Quote:
Originally Posted by zerospinboson
[SNIP stuff on non-SocSec related issues]
Sidenote: This is how "they" more or less made sure SocSec would fail. Because of changes made in the early '80s to the way socsec was being funded there now isn't enough money in the pot to pay for the retirement plans of the future. (that is, because a bunch of important people noticed that a lot of money was being put in there that wasn't really "doing" anything, who then took it "to invest in innovation" leaving an promissory note to "pay it back later" with interest. They never did, of course, because by the time they needed to start paying it back nobody wanted to decrease spending anymore)
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Actually, the issue with Social Security is both simpler and more complicated than what you describe! I see it as coming in several parts.
First,
Social Security is not and never has been an insurance plan! Rather, it has always been a system whereby current tax revenues are spent on current benefits for retirees (and a few other groups like widows-and-orphans and the severely disabled). Political rhetoric notwithstanding, Social Security has been well-known to be a simple transfer payment system from day -1 -- that is, this was a deliberate design feature of the system even before it was first enacted.
Secondly, US government accounting is done purely on a cash basis. This form of accounting would get
any corporation's executives thrown in jail if they tried to get away with using it! One consequence of cash accounting is that in reality there is no such thing as a "lock box" or "trust fund" for Social Security. Rather, any surpluses have made the official deficit numbers smaller in the year they were collected. Meanwhile the contents of the supposed trust fund are... Treasury Bills and Notes. And those, in turn, represent a call upon the future taxing ability of the US Government. Nothing more, and nothing less.
If an investment firm does this, and claims that they are investing the money we call it a Ponzi Scam and prosecute the principles of the firm for fraud. To simplify only a little with a non-investing example, the equivalent in my own finances would be to take some of my retirement savings, spend it on a fancy vacation (or a bad investment, or any non-productive asset) and replace the money in the retirement account with an IOU that says "I'll pay myself back. Really."
Aside: The original designers of SocSec had a good reason for designing the program as they did! In order to avoid the "phony IOU" problem, they would have had to invest any SocSec surpluses in non-government assets. If the program were actuarially sound, this would rapidly result in the government having a controlling interest in almost everything, which even the New Deal folks thought would be a bad idea. My readings in the congressional record of the day suggest that the designers of SocSec expected the program to be run without a surplus -- thus effectively (and publicly!) admitting that it was a transfer payment scheme rather than insurance. But that admission doesn't fly politically, so our politicians call it "insurance" even though the public has no legal right to or property interest in the "promised" SocSec benefits. Aside: I call that "a lie." Others may view it differently.
Anyway, when you write that "a lot of money was being put in there that wasn't really "doing" anything" you have fallen prey to the rhetoric from the politicians. Quite a large surplus was indeed coming in... but due to the above effects it was just being spent immediately. None of the surplus was
ever being invested to cover future SocSec expenses. Not once, since the very beginning of the program back in the 1930s.
If we wanted to treat Social Security as actual insurance, complete with individual property rights in the future payouts we would need a significant change in Federal law. An those future payouts would represent the single largest obligation of the US government, by far.
Xenophon