The actual Social Security problem
Dec. 21st, 2010 10:55 pm![[personal profile]](https://www.dreamwidth.org/img/silk/identity/user.png){kind=small}
snousleI've been coming across a lot of articles lately discussing the Social Security funding problem, and whether the "trust fund" exists in any meaningful way. A few points worth understanding.
When you're the federal government, financial strategies appropriate to individuals or businesses are no longer meaningful. In particular, the government can't transfer wealth forward in time by accumulating money. You might say that the government doesn't have money, the government is money. Critics of the social security trust fund often fault the investment of the surplus in treasury bonds; essentially, the government loaning money to itself. But they rarely offer an alternative suggestion, because figuring out what you should do is kind of hard.
It's not like the government can just hide the surplus funds under the mattress. No matter how you jigger the accounts, you're faced with a more fundamental problem: fewer workers supporting more retirees. Retirees don't actually need money itself. They need physical products such as food, gasoline, and houses, and in order to make sure they get those things, their payments are indexed to inflation.
Money is just an accounting tool; it's the goods and services that matter. This is a physical problem, and efforts to transfer "money" from the present to the future don't change the fact that under any plausible scenario, workers in the future will have to surrender more of their production to non-workers than they do today. Maybe a lot more.
One way to transfer "surplus" wealth from the present to the future is to construct durable assets that will maintain their value for decades. That means roads, buildings, trains, that sort of thing. If local investment of the surplus does not produce anything of lasting value, then it doesn't matter what column you write it down in. If it does, then future workers are relieved of the burden of building those durable things, while the retirees get to use them.
Another way is to send physical goods overseas, in exchange for foreign currency that can be held and traded for other (imported) goods in the future. It's worth noting that China faces a similar demographic problem - a huge number of future retirees - but with their high savings rate, much of it in American dollars, this is actually the strategy they are using on us.
I have read an enormous amount of blather over accounting methods, and exactly zero discussion of how to solve the problem of accumulating and transferring any durable form of wealth into the future. So it seems to me that the discussion is running at ninety degrees to the actual problem, and can't even hope to produce a workable solution.
When you're the federal government, financial strategies appropriate to individuals or businesses are no longer meaningful. In particular, the government can't transfer wealth forward in time by accumulating money. You might say that the government doesn't have money, the government is money. Critics of the social security trust fund often fault the investment of the surplus in treasury bonds; essentially, the government loaning money to itself. But they rarely offer an alternative suggestion, because figuring out what you should do is kind of hard.
It's not like the government can just hide the surplus funds under the mattress. No matter how you jigger the accounts, you're faced with a more fundamental problem: fewer workers supporting more retirees. Retirees don't actually need money itself. They need physical products such as food, gasoline, and houses, and in order to make sure they get those things, their payments are indexed to inflation.
Money is just an accounting tool; it's the goods and services that matter. This is a physical problem, and efforts to transfer "money" from the present to the future don't change the fact that under any plausible scenario, workers in the future will have to surrender more of their production to non-workers than they do today. Maybe a lot more.
One way to transfer "surplus" wealth from the present to the future is to construct durable assets that will maintain their value for decades. That means roads, buildings, trains, that sort of thing. If local investment of the surplus does not produce anything of lasting value, then it doesn't matter what column you write it down in. If it does, then future workers are relieved of the burden of building those durable things, while the retirees get to use them.
Another way is to send physical goods overseas, in exchange for foreign currency that can be held and traded for other (imported) goods in the future. It's worth noting that China faces a similar demographic problem - a huge number of future retirees - but with their high savings rate, much of it in American dollars, this is actually the strategy they are using on us.
I have read an enormous amount of blather over accounting methods, and exactly zero discussion of how to solve the problem of accumulating and transferring any durable form of wealth into the future. So it seems to me that the discussion is running at ninety degrees to the actual problem, and can't even hope to produce a workable solution.
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no subject
Date: 2010-12-22 08:42 am (UTC)no subject
Date: 2010-12-22 08:53 am (UTC)If you add up all the WallMart workers, all the farm workers, all the slaughterhouse workers, etc. You get an idea of where a big chunk of government money is going right now.
no subject
Date: 2010-12-22 01:32 pm (UTC)http://www.alternet.org/story/149262/are_we_too_dumb_for_democracy_the_logic_behind_self-delusion?page=entire
no subject
Date: 2010-12-22 01:55 pm (UTC)One of the biggest troubles is that the "issue" is so highly partisan, it is hard to get information.
It is true that the American government cannot generally collect claims on assets like a private pension plan can, financial assets or otherwise.
However, if you believe, as I do, that an economy should run with a fairly constant debt/GDP ratio, you can spy this alternative: during demographic "boom", you pay down the debt with current net receipts, during demographic "bust", you take on debt (up to the limit) with current net receipts.
The US is lucky, because we can manage a large enough debt outstanding to facilitate this.
That is the exact opposite of what has happened in Washington.
Remember Al Gore and the "lock box" for Social Security? Well, all the money that the boomers were supposed to be "saving" for their retirement, Bush-43 spent net receipts on his wars and tax cuts and on "no new taxes" in view that they didn't cut the "size of government" at all.
no subject
Date: 2010-12-22 03:33 pm (UTC)But they don't ask me. ;-{}}}}}}}}}}}}}}}}}
no subject
Date: 2010-12-22 04:33 pm (UTC)This study tends to focus on "facts" that relate to things that are already controversial, and where actions do not relate clearly to outcomes. This is a very small set of the ideas we deal with on a daily basis. The ideologies for which this is the greatest influence tend to be the most distant and abstract, such as creationism or macroeconomics, and are in fact outside the personal experience of most people holding that ideology. These are exactly the ideologies that are most amenable to holding beliefs for reasons of identity and posturing rather than action.
The study also struck me as assuming that the researchers, in presenting "facts" to the subjects, actually had the credibility to establish fact in the research setting. This strikes me as a bit questionable.
I also think there is a huge gap between people who use formal reasoning as an effective tool, and those who absorb cargo-cult "reasoning" from political melodramatics.
That said, the idea that democracy is not founded on sound reasoning by the electorate seems obviously true. This is why we have representative rather than direct democracy. One good workaround is to defer judgment on their work and not imagine that we somehow know better ourselves.
How far does this go? Should we accept the "fact" that human footprints have been found superposed with dinosaur tracks? Or is rejecting the exponents of those facts as "liars" in fact appropriate? The article doesn't do a very good job of addressing this question.
no subject
Date: 2010-12-22 05:36 pm (UTC)...and can't even hope to produce a workable solution.
I think that there a many who don't want a solution to be found. There are many on the right that appear to want to rein in the Federal Government by strangling it. I don't believe they think through the consequences of that action.
More about SS…
Date: 2010-12-23 09:01 am (UTC)To paraphrase
Chuck
no subject
Date: 2010-12-27 02:18 pm (UTC)As I'm sure you've noticed, Wikipedia has a good overview of the debate:
http://en.wikipedia.org/wiki/Social_Security_Trust_Fund