In a recent post, Brad put forth the idea that our country is what it is (extremely strong and extremely powerful) in part because it has effectively blended capitalism and socialism. As I understand it, he argues that socialism has some great ideas, and when you extract the best of what socialism has to offer, and mix it with capitalism, then you get a strong country like the US. Here are his words…
Many socialist beliefs are very admirable. The idea to take the best of these and incorporate them into capitalism has made us the stable power we are today. Tax exemptions, unemployment insurance, WPA, Social Security, almost any federal regulatory agency, these all augment pure capitalism to give us a strong and stable economy.
There are lots of things we could talk about here. Some of what he says here, I agree with. An example would be in government-enforced anti-monopoly laws. But for this post, I want to focus on social security. Brad is making the point that “social security … has given us a strong and stable economy.” It has “made us the stable power we are today.” So, this post has a strong question / poll component… Do you agree?
Here’s my position… I totally disagree. (shock!)
I disagree with the entire concept of a social safety net in the form it exists today. We are a wealthy society, and as such we do have an obligation to protect the weak and poor in our midst. If someone gets hurt at work and cannot provide for themselves, then we (as a society) should help them. If someone loses their job and needs temporary assistance to help them get back on their feet, then we should help them do that too. Education through the 12th grade should be free, so that everyone has equal opportunity to make something of their lives – not just those who can afford school. When a disaster strikes (such as Hurricane Katrina), we should help those who were wiped out by the disaster (although I would have executed many of the details far differently – but that’s a distraction). All these programs, which could be labeled “entitlements”, I support. A wealthy nation such as ours has obligations to the poor and weak and underprivileged among us.
What I don’t like is the idea that the government will provide for my retirement or give me a paycheck if I’m too poor. Neither was that the original vision for the program, nor is it reasonable / feasible to execute, nor is it good for the country. The social security program in its current form effectively communicates to (especially poorer, less educated) people that their retirement is taken care of. Don’t worry about fiscal responsibility. Don’t worry about saving. Don’t worry about being wise with or taking care of your money. The government’s got your back. There’s a safety net. If you don’t save or don’t try or don’t hold down the job, no big deal. You are entitled to a liviing wage in retirement.
Social security was formed in 1948 after the war, which followed the Great Depression. In the face of new-found economy prosperity, a generation of people who had had nothing now wanted security – assurances that something like the 30’s would never happen again. Now, 60 years later, there exist people who have lived off the system for generations, children who grow up knowing nothing else than to expect the monthly check from Uncle Sam, etc. And we have to keep raising the amounts we collect and shell out, because what the elderly are getting out of social security isn’t providing enough to be a living wage. Plus there are far fewer people putting money into the system now per person taking money out than there were 50 years ago. This doesn’t mean that we keep raising the anti, it means we need to realize that this thing is broken – a flawed idea from the get-go, and put together a different plan.
I believe social security saps initiative, as do so many of socialism’s tenants. They are idealistic, assuming that people are self-motivated, regardless of their circumstance. This is simply not true. Human nature is greedy, lazy, selfish – unless motivated to be otherwise. In my mind, social security falls under the general category of “welfare” for this reason. Perhaps I define welfare differently than others, but here’s my definition… Paying people what you feel they deserve to have instead of in response to what they earn. Social security is an example, albeit a retirement-centric one. Many other welfare programs are more direct, such as food-stamps, etc.
Here’s the why-Jeff-believes-welfare-in-general-is-bad-for-our-country story…
My grandfather was born in 1907. He was the 2nd oldest of 7 children – one older brother, and 5 younger siblings. His parents both died before he finished high school – in the same year. Actually, his mother was committed to a TB sanitarium, which was essentially the same as death. He was 16, his brother had just graduated, and his youngest sister was 2 years old. His older brother took off, because he had his diploma, and saw the way out, leaving my grandfather to care for his 5 younger siblings (ages 2 through 14) at the age of 16. There was no welfare, no social security, no safety net. By today’s standards – if we listen to the message of many liberals – he should have starved to death in the streets along with his siblings. How could anyone survive under such horrible conditions unless we start giving them stuff?! Instead, he rose to the occasion.
Grandpa dropped out of high school (never finished his education), and worked as everything from a coal miner to a wheat farmer to a millwright to an electrician. He found work wherever he could and did what it took to raise his siblings, even through WWI and into the Depression. His neighbors helped. He grew a lot of his own food (which he had to learn how to do) in a garden in the backyard. The kids all helped with taking care of the house, and each other. Every other child got a high school education. My grandfather sacrificed incredibly to make it happen.
And eventually, my mother (an only child) went to college. The first in that family. And now I have much of what I have today, because this man (my grandfather) worked his butt off to provide – to make a life for his family, and for future generations. His work ethic, passed down through my mother, and my father’s work ethic that came from his parents, has been passed on to me. Now, I work my tail off for what I have. Out of every dollar I earn, I give some away, and I save some for the future – which has been true no matter what my salary has been, even when I worked at Taco Bell in college. Only after that, do I spend anything.
My question… Was it social security and other welfare programs that made this country great, or was it my grandfather and his work ethic and the hundreds of millions of men and women like him that worked their butts off like he did to build a life in the context of freedom? Does social security teach this kind of work ethic? Does a safety net make a man work and sacrifice like this?
My father was a mailman. For over 20 years, he walked 9 miles a day to deliver mail in the small town in which I grew up. Before that, before I was born, he worked two jobs to get ahead (no assistance from anyone) – but that’s an aside. When he would deliver the mail in the hot summer, sweating like a pig, walking mile after mile, he would share with me several things he noticed that I think are worth mentioning in the context of this discussion. Many of the houses to which he brought welfare checks had the following things in common in the hot summer. Not every house, but there was a strong correlation between getting a welfare check and one or more of the following…
- The man of the house was home in the middle of the day watching TV. I guess if they’ll send you a check for doing nothing, why not do nothing?
- The air conditioning was on and the windows were open. I guess if you’re not working hard to pay your electric bill, you don’t really care.
- They gambled. Many a time when Mrs. Jones was “so glad the check’s here”, it was because “I’ve been waiting for it so I can meet my friends at the boat this afternoon.”
- They smoked. Can’t afford lots of things, but can definitely afford cigarettes.
This kind of stuff is very real. It’s not everybody. I doubt it’s even the majority. But it’s real, and it destroys lives. Can you picture my grandfather, with all those mouths to feed blowing money at a casino or on cigarettes or on air conditioning (let alone A/C that was trying to cool the front yard)? No way! And my question is very simple, does giving people stuff also give them a strong work ethic, or do you have to work hard to get that? I see it in my own life. If you give it to me, I don’t value it nearly as much as if I had to work for it. Too big a safety net undermines work ethic, to say nothing of principles like the value of delayed gratification.
What say you?
Technorati tags: social security, welfare, the great depression
Breaking Away: Jeff Block's Blog 
Now we are getting deep, I probably won’t be able to get all my thought together in one post.
My definition of welfare: aid in the form of money or necessities for those in need.
I disagree that a safety net when you are 65 will sap your initiative when you are 30. Social security is also progressive up to a point, the more you pay in the more you get.
I would argue that having the safety net of social security allows some people to take larger risks, thus improving initative.
I think the story of your grandfather is exactly why social security is helpful. If someone came and offered him help he may have been greatful. Or he may have been too proud to accept, which is a common problem of those in need.
Your argument that no safety net makes those at the very bottom stronger is flawed. It only works because those who are not strong enough will not survive. (How many families in your grandfather’s situation didn’t make it) The implication here is their life is not as worthy as ours, which is a very dangerous path.
As to your father’s observations:
If you smoke you do not deserve help?
If you gamble you do not deserve help?
If you are poor you do not deserve a/c?
A family where the man stays home instead of the woman is flawed?
What if he works a night shift?
Even a family on assistance has to budget their money. I am sure many families are wasteful and irresponsible. The waste does need to be addressed. However, judging these families based on ~10 minutes of exposure every day and limited interaction is not very accurate.
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> My definition of welfare: aid in the form of money or necessities for those in need.
Good definition. However, I would say that it would be more accurate to say that it’s *intended* for those in need. But that’s a nit.
> I disagree that a safety net when you are 65 will sap your initiative when you are 30.
There is a general and growing sense in America that people (and it’s worse the younger people are) feel they deserve to be given things instead of working for them. The entitlement system in general, including social security, contributes to this. I know this was unintended, but it’s true none the less. If you go into a poor neighborhood, and ask if people expect to save for retirement, they will not know what you’re talking about. People have grown to expect that the government will (should) provide for them. And in this way, social security undermines the initiative of 30 year olds. Rampant lack of education in how to handle money doesn’t help.
> Social security is also progressive up to a point, the more you pay in the more you get.
A fair point.
> I would argue that having the safety net of social security allows some people to take larger risks, thus improving initative.
Is that true in your life? The lives of your friends? Are you (they) making more aggressive small business decisions or taking entreprenurial risks because they believe the social security safety net makes doing so easier? That would be very interesting, since I cannot cite a single case of this kind of decision making in my life.
On my street alone, I am friends (all ~age 30) with a commodities broker who is starting a photography business in his spare time and an investment broker who turned finance guy putting a bow on his former business (which he and his father started, but have not sold yet). I work in a startup company with 6 other people. I’ve also worked with several small businesses in my consulting days, all of which are people who started from almost nothing and built something with their own blood, sweat, tears, work ethic and initiative. NOT ONE OF THEM would agree with you here. They would ALL say that social security is a blight on their businesses, and 13.2% dead weight on their ability to make their businesses successful. Not one of them expects to see a diime of the social security money being withheld from their paychecks. So, the opposite of what you’re saying… They do not feel liberated to take risks, they feel constricted and weighed down by our “safety net” system.
> I think the story of your grandfather is exactly why social security is helpful. If someone came and offered him help he may have been greatful.
Perhaps. I acknowledge why you would say that, but even if you’re right and social security could have made his life easier, I argue that it wouldn’t have made him a better man. And I argue that it would have resulted in different values being passed down to my mother, then to me. I take it you don’t see / acknowledge that?
Oh, and BTW, someone *did* offer him help … his neighbors, his family, the church, the Masonic Lodge … NOT the federal government. He would have told you (he’s dead now) that he neither wanted nor needed the government’s help, but was very grateful for the help others gave him.
> Your argument that no safety net makes those at the very bottom stronger is flawed. It only works because those who are not strong enough will not survive. (How many families in your grandfather’s situation didn’t make it)
What do you mean by “didn’t make it”? Are you arguing that most of my grandfather’s peers starved to death in the street for lack of government assistance before the New Deal? What are you defining as “success” or “making it”? All his cousins, the people who grew up in his neighborhood, and his coworkers would probably disagree with you. None of them “didn’t make it”. Please cite a story about someone you know or your grandparents knew for whom this was the case? Of all the stories my grandfather told me about all the people he knew and with whom he interacted back then, none were ever that anyone starved to death for lack of help? And my grandfather was as synical and negative as they come. The truth is that almost all of those stories had at their heart people in the neighborhood working hard, working together, etc. In other words, there doesn’t seem to have been a lack of governmental social programs that dragged them down.
> The implication here is their life is not as worthy as ours, which is a very dangerous path.
That is NOT what I’m arguing. How do you arrive at this conclusion?
> My father’s observations
Your responses here are so ridiculous that I will not react to them. When you would like to respond seriously to the comments I made here, I would be happy to debate those responses.
> Even a family on assistance has to budget their money.
Of course.
> I am sure many families are wasteful and irresponsible. The waste does need to be addressed.
I agree.
> However, judging these families based on ~10 minutes of exposure every day and limited interaction is not very accurate.
That exposure was over the course of > 20 years, and my father is an extremely social and personable man who knew just about everyone. Surely you admit that this is significant time in which to discern patterns of behavior, observe character, etc.
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“There is a general and growing sense in America that people (and it’s worse the younger people are)” I am unfamiliar with this, can you cite a study showing this?
commodities broker, photographer, investment broker………if they live in your neighborhood the S.S. burden must not be too unbearable 🙂 Obviously S.S. will not benefit them as much as poorer people. I do hope they realize how much benefit they gain from lower paid workers. These are not labor intensive positions. I realize this does not relate to the point, just an aside.
RE: “Perhaps. I acknowledge why you would say that, but even if you’re right and social security could have made his life easier, I argue that it wouldn’t have made him a better man. And I argue that it would have resulted in different values being passed down to my mother, then to me. I take it you don’t see / acknowledge that?”
You have no understanding of what it is like to be in poverty, and no fear that you will ever be there. Admittedly I do not either. The help your grandfather recieved from neighbors, masons, etc. apparently did not change his values. Their are many events and influences that establish a persons beliefs and ethics, charity in time of need does not weaken a person in my view.
RE: What do you mean by “didn’t make it”?
Yes, some did starve to death, but I am also including those who turned to crime out of desperation, those who performed very dangerous work, those who suffered health effects later in life, etc.
I do realize that this point doesn’t matter though. If you are arguing that old people and disabled people (those who recieve S.S. benefits) would make it if we cut S.S., and that is a justification for ending the program, then I disagree.
RE: “Your responses here are so ridiculous that I will not react to them. When you would like to respond seriously to the comments I made here, I would be happy to debate those responses. ”
How condescending. I see you said welfare checks instead of social security checks. But my point is that you are making a judgement as to someone’s worth for help based on their lifestyle.
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While I find your post and subsequent comments a very interesting, I think you’ve missed the forest for the trees. Whether or not Social Security is a good idea is basically irrelevent. With the shifting demographics, Social Security is now an enormous waste of money. If we all took our FICA dollars and invested them privately, we’d all retire millionaires.
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Bill, you make a great point. I’d be interested in Brad’s thoughts on your comments.
> People have a sense of entitlement.
You asked me to cite a study. I can’t. It’s anecdotal. I take it you don’t observe this trend in the people around you? Everything from an attitude of instant gratification via the use of credit cards to watching people try to “keep up with the Jones’” in our neighborhood points to this mentality for me. People expect to have.
And I see fewer and fewer people with an impressive work ethic. I’m in small business – trying to hire these people – and I can’t find them. Why do you think that is?
> commodities broker, photographer, investment broker
None of these men were born into money any more than I was. And if you go a generation or so back, they were all poor – like my parents. My mom’s dresses were made out of the gunny sacks potatoes came in when she was a child. My entire point is that these families built something from nothing and were *given* little to be able to do so. I think expecting this potential of people today is a great gift to them. I believe today’s poorer families are being handicapped (prevented from being able to follow a similar path) by a society that tells them to expect to get rather than to work hard to earn. Social security is just one element of that.
> charity in time of need does not weaken a person in my view.
I’m not talking about chartiy in a time of need, I’m talking about systems that potential create a lifestyle of dependence – not on my hard work, but on a government that will provide for me. And that *does* weaken a person, in my view.
> [some] turned to crime out of desperation, those who performed very dangerous work, those who suffered health effects later in life, etc.
This is an excellent point. However, do you think that the social security program somehow prevents any of these things?
> How condescending
You’re right, I shouldn’t be condescending. I apologize. The reason I reacted strongly is that it feels like you’re (again) twisting my words to make me look like I generally hate poor people, but I’ll take the bait nonetheless…
So, why does anyone “deserve help”? What does that mean? Where does it stop? Who decides who “deserves” this or that, and who doesn’t? Why would the government not focus on creating equal opportunity, and focus less on providing for people. My entire argument is that we should expect people to provide for themselves. In fact, I think it’s a great gift to someone to believe that they can do so. My entire point is that when we rob them of the need / opportunity to provide for themselves, to build their own life (including retirement), then it dimenishes them as a person.
> But my point is that you are making a judgement as to someone’s worth for help based on their lifestyle.
So, let me ask you a question… If someone’s got a smoking or drinking or gambling problem (or whatever), why is it my responsibility as a tax payer to support their habit with money I’ve earned through my hard work and kept in part through my avoidance of these kinds of habits?
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As to Bill’s statement, and you have alluded to this as well Jeff. You both forget how risky the stock market is. The market is gambling with your future. If everyone dumped their FICA into the market they would not become millionaires, a few might. I have talked with a few coworkers who are over 60, and they all agree that S.S. is very important, even to them.
Jeff, I do observe those around me and those in the community. I don’t equate people using credit cards with people expecting to have. You appear to know what is best for everyone else, but they still have the freedom to use their money how they wish. We do have a lot of conspicuous cosumption in our country and some of this trickles down to the poor, but this diverts our discussion from S.S.
RE: “I’m not talking about chartiy in a time of need, I’m talking about systems that potential create a lifestyle of dependence – not on my hard work, but on a government that will provide for me. And that *does* weaken a person, in my view.”
Social Security goes to retired persons and people with disabilities. Obviously they cannot all work hard and achieve. Can’t you admit that some people in our society are dependant on others and cannot make it on their own?
RE: “So, why does anyone “deserve help”?…..”
Because it is the right thing to do. That means aid to those in need, this is largely case by case, but includes food, shelter, medication, clothing, counseling, money, etc. A rational group of people familiar with poverty can determine minimum levels to recieve assistance. The government should focus on creating equal opportunity, this is not mutually exclusive from assisting those in need.
RE: “My entire argument is that we should expect people to provide for themselves.”
Your argument appears to say that we should expect all people to provide for themselves. This is very unrealistic.
RE: “why is it my responsibility as a tax payer to support their habit…”
Again you are saying the following. Argue if you disagree.
1. People recieving assistance (specifically social security) do not have the right to smoke, drink, or gamble.
2. If we have a S.S. system we should pick and choose who recieves benefits based on their lifestyle.
3. Only the poor care about S.S. benefits and the middle class, even those who do not drink or gamble, would be fine if these benefits went away.
I would say it is your responsibility as a taxpayer to support the S.S. system because the people benefitting now payed their dues to support their fathers, and our children will pay their dues to support us.
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Brad, your statement demonstrates a lack of understanding of the mathematics of investing. It is a completely fallacious argument used to scare people in to believing that they’re incapable of saving for their own retirement. Fortunately, the numbers cut through the rhetoric and tell the truth.
Let’s take a look at precisely what effect the recent tech bubble had on long-term investors in the stock market. To illustrate this, we’ll consider 2 different cases. In both cases, the worker works exactly 47 years (age 18-65).
For the first case, consider a worker who retires on March 24th, 2000. Why that date? Because it’s the height of the tech bubble. Over the previous 47 years, the S&P 500 experienced a total annualized return of 10.83%. Adjusting for inflation, that leaves a respectable 6.92% real return.
Now consider a worker who retires on October 9th, 2002. As you might have guessed, that’s the bottom of the tech bubble. His rate of return was 8.36% or 4.46% after inflation. That’s only a 2.46% dip from the height of the bubble (and still strongly positive). As a side note, in the following year, the S&P went up 34%, regaining much of the ground it lost in the tech bubble.
So you see, the tech bubble only introduced a variation of +/-1.23% for long-term investors. You can work through the same scenario for the crash of 87 and you’ll get the same result. I think this is a pretty conclusive demonstration that the stock market is NOT risky for long-term investors. Anyone who says otherwise either doesn’t know what they’re talking about or is trying to scare people.
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Bill,
You’re looking at averages. I think that, on a case by case basis, it depends very much what stocks a person invests in. The average person is not that literate with the stock market to necessarily know which stocks to select. I would say that this factor is a big part of the risk in trusting everyone to invest for their own retirement.
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So, this goes to the heart of my argument…
The Brad-Neva perspective essentially says that people are too dumb, too uneducated, too incompetent, not knowledgable enough, or whatever (I’m not trying to be mean) to be able to manage their own money / plan for their own retirement. So, we’ll (Social Security) take it from them, and keep it safe FOR them. The government will PROVIDE.
The Bill-Jeff approach is to educate people (we haven’t talked about this, but it would be a requirement in my mind) and make them responsible for themselves. I believe people (rich, poor, black, white, male, female, whatever) have the capacity and the responsibility to make it without the government. My grandparents did. My parents did. I am. My friends are.
To look at a person and say, “I don’t think you can do it. I’ll do it for you.” is a TERRIBLE thing to do to someone. It saps their initiative and makes them less of a person. It keeps them down; it doesn’t help them up. This is my entire point.
I also think that this is one of the most basic differences between conservative and liberal philosophy.
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Neva, that’s a real cop out. You don’t need to be a financial genius to get the average return out of the stock market. In fact, you don’t really need to know anything. All you have to do is buy an index fund. Sure, you could try your hand at picking mutual funds or even individual stocks. But when you’re investing for retirement, it’s a lot safer, cheaper and simpler to just stick with an index fund.
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Bill… To Neva’s point, it’s not obvious to everyone how to successfully navigate the stock market. For instance, it’s not as commonly understood as you make it sound that people should be buying index funds or mutual funds instead of individual stocks.
However, I don’t find this to be reason to assume people CAN’T do it and do it FOR them. I’d much rather help them make informed decisions and then give them the responsibility for their own lives.
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Jeff, I do not believe that people are dumb and incompetend. Of course, I don’t. I want to dedicate my life to teaching, so obviously I believe that people have the capacity to learn. I do believe that many people are uneducated on financial issues, and that is something I think is rarely addressed.
This is the first time I have heard anyone discussing privitization of social security investment suggest a serious education component accompanying it. And the inclusion of financial education in the program would change how I feel about it somewhat. The concern I was raising is that too many of the people proposing these programs are very well educated in financial matters and tend to assume that the average person has more basic knowledge than may be the case. I would be more likely to consider privitization of social security funds if I were convinced that it would be accompanied by ongoing financial education that is effective, equally available to all sections of the public, and properly administered and followed-through on.
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Jeff, you are correct. I do believe that their are people who cannot or will not provide for their own future. I believe it is right for the government to ensure that everyone can have a minimum standard of living. This does not even include the disabled who are assisted by s.s.
RE: “To look at a person and say, “I don’t think you can do it. I’ll do it for you.” is a TERRIBLE thing to do to someone.”
Why is that terrible if they really cannot do it by themselves?
Another point that was mentioned before is that the poor cannot provide for their future needs because they cannot even provide for their present needs. And even the middle class may not be able to get as much benefit from investing as they could from s.s., especially if they happen to live for a long time.
One large medical expense and a person can lose everything they have. I do know people in this situation. A steady s.s.check every month is the only guarantee they have to sustain them, along with *gulp* charity (medicaid, church, family, etc.)
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On further reflection, this would be why I usually stay out of economics discussions around here. I happen to be woefully ignorant when it comes to a lot of financial matters, and when I try to add a comment from that perspective (to point out that many people, even otherwise intelligent and educated people) are not well informed about or confident with financial decisions on that scale, I get words put into my mouth and told I don’t know what I’m talking about. So in the future I think I’ll go back to my policy of avoiding financial discussions and stick to social and philosophical topics, even if those rarely get as many responses.
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Improving Social Security doesn’t necessarily mean enabling people to make poor decisions with their retirement money. It could be as simple as taking 5% of your income and putting it in an S&P 500 index fund. You would legally own the money (just like an IRA or 401k), but the government would put strict controls as to when and how you can access that money. Then, upon retirement, everyone has a large nest egg.
That’s not to say that there won’t be a need for a social safety net (aka welfare). Like Jesus said, “Ye have the poor with you always.” But we shouldn’t confuse welfare with retirement planning. That’s where we’ve gotten in to trouble. The current combination of the two (i.e. Social Security) costs a LOT of money and provides very little benefit.
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Bill,
I am a little confused. Are you advocating changing s.s. or ending it?
RE: “Social Security) costs a LOT of money and provides very little benefit.”
I assume you mean for you. Again the poor and disabled definitely benefit more than the wealthy. Which is why most people augment this with a personal retirement account. Unless you really enjoy soup and efficiency apartments.
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I guess it depends on how you define “change” and “end”. If I had my way, I would most certainly end the current system. But I would replace it with mandatory personal savings and a true, comprehensive welfare system (which would also supercede the EITC and other welfare programs). Although, truth be told, the Libertarian in me finds mandatory personal savings offensive.
And you’re wrong about Social Security providing benefits for the poor and disabled. Back before FICA was a whopping 15.3%, Social Security might have provided benefits for the needy. But now, it’s just a massive drain on people’s pocketbooks. Consider the following example.
A guy works his whole life (18-67) at minimum wage ($10712/year). His annual FICA is $1,638.94. He spends $293.30 of that on private disability insurance, which provides 100% income replacement. The remaining $1,345.63 he puts in an S&P 500 index fund. Assuming a real return of 8.44% (the historic average), he retires with a million dollar nest egg. Even if you assume the pathetic return 4.46% return I cited above, he still retires with a quarter million.
But instead, he pays his FICA to the government, which provides him with pathetic disability insurance and a pathetic “benefit” upon retirement. No, Social Security does no one any favors. What’s worse is that Social Security has become so enshrined in our society that we can’t really discuss it rationally. At this point, the Social Security administration could be burning our FICA dollars in effigy and the faithful would still bow down to worship the Golden Calf.
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I do see your point, but their are some differences. I don’t know how that private disability insurance would compare to S.S. disability, so I cannot compare those. But with his 1/4 to 1 million dollar retirement he could live happy. But if he has a stroke, heart attack, brain anurism, etc. The hospital will take every penny he has. My limited understanding of law leads me to believe a more pension like system (S.S.) offers more guarantee on income. If this retirement money were better protected I could be persuaded to side with you. My only other problem with this is that if you live to be 100, and require some common prescription medications that $1 million would not be able to sustain you.
I like that the S.S. system rewards you for living longer by not limiting you benefits to a maximum.
I am also happy that we both agree that some mandatory system is needed to ensure a minimum lifestyle. This will definitey keep the percentage of elder poverty below the ~50% it was before the inception of S.S.
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> But if he has a stroke, heart attack, brain aneurysm, etc. The hospital will take every penny he has.
This is true of anyone, not just someone on Social Security. Some mechanism for affordable insurance needs to be in play, or (even better) a way to afford medical expenses without it (drive down the cost of medical care – a topic for another day).
> If this retirement money were better protected I could be persuaded to side with you.
This is where we most fundamentally disagree. Why do you expect government to provide you with guarantees like this? These kinds of “guarantees” carry with them SO much in the way of unintended consequences that they’re untenable. Risk and reward go hand in hand. Guarantees are simply not realistic.
And my last point is that the whole attempt to create this kind of guarantee is totally impractical. This is where I become concerned about socialism, as a possible natural result from this kind of thinking. There just isn’t enough money in the world to make guarantees like the ones you want.
I admit that the SS program started out trying to just help people – to create a bit of extra security. Now, it’s evolved into this guarantee-like mechanism / replacement for my planning for my own retirement (in many’s eyes) that is costing us a HUGE (unsustainable) amount of money.
I read the other day in the Wall Street Journal that Medicaid (very germane to the previous conversation above) now covers 55 million people (that’s 1/6th of the US population) and is costing taxpayers $300 billion. This is a full 2.5% of the entire GDP of $11.75 trillion, and 14.3% of all federal taxes collected ($2 trillion). I found a less credible source that specified that 2005’s FICA collections were $717 billion, which is even greater than Medicaid. (I’d love for someone to give me a more official source there.)
So, these amounts are untenable, unsustainable, totally crazy. How long can we keep this up? Does this not seem like it’s attempting more than “to ensure a minimum lifestyle”? And do you really believe that a full 16-17% (1/6th) of the population needs our help “to ensure a minimum lifestyle”?
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You advocate no guarantees protecting retirement money, but do not state what would happen to those who lose everything. They are at the mercy of others? Starve, or die because they cannot afford medication?
The difference between a pension like payment and a lump sum, is that a pension type payment has protection as to the limits that could be garnished, leaving a person with a minimum amount of money to live.
This guarantee has worked great for the last ~70 years.
RE: “Why do you expect government to provide you with guarantees like this?”
As I have stated many times I feel it is in the best interest of our nation to provide a minimum standard of living for all citizens. Not only is it the right thing to do, it also has the side effect of lowering crime, improving health, protecting children, improving national morale, preventing the outbreak of disease, reducing the possiblity of civil war, etc.
RE: “These kinds of “guarantees” carry with them SO much in the way of unintended consequences that they’re untenable. Risk and reward go hand in hand. Guarantees are simply not realistic. ”
I am not sure what you are referring too. All we are talking about is a check that comes every month until you die. Occasionally the amount is increased to counter inflation.
Universal health care would completely eliminate the need for Medicaid. Most people on Medicaid are very old and have already had all of their possesions and wealth taken away for medical expenses. The path to get on Medicaid is typically to protect their children from large financial obligations due to their health. It is disgraceful that we push people down this path. If their are options other that Universal healthcare that would eliminate this I would be very interested, but I am not aware of any.
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There are two major problems with “guarantees”. First, and most importantly, they’re horrendously expensive. Second, they’re not guaranteed. And when you take both of those factors in to account, “guarantees” just aren’t worth it.
To demonstrate the expense, you don’t need to look any further than annuities. For the sake of demonstration, I’ll focus on immediate annuities, because they’re simpler. In an immediate annuity, an insurance company takes your deposit and pays you some amount every month until you die. Some annuities offer a death benefit (for which you pay, of course), but let’s ignore that.
For the simple annuity described above, you can expect to receive about 8% of your deposit every year. Really “good” annuities will give you closer to 9%. But even then, this is a total ripoff. Why? Because the insurance company is essentially taking your money and paying you the interest. In fact, they’re paying you less interest than you’d earn, on average, from the stock market.
OK, what about “guarantees” not being guaranteed? To continue with the annuity analogy, what happens to your annuity if the insurance company goes bankrupt? The bankruptcy court should do its best to get you your money. But the fact that the insurance company went bankrupt, in the first place, is a pretty good indicator that there isn’t going to be enough money to cover all of its annuities. Sucks for you.
It doesn’t take a genius to figure out how these 2 problems have manifested themselves in Social Security. FICA used to be 2%. Now it’s 15.3%. Most Americans pay more for FICA than all other taxes put together. It’s become a huge drain on our society and for what? To provide “guaranteed” income for seniors.
But that’s the real rub. The income isn’t guaranteed. It’s at the discretion of Congress. Congress already cut benefits, once, by raising the retirement age. Moreover, Congress can only pay out what’s coming in. The time will soon be upon us when Social Security payments can only be sustained by increasing taxes or cutting benefits. Since younger workers are already looking at a negative rate of return from Social Security, they’re not going to look kindly on raising FICA.
Health care is a different beast, entirely. One thing I firmly believe is that Medicare/Medicaid is one of the two biggest causes of the exploding cost of health care (the other being malpractice). Health care was under control in this country before the government stepped in and started tinkering with it. But that isn’t a senior-specific problem. Furthermore, ensuring that seniors have a healthy nest egg (i.e. mandatory personal savings) will go a long way toward making sure they have health care.
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RE: Health care was under control in this country before the government stepped in and started tinkering with it.
For whom? For those wealthy enough to afford health care it was great. Those disenfranchised did not recieve medical care. I agree with you on the problem of health care costs, but don’t agree on the cause.
In your annuity example you are talking about an individuals money coming back to them. I don’t think this is the same as S.S. where our money is going directly to other (old) people. As for cutting benefits and increasing retirement age, this is the only way S.S. can stay solvent, but I don’t see a problem with that. Let’s face it, once the baby boomers die out, with current trends, we should be ok. The problem we have now is a huge senior class that were able to retire relatively young compared to their average lifespan. This is costing us, but when we retire the retired population will be smaller compared to the non-retired population.
Most every successful culture in history has shown care and compassion for their elders, I support the same for us.
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Here’s a simple thought experiment for you to perform regarding health care. Divide the population in to 4 groups: Medicaid, uninsured, insured and Medicare. Before the government came along and started tinkering with health care, every one of these 4 groups paid fair market value for their health care. Then the government stepped in and started paying for those in the Medicare and Medicaid categories. But instead of paying fair market value, they LEGISLATED that they would pay less. To cover their loss, health care providers had to raise rates on the uninsured and insured groups. The insurance companies would not stand for this so, with their collective bargaining power, they negotiated lower rates. Thus health care providers were forced to raise rates on the uninsured. This is why the uninsured pay more than everyone else for EXACTLY THE SAME CARE. It’s perverse and unfair and really should be criminal. But since it’s the government doing it, I guess it’s legal.
Your assertion that the ratio of workers to retirees will come back up is also not supported by the facts. The CBO actually predicts this to continue falling to 2.4 in 2050 (when even the youngest baby boomers will be 89). With that ratio and a retirement age of 67, Social Security will only be able to offer a 2.2% real return on FICA dollars. Even money market funds offer a better return than that.
Finally, I wholeheartedly agree with you that we should show care and compassion to our elders. Except I would take it one step further and say that we should show care and compassion to everyone in need. Why discriminate based on age? Besides which, the best way we can take care of future retirees is to enable current workers to provide for their own retirements. And the regressive, oppressive, 15.3% FICA tax is a big step in the wrong direction.
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I love the SS and economics discussions, but we should save the medical discussion for another post. I’ll re-summarize comments so far in a new post, and would love everyone’s reactions.
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To Jeff and brad:
You are mistaken about the S.S. It started in 1935 Roosevelt presented it to Congress he was in his second term.
The great depression was the reason he thought of the poor.
thank goodness he did.
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