[throwaway344]

The article as a whole seems fairly sound to me, but in the second paragraph it says "strengthen Social Security". That implies, to me, that Social Security, is something worth saving. Social Security, as a program is not just close to bankrupt finacially, but also morally.

That's because, unlike the other government programs, Social Security (and Medicare), are neither investments in the future (education, roads, defense), or helping the needy (Medicaid, SNAP). Social Security, is in the simplest sense of it, taxing the young, and giving it to the old. That's despite the fact that the old are doing far better than young people economically. [1]

[1] http://www.usatoday.com/money/economy/income/story/2011-11-0...

[pdonis]

> Social Security, is in the simplest sense of it, taxing the young, and giving it (without strings at all) to the old.

Except that that's not how Social Security was originally intended to work except at the very start, when there was no trust fund built up. The original intent was that people's contributions would go into a trust fund which would appreciate in value over time, so that payments to current retirees would come largely from the trust fund, not from current receipts from workers.

The problem was that the trust fund appreciated in value so well that our statesmanlike politicians decided they could siphon money from it in exchange for IOUs. Which is why the trust fund is now close to insolvent, because instead of being full of the earnings from past contributions, it's full of IOUs from the Treasury that, as the fraction of the population that's retired continues to increase, the Treasury won't be able to pay back fast enough.

In short, what's morally bankrupt is not Social Security as it was intended, but our politicians who could not resist stealing the money from it instead of using it as it was intended.

[panarky]

Are you sure you understand how pension funds work?

> politicians decided they could siphon money from it in exchange for IOUs

No funds have been "siphoned" out of Social Security. It's not a bank account. When contributions exceed payments, the excess is invested in US Treasurys. When payments exceed contributions, those assets are sold to make up the difference.

> instead of being full of the earnings from past contributions, it's full of IOUs from the Treasury

Is your argument that instead of purchasing Treasurys, some other asset should have been used? Like what, municipal bonds? Corporate bonds? Real estate? Gold?

How do companies and other countries manage their pension funds? Do they not invest in IOUs of governments or corporations?

[pdonis]

Are you sure you understand what happens to the cash that the trust fund gives to the Treasury in exchange for the US Treasuries it purchases? The US government spends that cash. That means that, when the trust fund needs to sell US Treasuries back to the US government to make payments, the US government has to get the cash from current funds, i.e., from current taxpayers, over and above what current taxpayers are already paying in to Social Security, or by printing new money. (For quite some time now, it has been doing more of the latter than the former.) This also shows, btw, that US Treasuries are not "securities" in the usual sense of the term, because the cash obtained by the seller (the US government) is not used to finance investments; it's used to pay current expenses.

The above is not how a standard pension fund works. A standard pension fund has to be able to make current payments from the earnings it has collected on past payments. That is originally how Social Security was supposed to work, but it is very, very far from working that way now and has been for a long time.

And yes, of course standard pension funds invest payments coming in in a portfolio of securities; but if the fund is having to sell securities outright (i.e., prior to maturity) to make current payments, instead of just making payments from the earnings on those securities, it has a big problem. Which is exactly the problem Social Security has; except that, because the US government is a sovereign government and can print money and lie about its accounting, it has been able to obfuscate what is going on.

[panarky]

This is no different than if excess contributions were invested in any financial asset.

Let's pretend that instead of buying Treasurys, excess contributions were invested in Verizon bonds or Alabama municipal bonds or shares of Facebook. Those assets would have to be sold years later when payments to beneficiaries exceed contributions.

> what happens to the cash that the trust fund gives to the Treasury

If the trust fund gave cash to Verizon in exchange for its bonds, Verizon would spend it to build networks and cell towers. If instead you go with the Alabama Port Authority, they'll spend the cash on the port. Give cash to Peter Thiel to buy his Facebook shares and he'll spend it building an offshore libertarian paradise.

So what?

Pension funds don't collect warehouses of cash, they invest in income-producing assets. Why does it matter if those assets are issued by Verizon, Alabama, Facebook or the Treasury?

[pdonis]

> Pension funds don't collect warehouses of cash, they invest in income-producing assets. Why does it matter if those assets are issued by Verizon, Alabama, Facebook or the Treasury?

Because Verizon and Facebook invest the cash they receive from sales of shares in assets that create wealth. (At least, we're assuming they do for this discussion; to they extent that they don't, they're not good investments, which is my point.)

To some extent the Alabama Port Authority is indeed similar to Verizon or Facebook, although I'd want to see their books to see how much was actually being used to create wealth. But the vast majority of the cash given to the US Treasury in exchange for T-bills goes to pay current expenses, not to create new wealth. It's as if you bought shares in Peter Thiel's latest startup and he used the money to buy groceries or pay his electric bill instead of building infrastructure for the startup.

I can anticipate one objection: surely Verizon and Facebook spend a lot of money on salaries and benefits, office supplies, etc.? Yes, they do; but if they're using cash from sales of shares to do that, they're in trouble. Cash for operating expenses should be coming from operating revenues, not from new investment; if new investment is being depended on to fund operating expenses, we call that a Ponzi scheme.

[firstOrder]

I see, "defense" is an "investment in the future", but Social Security and Medicare are "morally bankrupt".

I guess the US military bases ringing the world are an investment in some kind of future. US arms shot up El Salvador in the 1980s, and now MS-13 gangs float throughout US cities, so these things are investments of a sort.

I gain nothing by having the boot of US imperialism on the necks of people over the world. I will get Social Security and Medicare though. It's the one thing I'm paying into that I'll benefit from.

People would have to help out their retired parents any how. This just happens collectively.

As far as investments - have you been reading about how corporations balance sheets are flush with cash? Or about factory overcapacity rates? There is no lack of capital, the country is more awash with capital then it has ever been. There is just a lack of places to invest it. Because people aren't buying commodities, there is underconsumption - at least according to Jack Welch and many others.

But putting money in the hands of retirees helps consumption. It keeps the economy moving.

Also, the metric is GDP growth divided by the number of retirees. The US was able to pay Social Security in 1940, when GDP was $100 billion, but now it can't, with a $15 trillion GDP? That makes no sense.

The US has military bases in Cuba (which Cuba has asked to be removed for decades), Djibouti, and many other godforsaken places - the US is spending a fortune to get back into the Phillipines. Never mind bailing out the banks which had lobbied to be deregulated.

Yet the one program I've paid into my whole life and which I will benefit from they want cut. I don't think so.

[Swizec]

The idea being that our young will do the same for us.

[pravda]

I think what you mean is, we'll do the same to our young. Two Wrights might have made an airplane, but two wrongs don't make a right.

[dropit_sphere]

Honestly I wish we'd just admit that it's going down. I have no illusions that I'll ever receive any SS; can't we just phase it out so that anyone who's say, 30, won't receive any, and tell them now?

[throwaway344]

Yeah, but the fact is that today and into the future, people will be having fewer children. Therefore, as the amount of retiring people increases, and the number of people working decreases, the ponzi scheme collapses.