by Dale Coberly


A Reply to Linda Beale

I want to take advantage of Linda Beale’s essay “Social Security: It Ain’t Broke Unless China is too” to make some points of my own. I want to be clear at the outset that I am grateful to Linda for her essay. She is essentially right. My comments are secondary. It’s not a case of my disagreeing with Linda, but of having something to say that I hope will help people understand the Social Security “question” a little better.

I am going to assume the reader has Linda’s essay in front of him.

First, I don’t agree with Krugman: you CANNOT think of Social Security as “part of the budget.” I don’t know how the government talks to itself about this, but they sure went to a lot of effort to segregate Social Security funds from the budget with a payroll tax and a Trust Fund. . You don’t have a “trust fund” if the money is fungible.

We once had a reader at Angry Bear point to a CBO “paper” that said because SS funds come into the Treasury like other taxes, they cannot be regarded as separate from those other taxes. The money is not “marked” so you can tell SS money from other money. This is a lie. The government is quite capable of keeping track of where the money comes from and where it is dedicated by law to go. So be warned, there are experts, even in the heart of CBO who are quite willing to lie to you if they think they can get away with it.

Second, i don’t like the usage “workers pay… to support [past workers, current retirees] who paid into it in the past.” While this is technically true, it is misleading. Those current retirees DID pay into SS in the past. They paid for their own benefits. Pay as you go is merely the very clever way the first cohort’s payments are protected from inflation, and earn interest, without being exposed to the risks of the market, so they can be returned to the taxpayer in time to help pay for his retirement. It is critical that people understand that the workers pay for their own benefits. It is NOT “the young paying for the old.” When they figure your benefits, they look at what YOU paid in, not what your son is paying in.

Like a lot of things in life, both ideas are true here. We are paying for the older generation, just as the next generation will pay for us. But at the same time we are paying directly for ourself. The money we pay is recorded against our name. Just like in a bank account.

Third , you’ll get some disagreement about when the Trust Fund was created and what for. Beale is essentially right about the present Trust Fund being created to allow the boomers to pay in advance for the part of their own retirement benefits that would be needed in excess of normal pay as you go. The trust fund was there at the beginning as a simple way to buffer income against outgo, both for normal monthly ebbs and flows, and for the occasional recession when taxes collected would fall short of benefits “promised.” But the ’83 Social Security Commission knew the boomer retirement was coming, and the tax rate they set at that time “just happened” to result in a Trust Fund large enough to bridge the boomer retirement. This is the point we have reached today. A long expected point, in spite of the liars screaming that SS has gone “cash flow negative.” SS has not gone “negative.” It’s cash flow includes interest, and eventually principle, from the savings it generated exactly for this purpose.

Fourth, I don’t agree with Beale that there is NO “problem.” The Trust Fund is not the problem. The problem is that as people live longer, they will need to devote a higher percent of their earnings to their retirement.. OR not retire as young, OR live on less when they do. I don’t think any sane person would choose options 2 and 3 when option 1 is so cheap. But it IS a “problem,” a very small one once it is understood, which is why the bad guys work so very hard to prevent your understanding it. You, the young, can insure your own future retirement with no increase in retirement age or cut in monthly benefits simply by raising your own tax… really your own savings rate… one half of one tenth of one percent per year, or about forty cents per week in today’s terms. This is an enormously better solution than not letting people retire when they are old, or cutting their benefits below survival levels, or taxing the rich and turning Social Security into welfare as we knew it.

Fifth.. the Trust Fund treasuries will indeed run out some time around 2030 or 40 or 50. It is a fatal argument to tell people don’t worry be happy. Even “the young” can see that they will be taking a benefit cut when they retire if nothing is done. Their problem is they don’t know they can avoid the benefit cut by raising their own “tax” by an amount so small they would not even notice it.

Default or not Default is not the question. Default would just move up the day when the tax needs to be raised, but would make no real difference in justice to anyone. And the lying bastards won’t default in a way you could bring them to court for. They will just cut benefits one way or another so the TF does not have to be paid back in a time inconvenient to themselves. They CAN do that. And that is the extent to which Uncle Sam borrowing from himself IS a problem. But it is not the problem that the liars say it is. Uncle Sam will have no problem finding the money. In fact, i don’t think the liars really care about the money. What they really want to do is destroy Social Security. They hate it because they hate the idea of “the help” being idle. They can’t imagine you might think you have something more important to do with your golden years than work for them.

Sixth.. The liars claim that the iou’s are meaningless is based on their idea that the government has to tax the people to find the money to pay the people. This is a confusion … we are not all the same person… but it is one they probably sincerely believe, and it isn’t helpful (to them) for us to miss the point. It needs to be explained. The money is owed to the people who paid their payroll tax on the understanding that it would be used to pay for their retirement. It will be paid by people who did not pay that payroll tax, and who presumably benefitted by borrowing the money. They will not be paying twice for their Social Security. They will be paying for the first time for what their government bought with the money they borrowed FROM Social Security. The rich know that it is THEY who will be taxed to pay back the money they borrowed from Social Security. And they are just short sighted enough to stop thinking right there, especially as they can rationalize that the money was borrowed not by them but by “the government” whoever that is. But since they hate the government, they can pretend they have no obligation to pay it’s bills just by pretending they got no benefit from spending the money.

Again, I want to think Linda for her essay, and I hope this helps.