"Round up everybody that can ride a horse or pull a trigger," John Wayne says in "Chisum." "Let's break out some Winchesters."
That's how I feel every time someone calls for "saving" Social Security. Conservatives have been likening it to the Bernie Madoff scandal. Some call it a Ponzi scheme, as MSNBC's Joe Scarborough did recently. And even Democrats talk of fixing the program.
Social Security is about the only thing around here that doesn't need fixin'. The Congressional Budget Office says it can pay all scheduled benefits into 2049. Sure, you want every entitlement to be funded into the next millennium, but 40 years of solvency sounds pretty darn good these days.
Social Security — along with Medicare — have made America's elderly the most economically protected age group in America. How many Americans got a 6 percent raise this year, assuming they still had a job?
"The typical retired person has relatively more stability than the employed population," says Sherman Hanna, who teaches financial counseling at Ohio State University.
Hanna recalled a conversation with his retired mother in Florida. "She was doing quite well," he told me, "certainly compared to my sister in real estate married to an RV salesman in Upstate New York."
I recently visited an elderly aunt, a widow of modest means living in Boynton Beach, Fla. While driving her to the Publix for food shopping, I asked how she's getting along, given the bad economy. Just fine, was her upbeat answer. She had some savings in bank CDs and her Social Security checks. Medicare picks up the big health-care bills. The condo is paid for, and her electric bills have inched down thanks to lower energy prices.
Many older Americans have suffered real-estate and stock-market shocks, as have the rest of us.
Taking a job to make up the losses is not an option for most of them. And some are burdened with debt because they foolishly treated their homes like ATM machines.
Those who followed the conventional advice and prepared for retirement by paying down the mortgage and putting most of their savings into conservative fixed-income investments are doing OK. So what if their home isn't worth what it was. They're not selling.
Over in Lake Worth, the retired middle-class masses had again gathered for lunch at John G's, an institution on the town's public beach. While the gray heads chowed down on the fish and chips, a line of them waited outside for tables. Not much recessionary gloom here.
A Ponzi scheme is a fraud in which early investors are paid off with funds raised from later ones. Why isn't Social Security a Ponzi scheme?
First off, Social Security is a form of insurance, not an investment vehicle. It pays benefits to retirees but also to the disabled and to the survivors of workers who die. People who live into their 70s may collect for a long time. Those who die young don't.
Social Security is mostly a pay-as-you go program. For the last 25 years, though, workers have been putting more into it than was needed to support current beneficiaries. This was to provide a cushion for a surge of later retirees, the baby boom generation — and a very un-Ponzi-like thing to do. The Social Security Trust Fund keeps that extra money in U.S. Treasury securities, which pay interest.
Medicare does need reform, but Social Security is humming along. It is clean, simple and successful, which drives enemies of government programs crazy. Telling lies about Social Security is a First Amendment right. But if hearing them makes us want to saddle up the horses, that's the way it's gonna be.
***
Note to readers: In my previous column, I inadvertently elevated Indiana Rep. Mike Pence to senator. I regret the error.
To find out more about Froma Harrop, and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate web page at www.creators.com.
COPYRIGHT 2009 THE PROVIDENCE JOURNAL CO.
DISTRIBUTED BY CREATORS SYNDICATE, INC.
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7 Comments | Post Comment
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What bothers me most is that, when many young people criticize Social Security, they confuse it with welfare. They don't understand--sometimes willfully--that money was taken from me and my employer for decades so that I would have it when I retire. To object to my collecting the money is to advocate government robbery of workers, and I doubt if the critics would suggest such a thing if they themselves were the proposed victims.
Comment: #1
Posted by:
Thu Feb 12, 2009 5:31 AM
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Speaking of Ponzi schemes, Wait till you find out we have all been had by the best. "Income" taxable is ONLY from federal payroll. That says it all. Google Tom Cryer or Peter Hendrickson.
Comment: #2
Posted by: Ron
Thu Feb 12, 2009 8:21 AM
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Not quite a Ponzi scheme in the strictest sense, however we are loaning ourselves money at @3 %, then paying our selves 6% (this year) , and spending the extra loan proceeds. We use the money which we loaned ourselves to fund ongoing, fixed and accelerating operating costs of government and assume that our children will figure out how to finance both of these expenses in the future when the income no longer covers payout. This is eerily familiar this year - we borrow heavily to buy a house, refinance when home values go up, use the money for present needs, and assume the value of the home can never go down so that this scheme can go on forever! Only in the most narrowly defined sense can one say that Social Security "doesn't need fixin' "
Comment: #3
Posted by: wbc
Sat Feb 14, 2009 10:32 AM
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I understand that this is another cheap political hit piece, but to think that Social Security is okay for another 40 or so years is just ignorance. You really should do some simple research and then print a retraction.
Prior to Congress passing the presciption drug benefit for Medicare, there was a $45-trillion gap, in present value terms, between the future money the government is expected to take in and what its promised to pay out, with Social Security and Medicare accounting for virtually all of the shortfall. The presription drug benefit added another $6-trillion to the gap. Then you must add the more than $7-trillion national debt and all the social spending that Obama is pushing. We're now approaching somewhere around $65-trillion total. The taxes we pay won't even come close and as people lose their jobs the gap only grows.
There is no easy solution and the core of the problem is demographics. Fifty years ago, there were 16 workers to support every person receiving a Social Security check. By 2030, there will only be two.
Some offer that delayed retirement or increased taxes will solve the problem, increases in productivity due to technology or more immigration -- wont come anywhere close to realistically solving the problem. (Relying on immigrants to maintain the ratio of workers to beneficiaries, for example, would require an influx of 4 million to 6.5 million immigrants a year. That compares with the 825,000 legal immigrants and 400,000 or so illegal ones we get annually now.) The problem just grows and grows and the Liberals continue to say "it don't need fixin".
The only solution may be to back away from Social Securitys founding premise as a safety net for the elderly. Instead, convert the system into a kind of restricted 401(k), with individual accounts. Workers would get their own accounts, but their mandatory contributions would be invested in a global index fund of stocks, bonds and real estate. The S&P 500 did return 1500% over the last 30 years. I know, that was Bush's idea and you Bush haters would sooner jump off a cliff, but it's really the only vehicle that can get us out of this dilemna. Our workers and their employers need to put a lot of money into Social Security and Medicare and it needs to grow quickly.
Also, read; The Coming Generational Storm: What You Need to Know About Americas Economic Future, by Laurence J. Kotlikoff and Scott Burns.
Social Security and Medicare ARE in BIG trouble!!
Comment: #4
Posted by: Owl
Sun Feb 15, 2009 9:29 PM
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I agree with the previous comment about stunning ignorence. A review of the CBO report does not present nearly as rosy an outlook as Ms. Harrop portrays. The findings of the report can be summed up in a one-sentence excerpt-
“CBO projects that outlays will first exceed revenues in 2019 and that the Social Security trust funds will be exhausted in 2049.”
Take the 2049 number first.
Ms. Harrop does not appear to recognize that a promise to repay oneself has no value. Suppose I transfer $100 from my savings account to my checking account. Then I then write a contract, signed by myself as both borrower and lender, that promises to pay back the $100, with interest, at a certain future date. Is the $100 an asset that, say, a bank would let me borrow against? Of course not – the promise means nothing to anyone but myself.
How does this relate to Social Security? The government bonds in the trust fund represent nothing more than a promise from one part of the government (the Treasury) to pay another part of the government (the Social Security Administration). There is no money in the social security trust fund, only promises between governmental agencies to transfer funds in the future. These promises are as valueless as the $100 in the bank account example - valueless to everyone but the government. Only in the strange world of government accounting would the $100 be viewed as an asset.
Since there is no cash in the trust fund, social security obligations must be paid out of annual government revenues. Which brings us to the 2019 number. In 2019 social security will pay out more in benefits than it receives in revenues – and will do so for the rest of its existence. The bonds in the trust fund will mean that the Treasury has promised to transfer the funds to the SSA, but where will the Treasury get the money? There are only three sources: taxes, more borrowing (issuing more bonds to pay its obligations on the bonds held by the SSA), or by devaluing the currency through inflation. None of these is a heartening prospect.
By the way, in 2006 the CBO predicted that economic growth would average 2.6% from 2008 through 2012. Does Ms. Harrop think that will happen? But the CBO said so! But, no matter, let's put our collective head in the sand and wait until 2049!
Comment: #5
Posted by: JC
Mon Feb 16, 2009 1:59 PM
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I agree with the previous comment about stunning ignorence. A review of the CBO report does not present nearly as rosy an outlook as Ms. Harrop portrays. The findings of the report can be summed up in a one-sentence excerpt-
“CBO projects that outlays will first exceed revenues in 2019 and that the Social Security trust funds will be exhausted in 2049.”
Take the 2049 number first.
Ms. Harrop does not appear to recognize that a promise to repay oneself has no value. Suppose I transfer $100 from my savings account to my checking account. Then I then write a contract, signed by myself as both borrower and lender, that promises to pay back the $100, with interest, at a certain future date. Is the $100 an asset that, say, a bank would let me borrow against? Of course not – the promise means nothing to anyone but myself.
How does this relate to Social Security? The government bonds in the trust fund represent nothing more than a promise from one part of the government (the Treasury) to pay another part of the government (the Social Security Administration). There is no money in the social security trust fund, only promises between governmental agencies to transfer funds in the future. These promises are as valueless as the $100 in the bank account example - valueless to everyone but the government. Only in the strange world of government accounting would the $100 be viewed as an asset.
Since there is no cash in the trust fund, social security obligations must be paid out of annual government revenues. Which brings us to the 2019 number. In 2019 social security will pay out more in benefits than it receives in revenues – and will do so for the rest of its existence. The bonds in the trust fund will mean that the Treasury has promised to transfer the funds to the SSA, but where will the Treasury get the money? There are only three sources: taxes, more borrowing (issuing more bonds to pay its obligations on the bonds held by the SSA), or by devaluing the currency through inflation. None of these is a heartening prospect.
By the way, in 2006 the CBO predicted that economic growth would average 2.6% from 2008 through 2012. Does Ms. Harrop think that will happen? But the CBO said so! But, no matter, let's put our collective head in the sand and wait until 2049!
Comment: #6
Posted by: JC
Mon Feb 16, 2009 1:59 PM
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I agree that this article shows a stunning ignorance about how the finances of Social Security work. The general arm of government has taken all the "trust fund" money and spent it to satisfy current excess spending, i.e. the deficit. In return they have given the trust fund an interest paying IOU. The problem is that there is no mechanism existent or planned that will be able to repay these IOUs beginning in 2019 or earlier. As others have stated, the only way will be to raise taxes in some form or to cut benefits. Further, consider that the federal government has been using the "trust fund" money to fund their overspending for many years. As of 2019, that "excess" money at a cheap 3% will no longer be available. The government will either have to borrow at real rates (5+%) or drastically cut spending. The combination of having to come up with huge new revenue sources and loss of the cheap money from the trust fund is going to be a horrible one-two punch. If you think we have problems now, this is nothing.
Further, in typical Liberal fashion, Ms. Harrop calls those who argue that the solvency of Social Security is imperiled "liars". I don't believe that Ms. Harrop is a liar but I do believe she is dumber than a rock to fall for the liberal line without thinking through the realities.
Comment: #7
Posted by: Jeff Smith
Tue Feb 17, 2009 6:25 AM
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