by Dale Coberly
AND SOCIAL SECURITY
There are liars, damned liars, and “non partisan experts.” The non partisan experts are expert liars, “non partisan” because that’s the best lie of all. A damned liar need not be an expert, but he is usually pretty clever at mixing “true” facts, or at least “facts you can’t prove are not true,” with false implications that lead the people he wants to deceive into hurting themselves with false conclusions. Those false conclusions are ideally tied to other ideas that the mark really, really wants to believe, so he is never really able to let go of the lie he has been taught.
Robert J. Samuelson is not an expert, but he gets all his “facts” from them pre-twisted and designed to mislead. He published a pretty good example of the art of deception on Easter Sunday in the Washington Post.
Good enough, in fact, that when I started to deconstruct the lies for this post, I soon saw that I was in for a long job.. one too long to expect readers to put up with. So I will have to content myself, and you, dear reader, with “pointing at” the truth and leave you to decide for yourself how far you want to go to understand it for yourself.
Samuelson begins by claiming that FDR would not approve of Social Security today because it has become “the dole” that Roosevelt tried to avoid. His argument is entirely fallacious. And, as it turns out, he is telling these lies in order to encourage us to change Social Security so that it BECOMES the dole. One can’t be sure that Samuelson recognizes this himself. A career of telling lies for money must do terrible things to a man’s brain.
Samuelson is very confused… or wants you to be confused… about the differences between “pay as you go” and “the dole” and “contributory” pension plans.
He gets the history of the development of the Social Security idea exactly backwards. For a clearer understanding of that history I recommend “The Battle to Save Social Security,” by Nancy Altman.
But rather than get lost in the mazes of Samuelson’s mind, I will attempt to describe the development of “pay as you go,” not as a “plan” but as a fact on the ground. Let us begin by examining one of Samuelson’s lies… a very familiar one:
But now, demographics are unfriendly. In 1960, there were five workers per recipient; today, there are three, and by 2025 the ratio will approach two. Roosevelt’s fear has materialized. Paying all benefits requires higher taxes, cuts in other programs or large deficits.
This is intended to deceive. The ratio of workers to retirees will not cause large deficits or cuts in other programs, or higher taxes. The reason the ratio has changed over the years is mostly due to the arithmetic of phasing in a pay as you go plan.
Suppose there is a great nation in which workers have been working and saving for their future retirement by putting some of their earnings into bank accounts or into stocks and bonds. Then suppose that a great catastrophe comes to that nation and wipes out the savings. The older workers have lost the most..they had the most savings to lose. But even younger workers can now understand that their own future savings will be at risk of being lost just as the older workers have lost theirs.
The workers come up with a way to “insure” their savings. They agree to join a retirement insurance pool with a “pay as you go” financing plan. Every worker will contribute a small part of his weekly pay to a fund that will pay for the “benefits” of those who retire.
Suppose there are forty million workers. A million aged 64, a million aged 63, and so on down to a million aged 26 and a million aged 25. The first year there are forty million workers and zero retirees. The ratio of workers to retirees is 40 to zero. The next year the million 64 year olds turn 65 and retire. The 25 year olds turn 26… and a million new workers turn 25 and begin paying the “tax.” Now there are forty million workers and one million retirees. The ratio of workers to retirees is now 40 to 1. The next year another million workers will retire, and a million new workers will come in at age 25. Now there will be forty million workers and two million retirees.. the ratio of workers to retirees is now 40 to 2. And so on. But not forever. Because eventually some of the retirees will die, and eventually the number of retirees who die will be equal to the number of people who retire each year, so the ratio of workers to retirees will stabilize according to the life expectancy of retirees. If that life expectancy is about 12 years, the ratio of workers to retirees will stabilize at about 3 to 1. Note here that the ratio of workers to retirees is the same as the ratio of working years to retirement years for each worker (on average).
The workers designing our retirement insurance plan know this. They know that the early retirees will collect more in benefits than they paid in. But they decide that this is fair; in fact it is exactly what is needed: Those who will retire soon are those who have lost the most savings in the recent disaster, and have the least time to recover by saving up enough under a “contributory” financing plan. The workers also know that those older workers contributed to the previous system: a combination of welfare and old fashioned “honor your father and your mother” care of their own parents. The workers also know the older workers cared for them when they were younger and built the infrastructure by which they are able to make money at all. They “paid for” their retirement, even though the money did not go into the current plan. The workers understand that by ‘grandfathering in” the older workers they are merely doing the fair and honorable thing of providing a transition from the previous, failed, plan to the new, better, plan.
The workers also know that the younger workers will not be hurt by “paying for” the older workers. The younger workers will eventually pay the full cost of their own retirement. They will not have to pay “more” because part of that money was used to pay for those who went before them. This is one of the beauties of “pay as you go” : As long as new workers will need the same insurance, they will join the pool and their contributions will pay directly for the retirement of the older workers. But the new workers won’t lose anything by that because their own retirement will be paid for by the newer workers coming into the system.
This is not a Ponzi scheme. The workers ALL get what they are paying for, and they will keep coming into the system as long as they need a way to insure their own retirement.
The current ratio is near 3 to 1 and is expected to go to near 2 to 1. But this is not a catastrophe. The current payroll tax is about 6%. If 3 workers paying 6% of their pay can “support” one retiree. Two workers would need to pay about 9% of their pay to support one retiree. Or, and this is a better way to think of it, each worker would need to pay 6% to pay for a life expectancy of 12 years. If he expects to live 20 years, he will need to pay about 9%. This may look expensive to you until you realize it is exactly the amount of money you would need to save for twenty years of retirement whether there was Social Security or not. While it’s true you “might” do better on the stock market, it is also true you might do a whole lot worse. And having less than you need is much, much more painful than having more than you need is pleasurable.
The numbers are actually a little better than this, and it will take a long time to reach that 2:1 ratio, if ever. And if you read the Trustees Report… if you read it very carefully… it shows that under their predictions… including the increase in life expectancy and the reduced ratio of workers to retirees…the payroll tax would only have to be raised to just over 8% for the worker.
Moreover the need for the raise will be so gradual that it can be met by raising the tax an average of one half of one tenth of one percent per year while wages are going up over a full percent per year. This means that a tax increase of about forty cents per week each year, while wages are going up about eight dollars per week each year, would enable workers to continue to pay for their own retirement, as they always have, and would have TWICE AS MUCH MONEY in their pockets AFTER paying for their longer retirement as they have today.
This preserves the INSURANCE nature of Social Security. It will add NOTHING to “the deficit,” and it means YOU will get to collect YOUR money when the time comes without welfare “means testing.” having to beg the rich man to pay for it, benefit cuts, or increase in the retirement age…which you will not like, whatever you think while you are young.
If you read the Samuelson editorial, it is important to keep in mind that what Samuelson means by “contributory” is you “invest” in stocks and hope for the best while you build up your savings… exactly the plan that failed and led to the need for Social Security in the first place. There is nothing wrong with investing, but Social Security provides you with insurance “in case” you don’t do as well as you hoped. As the ad says, “priceless.”
You also need to keep in mind that Social Security contributes NOTHING to the deficit. It is NOT welfare. It is paid for entirely by the workers who will get the benefits. Social Security has NOTHING to do with “why America’s budget problems are so intractable.” That problem is caused by deficit spending to pay for arms buildups, actual wars, and recessions caused by the big money gambling schemes… that Samuelson’s friends want you to play with them.
Samuelson seems confused about “pay as you go.” He does not understand money at all. He thinks that if “your money” is used to pay the benefits of someone already retired that you have “lost” your money. But this is no more true than you have lost your money because when you put it in the bank, the bank gives it to someone else to use while waiting for you to ask for it back.
Samuelson cites Sylvester Schieber. I have not read Schieber’s new book. But his “The Real Deal” was a collection of clever lies. Schieber qualifies as a “non partisan expert.”
Samuelson says “Americans believe (falsely) that their payroll taxes have been segregated to pay for their benefits…” This is a lie. There is nothing false about the segregation. It is the law. Your payroll taxes pay for your benefits. No other taxes pay for your benefits, and your taxes cannot be used for any other reason. They do not contribute to “the deficit” in any way.
Samuelson seems to think that the fact that you receive more in benefits than you paid for… “even assuming (again, fictitiously) that they had been invested” is an argument AGAINST Social Security. It looks to me like an argument FOR it. You get more in benefits than you paid in, because the benefits are paid for out of taxes on incomes that increase over time, even when the tax rate does not. This IS an investment. It is an investment in the growth of a “corporation” called The United States of America.
Samuelson is conflating Social Security with Medicare. The growth in medical costs predicted over the next century will require that the Medicare tax be increased, or that medical costs be brought down. But cutting Medicare will not lower medical costs, and it’s a pretty stupid idea to cut your insurance because you expect your medical costs to increase.
Finally, Samuelson, after saying that Roosevelt would hate Social Security today because it is “the dole,” a statement that is a lie, calls for us to ask “who among the elderly need benefits?” because he thinks we need to turn Social Security into a needs based welfare program… the “dole.”
As I said, when a man chooses to tell lies for a living, it must do terrible things to his brain.
Social Security is an “entitlement” because YOU HAVE PAID FOR IT. Don’t let the liars confuse you. It does not need to be “fixed.” All of the “fixes” on the table are stealth plans to destroy it. They want your money for their gambling games, and they hate the idea of workers having the security to EVER be able to say, “I have enough. Now I want to retire and do something with my remaining years better than working for the boss.”