward | about 10 years ago | (#11399458)

Raise the ceiling from ~85,000 and you've fixed it.

Why would I trust the NYT for political reading? (-1, Troll)

Anonymous Coward | about 10 years ago | (#11399205)

It's just another liberal rag.

Typo... (-1, Troll)

Anonymous Coward | about 10 years ago | (#11399209)

I think there's a typo in the summary... it says:

It's from the NY Times magazine, so you know the drill

When I think they mean:

It's from the NY Times magazine, so you know the bias

Liars (3, Insightful)

Concern (819622) | about 10 years ago | (#11399210)

In this country, fools and paid liars say whatever they want about an issue on television and, as far as viewers are concerned, get away with it. The enterprise of journalism, which is suppoesed to help citizens in a democracy sort through the sewer of increasingly sophisticated misinformation that comes from a variety of interested parties is in a state of free-fall, either actively subverted by self-interested and sociopathic organizations and individuals, or simply crumbling under the unique demands and exigencies of continued survival in the mass media marketplace.

The heart of the matter is that when Bill O'Reilly or Sean Hannity lie about something, no one is yet able to mod them down.

Re:Liars (-1, Offtopic)

Quill_28 (553921) | about 10 years ago | (#11399235)

That's right it is always FoxNews that lies, not CBS or the NY Times.

Yes (1)

Concern (819622) | about 10 years ago | (#11399292)

Substitute "vastly more often" for "always" and you've about got it.

Re:Liars (2, Funny)

SteeldrivingJon (842919) | about 10 years ago | (#11399350)

Fox viewers just think that if you lie while you're YELLING, it doesn't count.

Re:Liars (1, Insightful)

AtariAmarok (451306) | about 10 years ago | (#11399321)

"The enterprise of journalism, which is suppoesed to help citizens ....The heart of the matter is that when Bill O'Reilly or Sean Hannity lie about something....

One problem with your argument is that you back it up with examples of guys who are (even at their own frequent admission) commentators, and not journalists. The second problem is that neither are "paid to lie" by anyone. They are paid to be themselves. If they lie, that is part of their beliefs. It is not like they have bosses who say "Here's a lie. We are paying you to say it."

The other problem is that you put journalism on some sort of pedestal. It has nothing to do with "democracy", and when you get right down it it, all journalists turn out to be commentators of some kind.

Re:Liars (2, Insightful)

Brackney (257949) | about 10 years ago | (#11399461)

Where are the "journalists" now? There are very very few actual journalists left in the US. We're left with personalities and pundits who exist to garner market share and have neither the integrity nor the time to be bothered with getting data, fact checking, and reporting. More frightening is the fact that the average American mistakes what the talking heads say for actual news, when in point of fact it's largely opinion.

It's a sad state of affairs when we're left to get our news from the foreign press. If you want to hear Karl Rove and company's daily talking points, you can simply flip on the TV. If you want to know what's really going on you have to dig.

Re:Liars (4, Insightful)

danheskett (178529) | about 10 years ago | (#11399397)

The enterprise of journalism, which is suppoesed to help citizens in a democracy sort through
Since when has that been true? Take off your rose colored blinders. That's never what journalism has been about. Journalism has been about promoting a view, detracting from a view, and most of all selling media. If you want to see for yourself, go to a library and look back at 17th, 18th, and 19th century newspapers. Journalism has always been a taudry business. This business about journalists being the crusading do-gooder out to help democray is a post-World War II fantasy.

and, as far as viewers are concerned, get away with it.
That's in your opinion. They don't get away with in my view, because I refuse to consume their product and to become their product. Remember, when you watch most media, you are not only consuming their product but you become the product: eyeballs to an advertiser.

increasingly sophisticated misinformation that comes from a variety of interested parties is in a state of free-fall
Everything you disagree with is not misinformation. Everyone has an interest. Regardless of how much people might hand-wring about it, everyone has an interest.

either actively subverted by self-interested and sociopathic organizations and individuals
What a load of garbage. There are few very issues with objectively correct or incorrect answers or solutions. Individuals or organizations promoting their view is hardly sociopathic.

or simply crumbling under the unique demands and exigencies of continued survival in the mass media marketplace.
If you feel like a media outlet is not being principled in the face of competition, than abandon that outlet. There are others. You somehow think that intense competition and corporate involvement with media is new. It's not. It is, again, exceedingly old and well established within this country. You seem to have this perception that before a certain point in history things were good with regards to journalism, and then something happened, and now it is bad.

The heart of the matter is that when Bill O'Reilly or Sean Hannity lie about something, no one is yet able to mod them down.
That is not only an amazing generalization but also fundamentally incorrect. Both of the people you mention are fundamentally pushers of opinion. There is very little in terms of opinion which meets the definition of a lie. On top of all that, you are in fact able to "mod them down". Disregard their opinion, and move on to another source.

It seems like you most upset because people with whom you disagree or believe to be lying are able to have power and influence despite your disapproval of them. This is, despite your view, a truly great thing.

You need to celebrate diversity. Diversity of thought, diversity of opinion, and diversity of expression. If you can't accept a point of view, or the person giving it, then ignore that person and move on. There is no need to clamor for censorship.

Re:Liars (2, Insightful)

gowen (141411) | about 10 years ago | (#11399413)

In this country, fools and paid liars say whatever they want about an issue on television and, as far as viewers are concerned, get away with it.
In my country, it's very different.
One cannot hope to bribe or twist
thank God, the British Journalist.
But seeing what the man will do
Unbribed, there's no occasion to.

Or, as Kingsley Amis once wrote, "Laziness has become the chief characteristic of journalism, displacing incompetence."

Re:Liars (0)

Anonymous Coward | about 10 years ago | (#11399419)

OMG, please use some punctuation, I got dizzy reading your post.

Yay! (-1, Flamebait)

Anonymous Coward | about 10 years ago | (#11399213)

Retards! Yay!

First post ! (-1, Offtopic)

randalware (720317) | about 10 years ago | (#11399215)

Tag did I make it.

I hate the required regisration system on any web site for "free" access.

Re:First post ! (1)

stupidfoo (836212) | about 10 years ago | (#11399436)

I hate the required regisration system on any web site for "free" access.

Then I'm sure you'll love it as more and more sites start to be pay only.

It's a nusance to put in garbage in a web form and use a throwaway email address, if necessary, but it still beats paying for it.

The "Drill" (1, Flamebait)

goldspider (445116) | about 10 years ago | (#11399221)

"It's from the NY Times magazine, so you know the drill..."

Yes, I take every story from the NYT with a huge block of salt.

This whole "There is no crisis" (0, Flamebait)

hsmith (818216) | about 10 years ago | (#11399225)

is a crock of shit. I am sorry, but as someone in their 20's, paying into this system, I expect something back. Saying there will be no crisis until 40 years down the road is just ignoring the pending doom. We must head off the problem before it starts.

the SS "Trust Fund" is going to start cashing in their US Gov't IOU's, the only solution is to raise taxes to payback the money the government has taken out of our system. It is the politicians fault, not ours.

The careful observer will note... (0)

Anonymous Coward | about 10 years ago | (#11399307)

that "fault" and "problem" are two vastly different things.

Screw social security, you're not getting it. Expect that. Try to sock away as much of your income for retirement as possible, make a lot of friends, and keep an eye out for opportunities for investment.

Re:The careful observer will note... (0)

Anonymous Coward | about 10 years ago | (#11399355)

Also, don't trust in pension plans. A great many of those will probably fail and who knows what kind of bailout that will look like. What is it something like 70 trillion in unfunded obligations?

Alternatively, you could do just enough, and learn to like the taste of cat food and the sting of bitter cold.

A very real problem is the time frame (1)

Vengeance (46019) | about 10 years ago | (#11399314)

In 1964, it would not have been possible to foresee the dot-com boom or bust, nor today's broad societal trends. Similarly today we cannot tell with any certainty at all what the situation will be forty years from today.

aye (0)

Anonymous Coward | about 10 years ago | (#11399351)

Don't agree with Bush on a lot of stuff but I think his idea of privatizing the retirement is a good one. Will it still need some tax money? You bet it will. This system is screwed whether we jerry rig it until 2040 or whether we rebuild it privatized. Sometimes more is lost by inaction than the wrong decision, and I think this is one of those instances.

Not as bad as you suggest (1, Insightful)

Anonymous Coward | about 10 years ago | (#11399407)

There are several aspects:
1) There is no problem, with high certainty, for at least 40 years
2) Some predictions say that there will not be any problem in the projected future (about 60 years from now)
3) Even if there is a problem, it will not "bankrupt" the government, or mean that the program will suddenly cease to function. What will happen is that benefits will be reduced. At worst it would be a 30% reduction.

The "solution" which has been suggested would divert money from the account which pays out to people who are retired now. What would happen is that the "crisis" would be made certain and would happen in the next 10 years. The advantage is that people who are just starting out would have most of their savings in private accounts which would not be affected. The disadvantage is that those who are already retired, or at least ten years into their employment, would see drastically lessened benefits plus the costs of managing the program would increase by billions of dollars.

So as far as real solutions, there are only three: raise taxes, move money from other programs (would be very difficult since SS is expensive), or reduce benefits. Of course those three solutions can be combined in various ways.

Re:This whole "There is no crisis" (5, Insightful)

HenryFlower (27286) | about 10 years ago | (#11399439)

A few facts:

  1. The "crisis" that is potentially 40 years away is that SS will be taking more money out than has been put in/set aside. That's not great, but is not the end of the world (it's not doom), and has happened multiple times in the past.
  2. The 40 year date is a very conservative one -- it's probably more, and could be infinite
  3. *Very* small adjustments could move that time horizon to the infinite future even under conservative economic assumptions

The larger fact is that basic problem is a too large federal deficit, not a systemic social security problem, and the proposed "reform" makes the underlying problem worse, not better.

Ah, liberals (-1)

Anonymous Coward | about 10 years ago | (#11399228)

It is a crisis, not a "crisis". Don't know about you, but I would rather have some control over what I am donating and get something when I retire.

the real agenda (4, Insightful)

titaniam (635291) | about 10 years ago | (#11399242)

The goal of the republicans is not to revamp social security. The goal is to abolish it entirely, along with medicaid. The easiest way to do so is to completely break it by privatizing it, while at the same time bankrupting the government. Then, of course, the private managers will be to blame. Something will have to go to balance the budget... and then they will eliminate social security. Now the tax cuts and war start to make sense. Expect a budget crisis shortly!

Re:the real agenda (0)

Anonymous Coward | about 10 years ago | (#11399414)

Actually, tax cuts always make sense. It is irresponsible and utterly wasteful federal and state spending that doesn't make any sense. Right now, the money I am paying into Social Security, by no choice of mine, is not headed to a trust fund, but straight into the hand of SS recipients. By the way, even though I took the flamebait, I will not lower myself to flaming someone who differs than I on ideologies.

Re:the real agenda (0)

Anonymous Coward | about 10 years ago | (#11399430)

And because ending government sponsorship of poor planning and poor priorities is a bad thing. Social Security is a program I would be more than happy to see go away, I have cash and equity savings for the day I retire and if I ever become self employed I will cut the Social Security cord and stop paying in a heart beat. As for medicaid, if employers would decide to care for their employees by paying them decent wages (based on the cost of living) and offering appropriate benefits then we could abolish that too, and I'd be much happier to see the government tell businesses to do what they ought to rather than see government take it upon themselves to create another inefficient beauracracy....

End Social Security (0, Troll)

christopherfinke (608750) | about 10 years ago | (#11399251)

What's wrong with just letting people save money on their own for their retirement? I say we end Social Security and let people plan for themselves.

Re:End Social Security (1, Insightful)

Knetzar (698216) | about 10 years ago | (#11399288)

What happens to the people that don't plan, or don't plan well? Social Security was meant to help everyone, not just those with foresight.

Re:End Social Security (3, Insightful)

PornMaster (749461) | about 10 years ago | (#11399366)

They suffer the consequences of their inaction and/or ignorance? God forbid we expect people to be responsible for themselves...

Re:End Social Security (1)

mushupork (819735) | about 10 years ago | (#11399409)

What happens to the people that don't plan, or don't plan well?


Re:End Social Security (1)

aeroegnr (806702) | about 10 years ago | (#11399428)

They learn. If not, they go to private charity to get assistance when needed.

Re:End Social Security (1)

Ian Action (836876) | about 10 years ago | (#11399312)

"What's wrong with just letting people save money on their own for their retirement? I say we end Social Security and let people plan for themselves." I guess you're not over 65...

Re:End Social Security (2, Insightful)

Anonymous Coward | about 10 years ago | (#11399315)

see: great depression.

Re:End Social Security (0)

Anonymous Coward | about 10 years ago | (#11399327)

What do you think the republicans are doing?

Re:End Social Security (2, Insightful)

hsmith (818216) | about 10 years ago | (#11399328)

For one, there is no finanical education in school, so something you are responsible for your whole life (your finances) you are not taught at all and expected to know.

Add to the fact, most people would rather buy a new pair of "kicks" compared to saving that $100 while they are 25 for retirement. People don't realize that if you save when you are young, you will be far better off than when you are in your 30's and decide to start saving.

Re:End Social Security (1, Insightful)

goldspider (445116) | about 10 years ago | (#11399330)

The problem with that stance is that it contradicts the Democrat platform of making people reliant upon the government for their basic needs. Opponents of Social Security reform argue on principle, despite the facts.

Re:End Social Security (0)

Anonymous Coward | about 10 years ago | (#11399332)

Because some of us are still unwilling to starve the elderly.

Re:End Social Security (1)

Citizen of Earth (569446) | about 10 years ago | (#11399337)

What's wrong with just letting people save money on their own for their retirement?

The problem is that poor people would have to carry their own weight in such a scheme, which is something that they are demonstrably not very good at.

Re:End Social Security (3, Insightful)

gowen (141411) | about 10 years ago | (#11399339)

What's wrong with just letting people save money on their own for their retirement?
There's nothing wrong with it that can't be cured by allowing destitute senior citizens to starve to death on the streets.

It would, after all, be their own fault, for failing to save properly for old age.

Re:End Social Security (1, Informative)

Space Coyote (413320) | about 10 years ago | (#11399368)

What's wrong with just letting people save money on their own for their retirement? I say we end Social Security and let people plan for themselves.

A little thing called the great depression showed the error of that little scenario.

Re:End Social Security (1)

shadowzero313 (827228) | about 10 years ago | (#11399386)

What's wrong with just letting people save money on their own for their retirement? I say we end Social Security and let people plan for themselves. You're forgetting that many Americans aren't capable of budgetting their paychecks to pay the bills on time, let alone plan for (years until retirement) years down the road, when they will need the money even more than they do right now. But yeah, I agree that if Social Security keeps getting leeched for other purposes, it needs to be shitcanned and the government needs to find a new way to pay for multi-million dollar dinners and other wastes like that.

Re:End Social Security (1)

crunk (844923) | about 10 years ago | (#11399390)

I second that! But don't require people to use private accounts for retirement. Just let them keep their money and do what they wish. If somone decides not to save for retirement it shouldn't be everyone's problem.

Re:End Social Security (4, Insightful)

John Hurliman (152784) | about 10 years ago | (#11399392)

Because most people have no idea how to save money for retirement. So a few people properly plan their retirement and do better than they would with Social Security, while everyone else blows their money on late night infomercial products or has it swindled away by private enterprises promising you will "Retire with a million dollars!". This puts an additional burden on the welfare system, and worse, these people are retired so they have no chance of going on welfare-to-work programs or similar things. The economic dead weight from letting people blow their retirement savings and then looking for a free handout would be tremendous.

Re:End Social Security (2, Insightful)

sfontain (842406) | about 10 years ago | (#11399396)

As a 22-year-old full-time worker with a company-sponsored savings plan and a Roth IRA, I would very contently keep the money they take out my check for SS and invest it in my 401(k) or IRA or elsewhere. The return on my investment would certainly promise to be greater than it will be on our current course.

Re:End Social Security (0)

Anonymous Coward | about 10 years ago | (#11399415)

Ever seen Monty Python & the Holy Grail?

Are you gonna be the guy chanting "Bring out the dead"?

What's wrong? (4, Insightful)

benhocking (724439) | about 10 years ago | (#11399424)

What's wrong with just letting people save money on their own for their retirement? I say we end Social Security and let people plan for themselves.

Basically, what's wrong is that many people do not save money for their retirement. No doubt, most of these people do not read /., and yet are probably still aware that they should be saving money for their retirement, but either lack the ability or the will to do so.

The easy answer is to say, "Oh well, that's their fault," but when these people get to be in their 60's, 70's, etc., we as a society are not going to simply let them starve, go homeless, get sick, etc. Social Security could be scaled back by extending the age of collection, etc., and/or it's functionality could be wrapped up into other welfare programs, but it cannot be simply dropped.

Additionally, Social Security is something like a Ponzi scheme, and as such, if you stop paying into it now, then those who have already paid into it won't be able to get back what they put into it. So, it's either tough luck for the under-[insert age here] crowd in the future, or it's tough luck for the baby boomers now. Guess who will win that one?

Re:End Social Security (1)

nine-times (778537) | about 10 years ago | (#11399426)

Well, Social Security does not only serve as a retirement plan for old people. There are also many physically/mentally disabled who are incapable of earning a full living for themselves, and who therefore receive some supplemental income from Social Security.

Re:End Social Security (0)

Anonymous Coward | about 10 years ago | (#11399446)

Will the goon squad cheerleaders be out there helping the starving elderly when we get rid of SS?

The problem with these subhuman trolls is that they'll throw a can of dog food and say granny bag lady should have planned better.

These "people" make me pray for the collapse of industrial civilization.

Delaying Payment and Expediting Collection (1)

_Sambo (153114) | about 10 years ago | (#11399452)

From the depths of the 1930's Depression (that with a capital D), the social security administration has been upside down. The US govt. seems to have a continuing issue with looking to the future as anything but a bail out.
Social Security has been tapped as a source of funding in the past, and has only recently (last 10 years) been a subject of scrutiny.

A deeper issue is the entitlement complex that our parents and grandparents had. (yes i accepted pell grants to get through school)

I'm planning right now to have sufficient assets to support me in my "Golden" years.

Diverting money to investors (0)

Anonymous Coward | about 10 years ago | (#11399258)

SS reform is a sham to divert money to big stock market investors.

The net deficit from SS over the next 50yrs is significantly smaller than the net deficit from Bush's reduction in dividend and capital gains taxes.

All of Bush's domestic decisions have favored people who get more than 1 million a year in unearned income. If you work instead of having your personal money manager cash your checks, Bush is trying to screw you.

Drill?! (1)

Anonymous Cowherd X (850136) | about 10 years ago | (#11399261)

It's from the NY Times magazine, so you know the drill...

What, now I need a drill to read the article?! What's next, a freakin laser on a shark who will make his way through raw sewage up into the HQ of the NY Times magazine and copy the original article onto the USB flash drive located on his belly where his belly button would be if he were human?!

reg. required....nooooo! (1)

kex (752312) | about 10 years ago | (#11399265)

Damn the registration process! I didn't register/read the article so, I'll assume it says I won't get a million dollars from the government when I retire. Does it say if I'll get $100? Maybe even $200? That's better than my vhances at getting a job that'll keep me for 30 years and pay for my retirement.

2038 (1)

Anonymous Coward | about 10 years ago | (#11399266)

I was watching CNN and they had guests on from both sides of the issue. The guy who opposed any changes said the system was fine until 2038. I was born in 1977, so quickly doing the math, I realized I'd be 65 then! That's not fair.

Re:2038 (0)

Anonymous Coward | about 10 years ago | (#11399395)

...said the system was fine until 2038. I was born in 1977, , so quickly doing the math, I realized I'd be 65 then!

2038 - 1977 = 61

Trying out for an accounting job, are you? :)

Come north... (0)

Anonymous Coward | about 10 years ago | (#11399268)

... Canada has ~10% of the US population and one of the best social nets in the world. It constantly ranks in the top 10 of the "Best Places in the World" to live by the UN and other groups. Life is for living here, its not a race to build the biggest bank accounts and get plastic surgery. And the life expectancy is higher than in the US. Bush is going to sell your souls to the devil to make his friends richer while you starve. Then they get to call you "lazy".

It boils down to this... (0)

Anonymous Coward | about 10 years ago | (#11399270)

Do you want to pay taxes to a government slush fund that gets distributed on a political whim (current system), or do you want to control how your money is invested and distributed? It's not rocket science, people. The Dems say that Bush's proposal is for stockbrokers and not for widowed grandmas, but it's no more complicated than a 401(k) or 403(b).

no registration (2, Informative)

Anonymous Coward | about 10 years ago | (#11399271)

Re:no registration (1)

afstanton (822402) | about 10 years ago | (#11399289)

So why did a login come up?

Re:no registration (0)

geoffspear (692508) | about 10 years ago | (#11399423)

A better question is why someone modded a link posted by an AC "Informative" without bothering to follow it and see if it was what it claimed to be.

I've read this article before it was on /.... (4, Insightful)

doormat (63648) | about 10 years ago | (#11399283)

and basically it says that there is a greate deal of misinformation coming from the right.

Over the next 75 years, SS will run at a loss of 3.3T USD. Sounds like a lot huh? Well by comparison, the Bush tax cuts (both of them) will result in less revenue to the tune of 11.6T USD over the next 75 years. So even if you revoke 30% of the Bush tax cut, you can pay for SS over the next 75 years (or maybe a little more to cover interest since they tax revenue and SS benefits demand dont have similar demand curves).

The answer is obvious... (4, Funny)

Realistic_Dragon (655151) | about 10 years ago | (#11399285)

...and it solves both the food and the social security problem in one fel swoop.

Re:The answer is obvious... (1)

Andorion (526481) | about 10 years ago | (#11399344)

Eat the elderly?

Re:The answer is obvious... (1)

afstanton (822402) | about 10 years ago | (#11399353)

Yup. Soylent Green is OLD PEOPLE!

Re:The answer is obvious... (2, Funny)

Anonymous Coward | about 10 years ago | (#11399377)

Now don't be modest, tell us your proposal. Swiftly please.

It's all about the Numbers? (0)

Anonymous Coward | about 10 years ago | (#11399290)

I mean 1st post....
Or is that the second post....
It could be the third....
There is a statistical probability that this is the fourth post. And using a standard deviation there is a high probability that this is going to be the ninth post.
Or in other words this post has a 99% chance of not being a first post. So there is a 1% chance that it will be the first post.
Based on this social rating system, I have a 90% chance of this being moderated high if this falls within 1%. So there is a 90% chance that this is going to be a highly rated first post.

I love numbers....

not only conservatives... (1)

markybob (802458) | about 10 years ago | (#11399297)

the liberals played this game. clinton called social security a "looming fiscal crisis" in feb 1998. "We have a great opportunity now to take action now to avert a crisis in the Social Security system," Clinton said, again in February 1998. "By 2030, there will be twice as many elderly as there are today, with only two people working for every person drawing Social Security. After 2032, contributions from payroll taxes will only cover 75 cents on the dollar of current benefits. So we must act, and act now, to save Social Security." http://www.nationalreview.com/york/york20050114080 7.asp

reg free (3, Informative)

2MuchC0ffeeMan (201987) | about 10 years ago | (#11399301)

Re:reg free (1)

hyperstation (185147) | about 10 years ago | (#11399451)

i know someone who didn't read past the first page....

Or the generator! (3, Informative)

antdude (79039) | about 10 years ago | (#11399453)

Click here [nytimes.com] . Used NYT Link Generator [blogspace.com] .

Gah! (5, Insightful)

ivan256 (17499) | about 10 years ago | (#11399308)

It's always the same. Every "debate" or discussion about the numbers behind social security and they never talk about the numbers that matter. For people under 35, the most important number is the number of dollars in an employee's pocket on payday after deductions. As things stand right now, there's at least 30 years - at least seven presidential terms - between now and when those people start collecting. Chances are some politician is going to wreck social security between now and then even if the gloom and doom predictions don't come true. That means on top of the hefty deductions from your weekly paycheck, if you're under 35, you also have to assume social security won't be there for you and you have to put that much more money away personally. That is the number that matters.

As for this article... Solving the social security budget gap by adding 2% to the payroll tax sounds great... Tax the corporations! Well, it would be great, but corporations take the payroll tax into account when they determin how much you cost them as an employee. As far as they're concerned, the payroll tax is part of the employee's compensation package... Raise the tax, and you're going to see a corresponding drop in salaries or a corresponding rise in unemployment over the long term.

You forgot.... (1)

AtariAmarok (451306) | about 10 years ago | (#11399422)

"to the payroll tax sounds great... Tax the corporations!"

There are other effects, such as the fact that such tax hikes encourage corporations to move their operations offshore. And, depending on what part of the corporation gets taxed, this operation gets discouraged. Increase corporate payroll tax on employees? You get more downsizing.

Re:Gah! (4, Interesting)

multiplexo (27356) | about 10 years ago | (#11399455)

Social Security could be put on a sounder financial basis by eliminating the portion of the tax paid by corporations, increasing the amount of income subject to FICA witholding and applying FICA witholding to all income including short and long term capital gains, interest income, etc. Right now SS acts as a brake on employment, it's a "payroll" tax, and the percentage paid by corporations works to discourage them from employing people and it also really screws over the self-employed.

The idea that SS taxes shouldn't be applied to capital gains and other forms of income is basically a huge giveaway to the rich. Now I know that some /.'er is going to talk about how we are in an ownership society and lots of people who aren't rich own stock and blah, blah, fucking blah, but if you look at the numbers you'll see that the people who make most of the money from capital gains and the like are pretty damned wealthy. I see no reason why they should enjoy a separate tax system designed to shield their gains while those of us who take home a paycheck as our primary source of income have an entirely separate tax system.

Solution (1)

ShaggyB (849018) | about 10 years ago | (#11399310)

Class Action Lawsuit anyone?

"broken" my windows (3, Insightful)

Anonymous Coward | about 10 years ago | (#11399333)

If Social Security is "broken" now, then the rest of the budget is HORRIBLY BROKEN. They currently use the surplus of SS to pay off a large portion of the deficit. The rest of the deficit is being paid for by our children and grandchildren.

Real World (1)

Stormcrow309 (590240) | about 10 years ago | (#11399343)

Welcome to the real world...

If I started company X and implemented a retirement policy that works like Social Security, I would at best get told to change it and at worst would go to jail for a pyramid scheme. It is against the law for a company to implement a system that works just like the social security system.

News radio (1)

doombob (717921) | about 10 years ago | (#11399357)

I don't know how it is anywhere else, but here, local drivetime radio personalities have been fielding questions about Social Security reform. People have been calling in and talking about a "brother's neighbors's cousin's boss" that opted out of Social Security in order to take that money and put it into their own retirement planning. Has anyone else heard of such things or know if it is possible? From the things I have read, it is not possible to get out of paying your Social Security out of your regular paychecks. But I'm sure someone here has the ability to enlighten me or strengthen this position.

1984 (0)

Anonymous Coward | about 10 years ago | (#11399358)


What 'crisis' in Social Security? (1, Insightful)

Homology (639438) | about 10 years ago | (#11399359)

The Republicans are systematically dismantling any heritage of the New Deal. They do it by inducing the worst ever budget deficit, with an enormous trade deficit, and giving stupendous tax "relieves" to the super rich. Not to mention the obscene amount of money used on the military. In no time in human history has a power been this much stronger than anybody else, including the Cold War.

Oh yeah, crisis in Social Security my ass.

It's not SS, stupid (0)

Anonymous Coward | about 10 years ago | (#11399360)

It's Medicare

Americans do have a choice in the matter (0)

Anonymous Coward | about 10 years ago | (#11399363)

Either give up social security and keep your military budget as it is, or maybe , just maybe you could cut the military budget by a third,... that'd leave you with $133,000,000,000 to defend your country. Isn't that enough ?

I'm sure there's a few knuckleheads here that would rather dump social security, entirely.. just not pay any benefits and go to war with whoever.. build more bombs, build more b-2 bombers, build more aircraft carriers,

And none of that would prevent another 9/11... but at least you'd feel strong, manly, whatever...

I like the latter. (n/t) (1)

Demon-Xanth (100910) | about 10 years ago | (#11399442)

Amazing how Anonymous Cowards always seem to make the flame posts.

No Crisis but what they make... (1)

Efialtis (777851) | about 10 years ago | (#11399375)

There really is no crisis with social security...
Only what we allow the Government to make...
If the legislators, senators, president, and others were bound by the same rules and social security system that we (the people) currently are, then you would see just how fast this "crisis" would get fixed.
If we REALLY wanted "social security reform" we would demand that the "special treatment" of our "governmental leaders" would be stopped, and that the participate in the same system that the "rest of us" do, and the problem would fix itself...

RTFA? 9 Pages of that? (1)

buro9 (633210) | about 10 years ago | (#11399379)

Where's my soundbite!?

The drill... (-1, Flamebait)

Citizen of Earth (569446) | about 10 years ago | (#11399380)

It's from the NY Times magazine, so you know the drill...

The piece leans strongly to the left and may be entirely fabricated?

I want out (3, Interesting)

zcollier (583927) | about 10 years ago | (#11399400)

Regardless of the solvency or lack thereof in the system, I want out.

The real problem that I see is that my parents signed me up as a child. I don't want to be in. I don't want to have to be in to get a job.

I think that is the biggest problem. I don't have any choice in the matter, and unlike any other retirement scheme (IRA, Roth IRA, 401k, annuity), I can't get out if or when I want.

So much for Land of the Free.

BS Alert (0)

Anonymous Coward | about 10 years ago | (#11399408)

BS Alert... title may be misleading. 10 pages long - contains no numbers, except for criticizing other peoples' projections.

Standard Republican M.O.... (0)

Anonymous Coward | about 10 years ago | (#11399411)

...when they want to get rid of a government spending program is the following:

1. starve the program of necessary funds
2. watch the program struggle to serve those who it intends to serve
3. kill off the program because it's unable to do its job as a program.
4. Profit!

We've seen it with welfare, with education (adding the catalyst of NCLB to accelerate the move toward privatizing the schools), and we see it again with Social Security.

Whether or not these things should be privatized or not is left as an exercise for the reader (although I, in the sake of full disclosure, think that the gov't should worry about defense and very little else. Not the pre-emptive type of war, but the legitimate defense of the nation and its people). /md

You can always invest in Treasury debt (5, Interesting)

j. andrew rogers (774820) | about 10 years ago | (#11399432)

Seriously, if people are so concerned about investing in the stock market, there is nothing to prevent them from investing all the money in their private accounts in US Treasury debt like it is now. They could simulate their own private Social Security Administration, only better.

No additional risk, and with some obvious added benefits. I'd welcome any extra freedom the government threw my way, even if I did not take advantage of it. Not that I personally would invest in US Treasury debt.

For Everyone's Benefit (0)

Omniscientist (806841) | about 10 years ago | (#11399434)

Hello, if anyone wants to read the article without registering, I made an account for you:

Username: slashdotfreedom
Password: anonymous

Of course some idiot kid will probably change the password rather quickly, but for the sake of convenience please try to resist the temptation to.

The NYT Article on the Social Security Crisis. (1)

sanityspeech (823537) | about 10 years ago | (#11399456)

For those without an account, here is the content of the lengthy, but informative article:

In 1938, the Social Security Act was only three years old, but its future was already very much in doubt. Conservatives claimed it would bankrupt the nation, and independent critics argued that the way it was financed amounted to ''financial hocus-pocus,'' as one editorial in The New York Times put it. President Franklin D. Roosevelt defended the program, said by a cabinet member to be his favorite, with some of his trademark oratory. ''Because it has become increasingly difficult for individuals to build their own security,'' the president told a national radio audience, ''government must now step in and help them lay the foundation stones.''

Social Security did become the cornerstone -- not only the biggest government entitlement plan but also the most universal, the most popular and the most enduring. But the debate over Social Security never ended. Barry Goldwater wanted to repeal it; Milton Friedman wrote in 1962 that it was an unjustifiable incursion on personal liberty; and David Stockman, the budget director who personified Ronald Reagan's efforts to shrink the federal government, tried to take a hatchet to Social Security, which he called a ''monster.''

But in this 70-year struggle, no other conservative has ever come as close to transforming the program as George W. Bush. He is making Social Security reform, including a partial privatization, a centerpiece of his second term. If the most ardent ideologues have their way, such a reform would be a first step toward a wholly new approach to retirement security -- one that would set aside the notion of collective insurance and guaranteed minimums for that of personal investing and responsibility.

This could do more to reverse the New Deal, and even the Great Society, than Goldwater, Stockman and Reagan ever dreamed of. ''We call it a conservative New Deal,'' says Stephen Moore, author of ''Bullish on Bush: How George W. Bush's Ownership Society Will Make America Stronger.'' In Moore's words, it will be a fundamental shift ''from an entitlement society to an ownership society.'' The key to this transformation, according to a generation of conservative thinkers and crusaders, is reducing the size and changing the nature of Social Security, which now pays benefits of half a trillion a year, and which will only grow bigger as America grows older.

The campaign to privatize has not only been about ideology; it has also focused on Social Security's supposed insolvency. Moore's book calls Social Security a ''Titanic . . . headed toward the iceberg'' and a program ''on the verge of collapse.'' A stream of other conservatives have bombarded the public, over years and decades, with prophecies of trillion-dollar liabilities and with metaphors intended to frighten -- ''train wreck,'' ''bankruptcy,'' ''cancer'' and so forth. Recently, a White House political deputy wrote a strategy note in which he said that Social Security is ''on an unsustainable course. That reality needs to be seared into the public consciousness.''

The campaign is potentially self-fulfilling: persuade enough people that Social Security is going bankrupt, and it will lose public support. Then Congress will be forced to act. And thanks to such unceasing alarums, many, and perhaps most, people today think the program is in serious financial trouble.

But is it? After Bush's re-election, I carefully read the 225-page annual report of the Social Security trustees. I also talked to actuaries and economists, inside and outside the agency, who are expert in the peculiar science of long-term Social Security forecasting. The actuarial view is that the system is probably in need of a small adjustment of the sort that Congress has approved in the past. But there is a strong argument, which the agency acknowledges as a possibility, that the system is solvent as is.

Although prudence argues for making a fix sooner rather than later, the program is not in crisis, nor is its potential shortfall irresolvable. Ideology aside, the scale of the fixes would not require Social Security to abandon the role that was conceived for it in 1935, and that it still performs today -- as an insurance fail-safe for the aged and others and as a complement to people's private market savings.


About 47 million people -- retirees and their dependents, under-age survivors of deceased workers and the disabled -- receive a check from Social Security every month. The money for this colossal endeavor comes from a payroll tax on current workers and on their employers. The program is a model of efficiency; expenses are low, as pension plans go, and participation is near universal. Benefits rise with the level of earnings, but they are tilted toward progressivity, so that those at the bottom get more in proportion to their earnings and those at the top get less. Social Security also delivers a considerable nonmonetary benefit: people who have contributed throughout their working lives know that, regardless of the ebb and flow of their careers and, indeed, of the stock market, a guaranteed pension awaits them.

Currently, Social Security is running a hefty surplus; the payroll tax brings in more dollars than what goes out in benefits. By law, Social Security invests that surplus in Treasury securities, which it deposits into a reserve known as a trust fund, which now holds more than one and a half trillion dollars. But by 2018, as baby boomers retire en masse, the system will go into deficit. At that point, in order to pay benefits, it will begin to draw on the assets in the trust fund.

The debate over Social Security's solvency is really two debates. The first is over how long the trust fund will last. The law requires the Social Security Administration to estimate its financial condition for 75 years into the future, and the agency's conclusions depend on the assumptions it makes about what America will look like decades hence -- how much people will earn, how large their families will be, how long they will live.

Politicians and other commentators tend to speak about these long-range trends, or at least about Social Security's finances, with an air of precision. This is almost amusing, since few economists can predict the swings in the federal budget even a year in advance. Joshua Bolten, head of Bush's Office of Management and Budget, said of Social Security last month, ''The one thing I can say for sure is that if left unattended, the system will be unable to make good on its promises.'' But the Social Security Administration itself pretends to no such certainty. Its actuaries (about 40 are on staff) frankly admit that the level of, say, immigration in 2020, or of wages in 2040, is impossible to forecast. ''The only thing we are sure of is that it won't happen precisely as we project,'' says Stephen Goss, the chief actuary at the agency. And the trustees' annual report, which is based on the actuaries' analysis, takes pains to say that it is not making a prediction. It makes a projection -- three different ones, actually -- that amount to informed but very rough guesses. The agency's best guess, labeled its ''intermediate'' case, is that the system will exhaust its reserves in 2042. At that point, as payroll taxes continue to roll in, it would be able to pay just over 70 percent of scheduled benefits. That would leave a substantial deficit, but one that Congress could easily avert if it were to act now when the projected problem is more than a generation away.

What's more, there is a strong case to be made that the agency is erring on the side of being overly pessimistic. If its more optimistic projection turns out to be correct, then there will be no need for any benefit cuts or payroll-tax increases over the full 75 years.

No one can definitively predict that outcome, either, of course, but David Langer, an independent actuary who made a study of Social Security's previous projections compared with the actual results in 2003, thinks the ''optimistic'' case is its most accurate. Over a recent 10-year span, the trustees' intermediate guesses turned out to be quite pessimistic. Its optimistic guesses were dead on, and its pessimistic case -- sort of a doomsday situation -- was wildly inaccurate.

And, contrary to widespread belief, recent demographic trends have been modestly better (from an actuary's gloomy standpoint) than anticipated. For instance, longevity hasn't increased as much as expected. Partly as a result, since 1997 the agency has pushed back, by 13 years, the date at which it projects its reserves will be exhausted. In other words, as the cries of impending doom started to crescendo, the guardians of the system have grown more optimistic.


The second debate concerning solvency is over whether the securities in the trust fund will be honored or whether, in Moore's pointed imagery, the fund will resemble a bank ''after it's been robbed by Bonnie and Clyde.'' This seems an odd preoccupation. Social Security does not own junk bonds or third-world debt; it invests in U.S. Treasuries, considered the safest investment on the planet. Since 1970 there have been 11 years in which Social Security has operated at a deficit; each time, it redeemed bonds from the trust fund without a fuss. Goss, the agency's actuary, says he has no doubt it will be able to do so again. ''Absolutely,'' he said when asked if the trust-fund bonds are sound.

This isn't what some conservatives have said. Paul O'Neill, the former treasury secretary, went so far as to say that Social Security has no assets. In anti-Social Security literature, the ''no assets'' contention isn't even debated; it's treated as gospel. According to Michael Tanner, head of the Cato Institute Project on Social Security Choice, the agency's pauperism has turned America's seniors into ''supplicants'': after working and paying taxes their entire lives, ''they earn the privilege of going hat in hand to the government and hoping that politicians decide to give them some money for retirement.'' The implication is that the money isn't there: graybeards will have to beg for it.

Cato, a libertarian policy center founded in the late 1970's, has been arguing for 25 years that Social Security is on the verge of crisis. In a recent position paper, Tanner wrote that Social Security faces a horrendous unfinanced liability of $26 trillion over 75 years. In a footnote, he cited the 2003 trustees' annual report. Actually, the trustees' intermediate projection is for a deficit, over 75 years, of $3.7 trillion. Though that is a lot of money, it could be covered by an immediate surcharge to the payroll tax of less than two percentage points, or by various combinations of tax hikes and benefit cuts, each of them quite manageable. But $26 trillion is too big a hole to fix. When I asked Tanner about the footnote, he admitted that the trustees didn't actually say $26 trillion; Tanner derived the figure by counting the cash-flow deficits that the trustees project from 2019 on out. In other words, he ignores the next 15 years or so, during which time Social Security will be running a surplus. And he assumes that the assets in the trust fund, which should be accruing interest into the 2040's, won't exist, either. Tanner counts only the bad years and only the bad numbers. Another doomsayer, former Republican Representative John Kasich, pegged the Social Security deficit at $120 trillion in a recent op-ed -- some 32 times the agency's figure. (Kasich toted up annual deficits in nominal -- not inflation-adjusted -- dollars for every year through 2080, by which time a hamburger could cost $40.)

Such hyperbolic claims aside, there is a serious issue at the heart of what worries critics. It isn't that the trust fund is broken; it's that the existence of the fund is seducing the government to spend more than it otherwise would, thus brooking larger deficits in the future. Since Social Security lends its surplus to the Treasury (that's what it means to be investing in Treasuries), it is parking its surplus cash with the government. And just as lending money to a child outside a candy store may impose an impossible temptation, so the government may feel tempted while it holds onto Social Security's purse.

Ideally, Congress would recognize that the surplus is only temporary and would, therefore, take pains that the money lent to it is properly saved -- that is, that it run a surplus. But the government is operating at a deficit. So you must conclude that rather than saving Social Security's surplus, the government has been spending it -- on the military, education, tax cuts. In only 15 years, the government will have to start repaying its debt to Social Security. It will be able to do so. If need be, it will borrow, as it has borrowed for many purposes since 1776. The amount of borrowing, which could very gradually scale up to 1 or 2 percent of the country's gross domestic product, will be far smaller than the present federal deficit, which is just under 4 percent of G.D.P. But to avoid layering one deficit atop another, the government needs to exercise discipline -- to not overindulge in candy -- in the years when Social Security is running a surplus.


The fear that the trust fund would represent a ''perpetual invitation'' to Congress has bedeviled Social Security since its inception. Economists of the 1930's knew that every pension plan starts with more workers contributing into the system than there are retirees. But down the road, as those workers retire, obligations mount. Therefore, they recognized, any system that builds an adequate reserve for the future must collect more than it needs in the early years. And though social scientists of the 30's could not anticipate the war or the baby boom that would follow it, they knew that America's population was going to age.

In 1934, when Franklin Roosevelt formed the Committee on Economic Security to design what was in effect the first federal safety net, the committee hired three actuaries to stargaze into the future. The actuaries predicted that the proportion of Americans over 65 -- then only 5.4 percent -- would rise to 12.65 percent in 1990, meaning that retiree costs would soar. They were just a tad high; the actual figure would be 12.49 percent.

The committee was sharply divided on how to prepare for this demographic onslaught. Harry Hopkins, who oversaw the New Deal's relief program, thought the U.S. should simply pay retirement benefits from general funds; the more fiscally minded Henry Morgenthau Jr., the treasury secretary, wanted a self-financed system. F.D.R. sided with Morgenthau; above all, he said the system should be simple -''nothing elaborate or alarming about it.''

But alarm was very much the order of the day. When Roosevelt was swept into office in 1933, he had been preoccupied with the emergency of the Depression -- 10 million unemployed, 18 million on relief, the country's business output cut by a quarter and its morale shattered. He responded with a whirlwind of legislation and with rhetoric that, for a while, truly inspired. By 1934, the energy of the New Deal's first days had begun to subside, and yet the Depression had not abated. Meanwhile, the administration was being outflanked by political zealots, utopians and snake-oil salesmen, who increasingly appealed to desperate Americans. In California, the novelist Upton Sinclair was running for governor on a radical platform to ''end poverty.'' In Louisiana, Huey Long was leveraging his ''share the wealth'' movement into a national campaign. The Rev. Charles Coughlin, a demagogic and incendiary radio orator, was attracting millions of listeners with his attacks on bankers, Bolsheviks and assorted other villains.

By far the oddest of these ducks was an elderly doctor in Long Beach, Calif., Francis Townsend, who had lost his county medical job to the Depression. Dr. Townsend, a onetime ranch hand and mining speculator, wrote to the local newspaper suggesting a fantastic retirement scheme: the government should distribute $200 a month to each American over 60 and pay for it with a sales tax. When recycled through the economy, he augured, these lavish pensions would ''abolish unemployment'' forever. His proposed stipend was well above the average American's monthly wage, and his plan was demonstrably unworkable. But in rural America, it had the lure of an elixir. ''Townsend Clubs'' popped up across the country. Millions of members were recruited, a weekly newspaper was printed and dozens of U.S. representatives dutifully lined up in support.

''The Congress can't stand the pressure of the Townsend Plan unless we have a real old-age insurance system, nor can I face the country without'' one, Roosevelt told his labor secretary, Frances Perkins. Each had been thinking of social insurance since well before the emergence of Townsend -- as governor of New York, Roosevelt dispatched Perkins to England to study the British state insurance system. But characteristically, F.D.R. had let the idea simmer until the moment was ripe. The domestic agitation was his opportunity.

In January 1935, the Economic Security committee delivered a sweeping proposal for ''cradle to grave'' insurance. Much of the bill merely authorized the federal government to distribute aid to the states, but two aspects of it were revolutionary: a plan for unemployment insurance and one for retirement. F.D.R., however, was greatly troubled by a detail in the latter. Though the payroll tax was scheduled to rise, in staircase fashion, within two generations it would be insufficient to cover benefits. Perkins explained that as the number of retirees rose, funds from the Treasury would have to cover the shortfall.

''Ah, but this is the same old dole under another name,'' F.D.R. said. F.D.R. had hoped that handouts would no longer be necessary as the economy recovered, and he shrewdly anticipated that in future generations, welfare-type programs would be vulnerable to political attack. He wanted Social Security to be different -- universal and enduring. Therefore, he insisted, it had to be self-supporting. Thus was conceived the (soon-controversial) trust fund. To build a future reserve, the New Dealers doubled the initial level of the payroll tax to 2 percent, applied up to a cap that was initially set at $3,000 of income. This added a regressive aspect to the plan, shielding the highest income brackets. Nonetheless, in August 1935, legislation was enacted that, in F.D.R.'s words, would ''give some measure of protection to the average citizen.''

The public strongly supported the new program, but conservatives attacked it as a socialistic scourge. Playing on the fact that each worker was to receive a government number, the Hearst papers published front-page illustrations of a man wearing a chain with a dog tag. Henry Ford said Social Security could cost Americans their basic freedoms, like the right to change jobs or to move from one town to another. A shareholder in a utility filed suit, claiming that the payroll tax was unconstitutional. The case went to the Supreme Court, where, in 1937, Justice Benjamin Cardozo, as if to resolve the historic debate over federalism, ruled, ''The conception of the spending power advocated by Hamilton . . . has prevailed over that of Madison.'' The new agency's organizational elan won over some critics. W. Albert Linton, a skeptical insurance executive, visited the Social Security headquarters in Baltimore and was amazed when the staff plucked his name and address from among the 26 million records. ''I think it is amazing,'' he said, ''the way they have solved the technical aspect.''

But the opposition wouldn't die. The issue that sparked the loudest protest was one that still burns today: the trust fund. Deductions from pay envelopes began in 1937, but benefits weren't scheduled to start until 1942, and there was a great deal of mistrust about where the money was going. Government actuaries sheepishly explained that Social Security was building a reserve eventually expected to reach $47 billion. This was an awesome sum -- eight times the total then in circulation. Alfred Landon, the Republican who ran against Roosevelt in 1936, called it ''a cruel hoax'' on the American people. His platform, sounding uncannily that like that of Republicans today, stated, ''The so-called reserve fund . . . is no reserve at all, because the fund will contain nothing but the government's promise to pay.'' Arthur Altmeyer, head of the Social Security board, came under heavy fire at a Congressional hearing. Looking for a way to safeguard the reserve, he made an intriguing suggestion: why not let the government invest in sound private securities, and thus insulate the surplus from Congress's eager hands? As Altmeyer recounted in his memoir, Arthur Vandenberg, a Republican senator from Michigan, threw up his hands and snickered, ''That would be socialism!''

To quell the furor, Roosevelt turned to that standby device for embattled politicians -- an advisory council. The council arrived at an expedient solution, though one with troubling longer-term implications. It suggested increasing benefits for the first generation of retirees, even though that group had paid little in payroll taxes. An amendment in 1939 raised their benefits and also created new classes of beneficiaries -- wives, widows and survivors. This was a departure from the principle that all workers would be treated equally (couples would get more than single workers) and added an element of ''need'' -- a point that would rankle conservatives and later fuel the privatization movement. But in the political climate of 1939, it had the advantage of soaking up surplus taxes and greatly reducing the rate at which reserves would accumulate in the trust fund. F.D.R., anxious to have the controversy settled, went along, even though the changes paved the way for the eventual deficits he had feared.


The crunch came, as actuaries had predicted, in the late 1970's. Part of the problem they had not foreseen; Social Security benefits were skyrocketing because of inflation. In the 70's, Congress decided to index retirees' benefits to the cost of living. The timing was awful. Not only did inflation soar, but incomes -- the basis of payroll contributions -- stagnated. Critics like those at the newly formed Cato Institute warned of disaster. A former Nixon cabinet member, Peter Peterson, began to attract attention by arguing that any pay-as-you-go system (in which one generation supports another, as today) was inherently unstable, and advocated deep cuts in the rate at which benefits increased. The criticism had an ideological as well as an economic edge. In a pre-financed system -- in which, for instance, each worker invests for his own later retirement -- society never faces a liability. But individuals may come up short (if their investments fare badly) and live out poorer retirements. President Carter, responding to the darkening outlook, became, in 1977, the first president to legislate a belt-tightening.

Carter's efforts, however, didn't suffice. The trouble was that Social Security's actuaries had been way too optimistic. The actuaries had assumed that from 1978 to 1982 inflation would total 28 percent; the actual figure would be 60 percent. And they had predicted that wages would grow by 13 percent after inflation, whereas, in fact, real wages didn't rise at all; they declined. Social Security's experts were hardly the only people surprised by the dreadful economy, which was buffeted by skyrocketing oil prices, Middle East turmoil and a slumping stock market. Regardless, in 1981, Social Security experts announced that the trust fund would run dry in a year or two. That left the problem up to a new president, Ronald Reagan.

As a candidate for president, Reagan had proclaimed that he was ''pledged to a Social Security program that will reassure these senior citizens of ours they're going to continue to get their money.'' By then, Social Security had become a program that politicians couldn't afford to oppose and, indeed, that most Americans supported. President Eisenhower, a Republican, had proved this in 1956 when -- to the great disappointment of conservatives -- he supported a significant expansion of Social Security to include the disabled. But among adamant free marketers, the dream of upending Social Security lived on. One of the more prominent postwar opponents, in fact, was Reagan, a disarming actor then transitioning to political life.

Reagan began speaking out against Social Security in the late 50's. At the time, Democrats were trying to extend Social Security to health care -- to what would eventually become Medicare -- and Reagan worked with the American Medical Association to try to stop them. The A.M.A. conducted a stealth campaign (unearthed in 1999 by the political scientist Max Skidmore) known as Operation Coffee Cup, in which doctors' wives would urge women in their communities to oppose the plan in letters to Congress. Reagan produced a record album for that campaign in which he criticized Social Security for ''supplanting'' private savings and warned that subsidized medicine would curtail Americans' freedom. Warm and folksy even as he envisioned a bleak Orwellian future, Reagan said that Big Brother could start with health care, ''and pretty soon your son won't decide when he's in school, where he will go or what he will do for a living. He will wait for the government to tell him.''

Reagan gave slightly altered versions of this speech in personal appearances around the country, attacking Social Security as a ''sure loser'' of a program, and one that would worsen, not alleviate, the hazards of age. In the 70's, Reagan continued to sermonize against Social Security, often suggesting that it be made voluntary or more voluntary. At first blush, this sounded reasonable. As most people don't save enough for their retirement, however, under a voluntary system many who opted out would wind up destitute. Higher-earning workers (who get a lower proportional return on their payroll taxes) would opt out for certain. This problem is known as adverse selection. Wealthier people contributing higher taxes exit the system, leaving less revenue and a higher burden for the poorer people who remain. In effect, it would become an unpopular welfare program.

Once Reagan was in the Oval Office, he allowed his budget director, David Stockman, to handle the crisis. Stockman, who was waging a war on government spending, tried to exploit the moment to curtail Social Security sharply. It was Stockman's idea to cut benefits to early retirees by one-third. Without those cuts, he warned, the U.S. could suffer ''the most devastating bankruptcy in history.'' There were two weaknesses in the Stockman approach. First, he exaggerated. The deficit looming in 1983 was only temporary. (Since the birthrate dropped during the Depression, the number of seniors coming of age in the 1990's would decline, providing the agency with a respite.) Second, Stockman was politically naive. By proposing cuts for people on the verge of retirement, he triggered vehement protests. Members of the Republican-controlled Senate showed their instinct for self-preservation by voting 96-0 for a resolution intended to distance themselves from Stockman. James Baker, Reagan's chief of staff, urged the White House to do likewise. So Reagan, like F.D.R., bounced the problem to a commission, this time led by a well-known economic consultant, Alan Greenspan.

The 15-member commission got nowhere until December 1982. Then, with default only months away, an unofficial subgroup began to meet in secret. Robert Ball, a former Social Security commissioner, and Senator Daniel Patrick Moynihan negotiated for the Democrats opposite Baker for the White House.

In the end, they compromised on a combination of benefit cuts and tax hikes. The payroll tax, then 10.16 percent, was already scheduled to rise, but the negotiators sped up the implementation of the increase. (Today the rate is 12.4 percent.) Moreover, Congress agreed to hike the retirement age from 65 to 67. This change, which is being phased in very slowly (the retirement age is now 65 and 6 months) had the same effect as cutting benefits. Greenspan and company now calculated that Social Security would build a giant reserve, sufficient to see it through the middle decades of the 21st century. This was the original F.D.R. approach -- build a trust fund. President Reagan said the package ''assures the elderly that America will always keep the promises made in troubled times a half-century ago.''

Social Security's next few annual reports made best-guess (intermediate) projections of solvency for 75 years, meaning it expected the system to remain solvent until 2060 and beyond. So the question that should arise now, but that has been oddly ignored is, What happened?


Nothing did. Or in the words of Robert Ball, the nonagenarian former commissioner, ''nothing in the real world.'' But perceptions changed, and the balance of opinion began to shift in favor of reform. To some extent, that shift was bipartisan. In the mid-1980's and early 90's, Democrats discovered they didn't love deficits after all. When it began to appear that Congress was incapable of keeping its hands off Social Security's surplus, fiscally prudent Democrats like Moynihan and Bob Kerrey came out in favor of individual accounts. President Clinton famously campaigned to ''save Social Security first'' -- meaning that Congress should balance the budget. Meanwhile, the popular impression that any fool could make money in the stock market (for a while, any fool did) made private accounts seem like a natural. In the 1996 campaign, even among Republican contenders, only Steve Forbes favored privatization; by 2000 it was party doctrine.

Social Security's actuaries also began to make more pessimistic assumptions about the future. To quote the report of yet another Social Security advisory panel, this one from the mid 90's, ''It is pointed out that while today there are 3.3 workers paying into the system for every beneficiary drawing benefits, over time this ratio will change to two workers per beneficiary. . . . However, this has almost nothing to do with why there is a . . . deficit.'' The report continued, ''The ratio was fully taken into account in the 1983 financing provisions.'' So why did Social Security begin to forecast a more rapid exhaustion of the trust fund? Social Security was burned in the 70's and early 80's by being too optimistic. Now the actuaries are leaning the other way. ''It's a less optimistic estimate today,'' says Harry Ballantyne, who was chief actuary until 2001.

Social Security's key long-range projection is that, over 75 years, it will come up short by an average of 1.89 percent of payroll. Though deficits would still loom beyond 2080, the problem could be fixed until then by an immediate tax increase of 1.89 percent, or a benefit cut of roughly 13 percent. (Democrats tend to favor a combination.) But this all assumes that the middle projection is right. And several underlying assumptions of that middle projection tend to exaggerate the potential deficit. The first concerns longevity. A 65-year-old man today can expect to live to nearly 82. According to the most likely projection, in 2080 he should expect to live to 86. Goss says that the agency is assuming that medical technology will deliver more ''miracles.'' Most demographers agree with him, and some even think the agency is not being optimistic enough. The only trouble is, as Goss notes, that over the past 20 years ''they have been wrong at every turn. There has been less improvement than we were expecting.'' Indeed, the improvement in mortality has slowed significantly. And no one is sure why it has slowed. Nonetheless, the agency expects a sharp rebound over ensuing decades. Its fiscal gloominess thus depends on a speculative uptick in medical miracles.

Immigration is another contentious point. Immigration is good for the system because immigrants are earners and taxpayers. Though immigration has been rising, Social Security projects that it will taper off sharply, from 1.2 million a year to 900,000 in 20 years. This forecast is curious, because if the birthrate in America declines as anticipated, the country will need more foreign workers.

Rising wages are also a boon to Social Security's finances. Forecasting wages is difficult, as the trustees' report frankly admits, but it seems undeniable that as society ages, businesses will be harder pressed to find workers, and that should push wages higher. The trustees, however, project that real wages will grow at only 1.1 percent a year -- roughly equal to the level of the last 40 years.

The basic point here is that tiny swings in any of these or other factors could improve -- or worsen -- the program's balances. If a few of them lean in the direction of the optimistic forecast, the trust fund will cover benefits through 2080, or close to it. Would such a program, which appears to be solvent or near solvent until the limit of what is humanly forecastable, be improved upon by the various schemes for privatization?


Social Security does not provide, and was not meant to provide, a satisfactory retirement on its own. The average stipend for a 65-year-old retiring today is $1,184 a month, or about $14,000 a year. About half of Americans also have private pension plans, but for two-thirds of the elderly, Social Security supplies the majority of day-to-day income. For the poorest 20 percent, about seven million, Social Security is all they have. Even those figures understate the program's importance. According to an agency publication, ''Income of the Population 55 or Older: 2000,'' 8 percent of elderly beneficiaries were poor, but a startling 48 percent would have been below the poverty line had they not been receiving Social Security. Charles Blahous, the White House point man on Social Security, publicly criticized this calculation as ''mindless,'' and the Social Security agency no longer computes the figure.

Conservative economists say the figure is irrelevant: if Social Security didn't exist, people would save more. This may be true of economists, but what about the rest of us? The argument illustrates the ideological agenda of those who favor privatization: they want to change people's behavior. But how will the proposals to privatize, several of which are before Congress, actually work? Basically, younger workers would be allowed to divert a portion of their payroll taxes into individual accounts. Upon retirement, these workers would get lower Social Security benefits supplemented by whatever had accumulated in their portfolios.

But since the diverted money would not be available to pay benefits to current retirees, the government would have to undertake significant borrowing to pay people now in their middle and older decades. Eventually, the system might transition to one in which most people mostly relied on their personal accounts. But this transition would take many decades.

The president is expected to back a plan similar to one recommended by the advisory council he appointed, in 2001. That plan opts for a slow transition, keeping entitlement-type minimums in place. The amount of money to be diverted into personal accounts -- and therefore, the potential gains -- is relatively small. Some free-market purists are unhappy about this. But Bush's economists, whatever else is said of them, are determined not to re-enact the Stockman debacle by moving too quickly and enacting immediate cuts. They have read their history.

The White House asked the Congressional Budget Office to analyze one advisory council plan. That plan would allow workers born after a certain date (perhaps 1950) to siphon about a third of the payroll tax into individual accounts, up to $1,000 a year. The money could be invested in any of three choices (other plans provide for wider menus) and would be converted into an annuity upon retirement.

The C.B.O. assumes that the typical worker would invest half of his allocation in stocks and the rest in bonds. The C.B.O. projects the average return, after inflation and expenses, at 4.9 percent. This compares with the 6 percent rate (about 3.5 percent after inflation) that the trust fund is earning now.

Proponents hail the plan for forcing savings on the government. But the diversion of money into individual accounts would save the government nothing, since it would have to borrow to offset the loss of the diverted dollars. The individual accounts represent a transfer, not a savings.

The second feature of the plan would link future benefit increases to inflation rather than to wages. Because wages typically grow faster, this would mean a rather substantial benefit cut. That cut would mean a savings for the government. This is a political choice; we can always save money by reducing benefits. But it's important to stress that the savings result from cuts, not from the decision to privatize.

Overall, the plan is gentler toward lower-income seniors than wealthier ones, but all seniors would be poorer than under present law. In other words, absent a sustained roaring bull market, the private accounts would not fully make up for the benefit cuts. According to the C.B.O.'s analysis, which, like all projections of this sort should be regarded as a best guess, a low-income retiree in 2035 would receive annual benefits (including the annuity from his private account) of $9,100, down from the $9,500 forecast under the present program. A median retiree would be cut severely, from $17,700 to $13,600. On the plus side, budget deficits would be lower in the future. But, because of the lengthy transition, that ''future'' is exceedingly remote -some 50 years down the road. In the interim, deficits would rise by up to 1.5 percent of the country's G.D.P.


One rationale for privatization is that workers would get a better return on their money in Wall Street securities than with Social Security's dowdy old Treasuries. This notion, which has Wall Street investment banks salivating, was especially in vogue during the 90's, when the stock market was soaring. When the bubble burst, advocates reined in their sales pitch, but they still are unrealistically sanguine. Last year, Tanner of the Cato Institute wrote that ''over the worst 20-year period of market performance in U.S. history . . . the stock market produced a positive real return of more than 3 percent.'' Actually, the market has done worse than 3 percent per annum in nine different 20-year periods.

In any case, Social Security could capture the return on stocks, without putting individuals at risk, by investing in equities directly. This would also achieve another frequently stated objective: keeping the government's hands off the Social Security trust fund. That option would be far more efficient, in economic terms, than separating the money into 150 million disparate accounts. Costs are much lower for one big investor. And more important, in a system of individual accounts, benefits will vary with individual choices, and some people will make poor ones. In Sweden, where the retirement system has included private accounts since 2000, the majority of Swedes made excessively risky investment choices by putting money into stocks at the market top, according to Richard Thaler, a University of Chicago behavioral economist. Finally, pooling the investment pools the risk, and thus reduces the danger of retiring at the wrong time. In a system of personal accounts, someone who retired after a market crash would be out of luck.

So it is notable that all the current proposals to privatize involve the economically inferior option of individual accounts. But privatization advocates aren't motivated solely, and perhaps not even primarily, by economics. Glenn Hubbard, Bush's former top economic adviser, wrote in Newsweek that an ''obvious objective'' of privatization is ''to advance the president's ownership society agenda.'' Such pro-free-market sentiment has a long lineage. Remember Senator Vandenberg, who fretted in the 30's that public ownership of private securities would amount to socialism? Even though state pension funds and some U.S. agencies, including the Federal Reserve, put some pension money in stock-index funds, conservatives still react as if such a solution for Social Security were akin to turning it over to the Kremlin. Peter Ferrara, a former White House staff member under Reagan and now senior fellow at the Institute for Policy Innovation, who has been proposing Social Security privatization plans since the late 1970's, told me that economics ''was not my primary motivation. It was ideological. We don't want the government controlling that much investment.''


There is a policy choice that unites Social Security's critics -- from Goldwater to Reagan to Bush -- which is that the program should be balanced by shaving benefits rather than by raising taxes. They favor smaller government, so shrinking Social Security (rather than increasing its financing) serves their broader aim. Indeed, though the public continues to oppose cutting benefits, Bush has ruled out any solution that involves a tax hike.

Reagan said the program had morphed from the humble insurance plan formulated by F.D.R. (for whom he voted four times) into a swollen caricature of government excess. The first Social Security recipient, a legal secretary in Vermont named Ida Fuller, started with a benefit of $22.54 a month. Today's retirees obviously do better (even after adjusting for inflation). Nonetheless, according to Lawrence Thompson, who was the Social Security acting commissioner in the 90's, the retiree program is not really more ''generous'' now than it was in the past. Like other pension systems, Social Security was designed to replace a fixed portion of a retiree's previous earnings. For a single person with average earnings, initial benefits were intended to replace about 40 percent of income. They are still pegged to 40 percent of income.

Since wages generally rise faster than inflation, retirees in each generation get more in real dollars than those in previous ones. Contemporary critics, like Kasich and the Bush council, would slow the rate of future increases by linking benefits only to inflation. Though this would save a lot of money, its effect on retirees should be understood.

Seniors now get an initial benefit that is tied to a fixed portion of their pre-retirement wages. If the index was changed, their pensions would be pegged to a fixed portion of a previous generation's income. If this standard had been in force since the beginning, retirees today would be living like those in the 1940's -- like Ida Fuller, which would mean $300 a month in today's dollars, as opposed to roughly $1,200 a month.

One way or another, societies with more old people have to devote more resources to them. Right now, benefits amount to 4.3 percent of G.D.P. The trustees' most likely projection assumes that over the next 75 years that figure will rise to 6.6 percent. In the more optimistic case, benefits will rise to 5.2 percent. Given the substantial increase in the elderly population, neither of these figures seems rash or out of proportion. The increased cost would be on a par with that of making Bush's first-term tax cuts permanent, which is projected to be about 2 percent of G.D.P.

And though future generations of workers will have to support more retirees, they will also be having fewer children. In fact, according to the Social Security actuaries, the total ''dependency'' burden (that is, the number of nonworking seniors and kids that each working-age adult will have to support) will remain lower than at its baby-boom peak. ''In a grand social sense,'' says Thompson, the former Social Security commissioner, ''we can support more seniors where there are fewer people in day care.''


Ultimately, every 75-year forecast is just a guess, and therefore every approach must accommodate a range of possible outcomes. Plans that link worker benefits to the stock market automatically adjust -- if the economy underperforms, then workers get lower benefits. This enhances, rather than mitigates, whatever is the trend in people's private savings. As Thompson says, ''The default adjustment is you eat less.'' This could be brutal and also unfair, especially to the post-1983 generation of workers that, on the say-so of Greenspan and Reagan that the trust fund would be honored, has paid a sacrifice in both reduced benefits and higher taxes.

What other solution is there? Ball, who joined the system in 1939 as a $1,620-a-year district officer in Newark, has thought of one. He starts from two premises: it would be reckless not to make some adjustments now, but foolish to make too much of 75-year prophecies. ''In 1928, there was no way to forecast the Depression, World War II, the birth-control pill. We have to stop acting as if 75-year estimates were absolute,'' he told me.

Nonetheless, Ball would tweak the system in several modest ways to reduce the projected deficit. For instance, he would very gradually raise the cap on income subject to the payroll tax, now at $90,000. This would reverse a recent regressive trend. Income distribution in America has become more skewed, thus upper-income folks have earned more money that has escaped the tax. Ball would also add three other, smaller fixes to further tighten benefits and raise taxes. (There are many variations of these fixes floating around the Beltway.) After Ball's prescription, how much of a deficit would then remain? Possibly a fraction of a percent of the payroll, possibly zero. The answer would depend on the net effects of future birth rates, wars, diseases, inventions and so forth. Enter now Ball's little accommodation to uncertainty. It is that Congress simply resolve now to impose, 50 years hence, a payroll tax increase sufficient to close whatever gap exists over the ensuing quarter-century. This could not be enforced now, of course, but that is Ball's point. He wants to free the Congress, and the rest of us, from the annual game of insisting on an exact and illusory far-off balance; to diminish the perception that we must urgently adjust to economic and demographic developments too distant to be forecast.

The 2004 ''Economic Report of the President'' takes dead aim at such an approach. It reckons that all pay-as-you-go systems will eventually be doomed by demographics, and that solutions like Ball's will only push back the date that the trust fund runs out of money by a few years. The White House worries that any fix that covers 75 years of benefits could still bequeath a deficit in the 76th year. ''The nation must act to avert a long-foreseen future crisis in the financing of its old-age entitlement programs,'' the report states. Its assumptions may be true, or they may not be, but the conclusion suggests a misplaced allegiance: We have an obligation to the distant future, but don't we owe a greater debt to the current generation and to those that immediately follow?

Prudence dictates taking steps now to minimize the possible shortfall. This could include raising the cap, some modest cuts and tax increases and a gradual redeployment of the trust fund into assets that may not be tapped, willy-nilly, for whatever legislative purpose. But only a real crisis would dictate undoing an institution that has provided a safety net for retirees, that has helped to preserve in the social fabric some minimum of shared responsibility and that has been supported by workers in good faith. And, in looking at Social Security today, the crisis is yet to be found.

The main problem (1)

Momoru (837801) | about 10 years ago | (#11399459)

The main problem is that no one is willing to sacrifice politically to make the tough decisions that need to be made. When Social security was started, the average person did not live to age 65. Most people WOULD NEVER COLLECT. Now the average person lives over 80, but the Senior lobby refuses to let us raise the minimum age to collect. Further more, benefits have been raised to keep up with the cost of living instead of inflation, so people are taking more out then they ever put in, even if you adjust for inflation and a modest return.
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