Where Are the Trust Funds?

Finally, the media has come clean and told the truth about the Social Security and Medicare trust funds. On the day when the Trustees of both programs issued their annual report on the deteriorating financial health of each system, here is the key paragraph from the AP story:

“The trust funds – which exist in paper form in a filing cabinet in Parkersburg, W.Va. – are bonds that are backed by the government’s ‘full faith and credit’ but not by any actual assets. That money has been spent over the years to fund other parts of government. To redeem the trust fund bonds, the government would have to borrow in public debt markets or raise taxes.”

The photo is of the actual filing cabinet holding all those unbacked government bonds. It looks like each drawer has its own combination lock. Comforting, isn’t it?


Steve Buckstein is founder and senior policy analyst at Cascade Policy Institute, Oregon’s free market public policy research center.

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  • Kathryn

    Found: Al Gore’s Lock Box!

  • anonymous

    The full faith and credit of the federal government is a bankable asset. If it weren’t the government would never be able to sell any t-bills, nor could it issue paper money.

    We could have stashed all those trust funds with private sector investment guru Bernie Madoff, and would have gotten great returns for a while. Fortunately we didn’t do that, and SSI checks will continue to arrive every month.

    • Steve Buckstein

      Since you mention Bernie Madoff, you might want to consider how Social Security can actually be viewed as a much bigger Ponzi scheme than his, although it can go on much longer because, unlike Madoff, the federal government can print money. I wrote about it here:

      Biggest Ponzi Scheme Ever?
      https://www.oregoncatalyst.com/index.php/archives/1929-Biggest-Ponzi-Scheme-Ever.html

      • anonymous

        The printing money part is the reason SSI is not a Ponzi scheme. If Ponzi (or Madoff) could have done that their heirs would still be in business.

    • Rupert in Springfield

      Obviously someone has not heard of the Weimar republic.

      SS was created as pay as you go, in other words benefits paid to retirees extracting money was to be be paid by those who were entering the system, workers. That, by definition, is a Ponzi scheme.

      Might be hard to face, but SS from inception was a Ponzi scheme by any definition of the term and continues to remain so today. The only thing that made it sustainable originally was that it was a Ponzi scheme combined with a simple rip off, set retirement age above life expectancy. Now that retirement age is before life expectancy it is not such a blatant rip off, but it does remain a Ponzi scheme, and that is why we are in the trouble we are today.

      Oh, and by the way, if anyone is interested in news headlines of tomorrow, I just checked my crystal ball. BO Co. will bring up SS and be called brave and innovative for doing so. Bush 2 on the other hand, who was the first to try and tackle this in any serious manner since Regan, was called an idiot.

      Looking in my crystal ball again, I can predict that most liberals will not give any due whatsoever to Bush 2. We can predict the usual dodge now that liberal instance over the past few years that SS and Medicare are not in any near term trouble has been put to rest as baseless.

      Gee – The comptroller general under Bush was touring the country for a year talking about this problem. Wonder why no one listened. Oh that’s right, he was comptroller general under Bush 2 – The idiot.

      • anonymous

        I’ve heard of it. Also Zimbabwe and Argentina. Hyperinflation is an unlikely outcome of SSI funding. And SSI is not a Ponzi scheme. Unless you consider the entire US economy a Ponzi scheme, which in a way it is since it require continuous new inputs to maintain sustainable growth.

        • Rupert in Springfield

          >Hyperinflation is an unlikely outcome of SSI funding.

          You aren’t serious are you? Look, SS and Medicare had us in debt big time. With the mountain of debt BO Co have just heaped on us I am not sure I have heard a single economist say there will not very likely be large inflationary pressure to get us out of that debt.

          If you think for five seconds there is any way we are going to pay off Obama’s debt without inflating the currency, you’re crazy. Of course with Medicare and SS we can’t really do that, since they are indexed for inflation. However we will have to inflate our way out of the total debt load, especially with BO Co’s folly. There simply will be no way to pay anything without inflating our way out of as much debt as possible.

          >And SSI is not a Ponzi scheme.

          Well, that’s a statement, not an argument. SS is a Ponzi scheme for reasons I laid out above.

          >Unless you consider the entire US economy a Ponzi scheme, which in a way it is since it require continuous new inputs to maintain sustainable growth.

          Ok, you clearly don’t understand what a Ponzi scheme is.

          A Ponzi scheme is something that collapses and cannot pay current benefits without roping in people at the bottom of the pyramid to pay them.

          The US economy is nothing like that as to maintain itself it does not require roping in new people. The US economy, or any economy for that matter, could percolate a long with slow growth, flat growth or possibly slight growth with absolutely no new people.

          If you erect trade barriers, that cuts off new people from the economy. The economy would stagnate, but it would not cease to exists. You erect the same barries to SS, require all new workers to invest privatly and not contribute to SS, and it in fact would cease to exists. Thats a Ponzi scheme.

          I don’t really understand the reticence to admit that SS is a Ponzi scheme. Frankly although its condition now is unsustainable, at least its better than what it was when Roosevelt instituted it – a straight up rip off of people by setting retirement age beyond life expectancy. Now its a straight up rip off for those under something like 55, they will see negative or zero growth of the funds they had put in. For those currently retired it was a windfall. They tend to get back what they paid in in just a few years.

          Why not call something what it is? A rip off?

          • still anonymous

            Yes, I’m serious. SSI has run a surplus since 1983. Workers from that time forward (and their employers) have chipped in enough to pay for the current generation of retirees with money left over to pay for our own retirement. But in the meantime, Republicans cut income taxes again and again, did not cut spending, and in effect shifted a big portion of federal spending onto SSI.

            SSI is not bankrupt and never will be. Medicare, again partly thanks to Republicans who created a new benefit with no means to pay for it, is in trouble, no question about that. Unless we reduce the rate of growth of spending on health care we will bankrupt ourselves and the government keeping geezers in new hips and/or hooked up to tubes beyond the point of no return.

            “SSI Is a Ponzi scheme” is a statement with no facts behind it whatsoever. You keep saying it, but that does not make it true. SSI is not an investment fund. Its books are open to public scrutiny. Its income and outgo can be adjusted if and when needed. Ponzi schemes are investments with closed books and no way to make adjustments in income or outgo.

            Yes, I understand that the US economy is not Ponzi scheme. That was my point. SSI is fine as long as the US economy is fine.

            So the “reticence to admit that SS is a Ponzi scheme” is because it isn’t.

          • Rupert in Springfield

            >have chipped in enough to pay for the current generation of retirees with money left over to pay for our own retirement.

            Hogwash – SS is set to go bankrupt in a dozen years. Ill be retiring then. My retirement age has been upped and upped over the years. Where did you hear this baloney that SS could pay funds for everyone?

            Do you even understand why SS is a concern? Its going bankrupt. real soon. It has been for quite a few years. Bush 2 tried to do something about it. The comptroller of the US went on a nationwide tour during the last year of Bush 2s presidency to warn us about it. All we could hear from Harry Reid was SS was fine.

            Yet you are under the notion that somehow everything is peachy.

            Seriously, you need to look up the actuarial tables for SS as well as the definition of a Ponzi scheme. Somewhere along the line you have been seriously lied to.

            >But in the meantime, Republicans cut income taxes again and again, did not cut spending

            Ahh, ok, so this is a case of simply being uninformed. Tax cuts have something to do with deficits?

            Where in the world did you ever get that idea?

            You are linking cutting of taxes to lowering of revenue, a condition that is demonstrably false with any quick visit to the Treasury Department website. How in the world does cutting taxes, which in recent decades has not been followed by falling revenues ( something which you seem unaware of ) but rather rising ones at all relevant here?

            Are you saying the increased revenues from cutting taxes lead to a deficit in SS?

            Or what in the world are you saying?

            >did not cut spending, and in effect shifted a big portion of federal spending onto SSI.

            Say what? Last time I checked Democrats controlled congress for most of the time I have been alive. Last time I checked Reagan signed TEFRA in 1986 in which he agreed to higher taxes and the Democratic congress agreed to cut spending. Well, we got the taxes and Reagan went to his grave joking “hey, did I ever get my spending cuts?”

            Oh wait a second, we did have a supposedly balanced budget for a few years, but that was under a Republican congress, with a Democrat president who wanted to deficit spend. My mistake.

            BTW Republicans are hardly the ones responsible for putting IOU’s in the SS trust fund. SS has always been part of general revenue.

            >”SSI Is a Ponzi scheme” is a statement with no facts behind it whatsoever.

            Well that’s demonstrably untrue as I laid out my reasons for why I felt SS was a Ponzi scheme. For the third time, SS uses current incoming money from new recruits to pay benefits to those at the top of the pyramid, that by definition is a Ponzi scheme. Sorry, you just simply don’t know what a Ponzi scheme is.

            >You keep saying it, but that does not make it true.

            Obviously. however I do not “just keep saying it” I list what a Ponzi scheme is, as well as how SS conforms to that definition

            You on the other hand have not listed in any manner how SS does not conform to the classic definition of a Ponzi scheme other than to say it has run a surplus.

            Running a surplus is not in any way contrary to something being a Ponzi scheme so why you think that contradicts my argument is beyond me. All that does, as well as your comparison of Ponzi schemes to the US economy is confirm to me that you have no idea what a Ponzi scheme in fact is and are too lazy to look it up.

            >Its income and outgo can be adjusted if and when needed.

            OK – You clearly have no understanding of SS at this point. Are you seriously saying the income and outgo of SS can be adjusted as needed? How pray tell? We already saw what happened when Bush 2 tried to do something about the outgo, so please, illuminate us.

            In addition, please, tell us why ability to adjust the income and outgo makes something not a Ponzi scheme?

            Seriously, you need to look up what a Ponzi scheme is to continue this.

            >Yes, I understand that the US economy is not Ponzi scheme.

            Then that makes your previous sentence ( “And SSI is not a Ponzi scheme. Unless you consider the entire US economy a Ponzi scheme” ) non-sensical.

            >That was my point. SSI is fine as long as the US economy is fine.

            Oh my God, this is ridiculous.

            Seriously, please, I beg of you, look up what a Ponzi scheme is. This statement is like saying Bernie Madeoff had a perfectly sound investment plan so long as the economy was fine.

            >So the “reticence to admit that SS is a Ponzi scheme” is because it isn’t.

            I’m really beginning to think that reticence to admit its a Ponzi scheme is because you don’t know what the hell a Ponzi scheme is.

            SS is, by any definition of the term, a Ponzi scheme. I have laid out my reasons why repeatedly. Unless you have some sort of reasoning why a system that relies on roping in increasing members at the bottom of the pyramid, to pay off the growing numbers at the top of the pyramid, which SS does, then you have nothing because that is how SS operates and that is the exact definition of a Ponzi scheme.

          • still anonymous

            SSI is not a Ponzi scheme because of one very simple reason. Its not an investment program. Look it up. Every definition of Ponzi sceme starts with it being an investment. Beyond that, SSI is not “fraudulent. Its books are open to public inspection. Ponzis were not. Nor were Madoffs.

            How can income and outgo be adjusted? It already has on multiple occasions. THe SSI tax can be raised, and has been many times, and the amount payed out can be lowered, the retirement age increased, etc…

            My comparison of SSI with the national economy was meant to show that you can only conclude that SSI = Ponzi if the US economy = Ponzi, because both depend on exactly the same thing: new workers at increasingly higher productivity paying more into a growing pot. Think about it.

            I’m amazed you are unaware of this.

          • Steve Buckstein

            Anon, thanks for admitting that Social Security is not an investment fund. But that’s a thin thread to hang your “it’s not a Ponzi scheme” hat on.

            I assume that the only reason the definition of a Ponzi scheme includes the fact that it is an investment scheme is because no one would believe that people would fall for such a scheme if the promoters were honest and said that it was simply a pay as you go pyramid scheme with no investment component at all. Whoever wrote the definition probably couldn’t envision that hundreds of millions of us would be forced to pay into a “non-investment” scheme called Social Security.

  • Jerry

    Politicos from both parties are bad and mostly incompetent people.

  • John in Oregon

    Rupert you have done an excellent job explaining a Ponzi scheme. I fully understand your frustration when you say to anonymous Dean > *I’m really beginning to think that reticence to admit its a Ponzi scheme is because you don’t know what the hell a Ponzi scheme is.*

    I have a slightly different prospective and would be interested in your prospective.

    In its simplest form a Ponzi scheme requires two elements. First past obligations are paid by future revenues.

    Second, surplus initial revenues are diverted to another purpose. If Bernie Madoff had actually invested the revenues it would not have been a Ponzi scheme. The irony is that had the money been invested in the choices as he had claimed the venture would have been profitable.

    It is this second point that is the problem for anonymous Dean, as opposed to Anonymous who is a different person.

    The Social Security surplus was placed into T bills, that is was used to buy Government spending debt. And since SSI is off budget Congress was free to spend every dime. Which they did.

    It is this point that is the conflict for anonymous Dean. His thinking is based on how he feels and not on principals or fact. Since the diversion of the SSI surplus conflicts with his feelings, and with no foundation of principals he has a problem. To protect his feelings he must deny the fact. Cognitive dissonance.

    That’s why he goes off with “The full faith and credit” or “sell T bills” or “issue paper money”. Its why people acting in free markets can’t possibly create wealth. Facts hurt feelings.

    *There is one additional Ponzi scheme fact that is missed.*

    The key factor which marks the collapse of a Ponzi scheme is when future revenues fall below pay-out for past obligations. Things like printing money and bond manipulation are just part of the collapse.

    Trustees for Social Security and Medicare announced they will be in the red in less than a year. Future revenues will no longer cover pay-out for past obligations.

    The only way for Congress to avoid going in the red next year is to raise future income or reduce past obligations.

    The two options for increasing revenue are to raise SSI taxes or confiscate private 401K / IRA savings. Elderly savings does represent a significant demographic concentration of wealth in the United States.

    In press conferences and speeches Obama has said his preferred method of reducing past obligations is to use health care. Based on Canada, New Zealand, the United Kingdom, and all other nationalized health systems here is how it works.

    All use some form of “cost effectiveness” calculation. In this system Patients and Doctors have no Right To Decide What Treatment the patient will receive. The determinant factors is the cost of a medical procedure or medicine divided by the number of quality-adjusted life years.

    In the UK the numbers work out like this. If a treatment for an elderly nonproductive patient will extend life by at least 4 years and costs $40,000 the treatment exceeds the guidelines and is denied.

    Two items in the news recently are illustrative.

    Because of her age the last remaining survivor of the sinking of the Titanic, 97-year-old Millvina Dean is ineligible to receive nursing care. This story made the UK news because Movie stars Kate Winslet and Leonardo DiCaprio have helped pay towards the nursing care of the last Titanic survivor.

    The second is Janet Tunstill, 58 from Rotherham UK. Janet was forced to sit in her wheelchair for 10 hours waiting for transport to take her home after dialysis treatment. Due to her age Janet will soon be ineligible to receive dialysis treatment.

    In a recent interview with the New York Times magazine President Obama used his grandmother as an example of the need to restrict elderly treatment options.

    I know this progressive proposal is shocking in the United States. However “cost effectiveness” health care will reduce both health care and SSI outlays.

    The message to the elderly is clear. Some treatments must be cut off once you outlived your usefulness. In the words of the UK system *get on with it already.*

    • anonymous

      “In its simplest form a Ponzi scheme requires two elements. First past obligations are paid by future revenues.

      That is simple all right. Simple and wrong. Any debt whatsoever is an obligation to pay based on future revenues. Your mortgage, your credit cards, your auto loan, etc. If every debt obligation is a Ponzi scheme, then OK, I’ll go along with SSI being a Ponzi scheme. But that of course makes the whole discussion moot.

      “That’s why he goes off with “The full faith and credit” or “sell T bills” or “issue paper money”. Its why people acting in free markets can’t possibly create wealth. Facts hurt feelings.”

      It has nothing to do with feelings. It has to do with fact. The government has real options for continuing the program that Madoff did not. It has actually used those options int he past and will do so again.

      From Steve B:
      “I assume that the only reason the definition of a Ponzi scheme includes the fact that it is an investment scheme is because no one would believe that people would fall for such a scheme if the promoters were honest and said that it was simply a pay as you go pyramid scheme with no investment component at all.”

      A Ponzi scheme is a fraudulent INVESTMENT. The basis of the fraud is that it requires more and more payers to advance money to those at the top, and eventually the bottom drops out.

      SSI is not fraudulent, its does not pretend to be an investment, and the bottom will never drop out as long as people make babies that grow up and get jobs. If we stopped making babies and eveyone just got old and stopped working, then yes, the bottom would drop out. It ain’t gonna happen with SSI.

      What could happen is that young workers get tired of paying for old non workers, that they organize politically, and cut off the life line. But their mothers would be very upset with them, so that is not going to happen. We will continue with SSI because it works. It keeps most old people out of poverty. Meanwhile their private pensions and IRAs are subject to the whims of the market. Maybe that is the real Ponzi scheme.

      • Steve Buckstein

        Anon, you say a Ponzi scheme “…requires more and more payers to advance money to those at the top, and eventually the bottom drops out.” I guess going from 15 payers for every recipient in the 1950s down to 3 payers per recipient today, going down to 2 payers per recipient in the not-too-distant future doesn’t quite qualify as the bottom dropping out, but it’s pretty close.

        If you’d told people in the 1950s that by the turn of the century there would only be three workers to support each retiree on Social Security I think you would have heard cries of Ponzi scheme all over the place.

        • anonymous

          No Steve, it doesn’t qualify because today’s workers are way more productive than those of the 1930s. If you ever read Kurt Vonneget (sp?), it is theoretically possible for us to someday have a handful of workers operating very complex machinery that provides all our goods and services so the rest of us can hang out, write bad poetry, and pretty much do whatever we like. The non-Protestant work ethic if you will.

          Its not about how many payers. Its about how much they can collectively pay that matters. If anything, the fact that we have only 3 workers contributing where we once had 15 proves my point that SSI is NOT a Ponzi scheme. No Ponzi scheme could ever manage that feat. If you told me that 50 years from now it would only take 1 worker to pay for each retiree’s needs, I would say that is great progress. Let’s go for it.

          If I recall from my long ago economics text book, Karl Marx had a theory that all value derived from labor. He has been proved wrong, because through invention, investment, innovation, & productivity improvements, it takes ever less labor to make ever more goods and services. Why then, would it not take fewer laborers to support more non-laborers?

  • Steve Buckstein

    Anon, productivity isn’t the point here. Of course workers are more productive today, for a variety of reasons, than they were in the 1950s. But the percentage of workers’ income that must be taken to support Social Security recipients has risen tremendously since then also (from 3% in 1950 to 12.4% today). If productivity were the answer, you’d think the tax rate would go down, not up.

    Sure, one worker could support one SS recipient – if the SS tax rate triples from what it is today. Do we really want to pay over 37% of our income to support SS, or would a funded “investment” program be more acceptable?

    • anonymous

      A well funded investment program is perfectly acceptable to me, but of course investments are subject to catastrophic losses as we have experienced over the last months and years. Most people are not good investment managers. Even most investment managers are not very good at it. So we would still need social insurance for when investments crash unless we accept geezers out in the street.

      Discussing alternatives to SSI is fine. But characterizing it as a Ponzi scheme, which it is not, does nothing to advance a constructive discussion.

      The SSI tax rate has adjusted upwards mostly because we have added more bells and whistles, and because we have a big bubble of retirees shortly ahead of us. As that pig passes through the python, its quite possible rates could go back down. SSI takes around 5% of GDP, and even with the baby boomer retirements it is not projected to exceed 6%. We can manage that, and really what else can we do at this point? We can’t start an investment program that will build enough capital for anyone presently over 40.

      • anonymous

        One last thought. Much of the productivity gain of the past 30 years has gone to create wealth at the top, not the middle and bottom. Yet we restrict SSI collections to the middle and lower income earners. An equitable way to continue funding SSI is simply to raise or eliminate the cap.

  • John in Oregon

    anonymous Dean> *That is simple all right. Simple and wrong. Any debt whatsoever is an obligation to pay based on future revenues.*

    False. It’s spelled out in law. The prosecution must show the two elements. The payment from new participant revenue and the diversion of funds. Not payment from return on investment, or payment from profit from sales. That is fixed and not open to interpretation.

    anonymous Dean you state that > *Its not about how many payers,,, If anything, the fact that we have only 3 workers contributing where we once had 15 proves my point that SSI is NOT a Ponzi scheme. No Ponzi scheme could ever manage that feat.*

    There is a hidden false premise here. It is true that a Ponzi scheme begins to fail when new participant revenue declines. Its also true that the number of workers has fallen. This has noting to do with productivity and every thing to do with the actual number of workers. Not even Congress can pass a law creating a walking, talking, live human being.

    The SSI benefits to worker ratio has fallen from 15 to 3 and not yet collapsed as Congress has one advantage that Bernie Madoff does not. Congress has used the power of the State to force workers to increase participant revenue by raising the tax.

    However you missed the one irrefutable argument that SSI is not a Ponzi Scheme. Even though SSI waddles like a Ponzi scheme, and SSI quacks like a Ponzi scheme, Congress passed by law that SSI is a cuddly kitten. The ultimate in the Fox writes the rules of the hen house.

    > *What could happen is that young workers get tired of paying for old non workers, that they organize politically, and cut off the life line.*

    I notice that you skipped over the information I posted previously. Probably because its hard to accept. The Congress and the Administration is doing just that. Cutting off the unproductive, as you call them non workers or as I call them retired People. The precise goal of nationalized health care is to age test access to medical treatment. Exactly as is done in all nationalized systems.

    > *But their mothers would be very upset with them*

    Of course mothers would be upset. The very idea of withholding medical care based on age is outrageous to Americans. But never fear, the legacy media has the progressive politicians back. Newspeak rules. Age related access will be called effectiveness. Rationing called equal access.

    Of course no details about nationalized health care can be discussed. That would alarm Americans and upset the apple cart. Gallop has asked a long term question that reflects Americans attitude about life. In 1995 Gallop found 56% pro abortion, 33% pro life. That has slowly changed over the years. In 2009 the results were 42% pro abortion, 51% pro life. Overall Americans do have a reverence for life.

    ==================

    Comments here have presented two opposing views.

    One view is that Government is the preferred provider of retirement and health care. That SSI and Medicare are not Ponzi scheme and Government has full recourses including the ability to print money.

    Private investment program are marginally acceptable. But people won’t fund them, the market might crash and people are not good investment managers. Government is required to correct these failings, Government must guide decisions

    The alternate view, the one I share, Government has only the power granted to it by the People. That Government is the least efficient provider. Government stifles creativity and productivity.

    This view holds that people are responsible for their own well being. That there is no better steward of retirement savings than the people themselves. That Government when contained and controlled is, like fire, a great servant. Fire controlled heats our homes and cooks our food. Both Government and fire when unleashed becomes a terrible master, consuming the people.

    Both views of how the world works can’t be right. So I ask anonymous Dean, or anyone else who wishes to answer, *How do you know that the world works the way you think it works?*

    • anonymous

      No one can KNOW that the world works the way one THINKS it works. Anyone who claims otherwise is a fool or a liar. I’m SURE of that. Or maybe not.

      Beyond that John, you leave out all the gray zones in your conclusions. There is a lot of gray area between 100% private sector and 100% public. For example, government is the preffered provider of social insurance (SSI,) but that doesn’t mean people cannot or should not also make their retirement preparations by saving and investing, or by choosing employment with a company or agency that has a defined benefit pension.

      Same is true for medical care. Government provides a base system that covers everyone over 65, many poor people, many kids, and veterans. They also provide cutting edge research and large event preparation through the CDC. That does not mean people should not suppliment this with private insurance, as is the case in France.

      An entirely private structure would leave a lot of people without retirement funds or medical care. And entirely public system would cost more than most of us would care to pay in taxes. A mixed system can be both affordable and effective.

      So I would amend your characterization of opposing views as follows:

      One view is that Government is the preferred provider of *social insurance as a partial provision* of retirement and health care. SSI and Medicare are not Ponzi schemes and Government has *multiple measures available* to maintain these programs, including the ability to print money, *raise retirement age, reduce benefits, and raise the contribution income cap*

      *Government provision of these social insurance programs does not mean individuals and families cannot or should not be free to make additional provisions for their health insurance, health care, or retirement income*

  • John in Oregon

    > *No one can KNOW that the world works the way one THINKS it works. Anyone who claims otherwise is a fool or a liar. I’m SURE of that. Or maybe not.*

    I can’t say I am surprised at your answer. I will say I find that answer very alarming. In short, one can’t know so why try.

    In the context of this issue, SSI, you look around and I see that some people aren’t prepared for retirement. You assume that when the government runs the retirement system they would receive retirement benefits.

    I look at the same assumption and I say that your assumption is a principle that has been proven not to work. It has been proven not once — but many times.

    Since you can not know how the world works, you can not test your assumption. Any evidence which conflicts with your world view must be rejected, your view can not be tested. You may only have faith that your view of how the world works is correct. This is the Progressives view of how the world works.

    *I disagree.*

    I am persuaded by Dr. Robert Nozick, Friedrich von Hayek, Dr. Milton Friedman, Dr. Julian Simon and others. They looked at evidence of how the world works.

    I start from little things. Everyday happenings and events. From the immediate things in front of me I make abstractions to a principle about how the world works. Then when I have enough experience in the principle I start working backwards. I check to see if the principle matches up with real things and then I redo the principle if it doesn’t fit.

    I am quite willing to consider the research of Nozick, von Hayek,. Friedman, and Simon. I am ready to build upon the wisdom of Sun Tzu, Cicero, Archimedes, Socrates, Aristotle, Plato, Locke and deTocville. I respect the work of the founders of the United States and do my bend their views to serve my own purpose.

    Unwillingness to examine ones view of how the world works is not limited to Political Progressives. As Larrey Anderson relates Dr. Robert Nozick said. “I had a student once tell me, ‘All of the truth is in the Bible.’ That cannot possibly be true. There may be a lot of moral truths in the Bible, but not all truth is in the Bible. All truth is not within our grasp as human beings. Not yet — maybe not ever. The moment a person refuses to examine his or her beliefs is the moment that person becomes an ideologue.”

    Often when I quote the work of von Hayek, Friedman, or Simon the progressive responds *”von Hayek, Friedman, and Simon are full of S**T.”* When I see that kind of an ad hominem attack I know my argument has terrified the progressive. That he had no answer. That he can not allow his faith to be questioned.

    Whether the medieval church or the modern political progressive the result of the attitude of ideology is the same.

    *So I ask again. In support of your position on SSI, how do you know the world works the way you think it works?*

    In support of my position on SSI and how the world works I present the following.

    The average guy earning $40,000 ($3,333 per month) over 49 years is taxed $294,000 for SSI and retires with $1,094 per month. With an average 15 years of retired life he will withdrew $196,920 leaving $97,080. That $97,080 is subjected to a 100% death tax and at death his estate is bankrupt.

    If that person put that same money in CDs at market rate over 49 years that money would produce $1,736,015 in an account that he owns. If he withdraws only the interest that gives him $5,900 a month retirement and $1,736,015 at death. This is his estate’s money but the Government takes 50% death tax [Obama 08] leaving his estate $868,007 to be used as he wished.

    He can retire at $3,333 per month and also spend $2,560 per month for health care. If the present low interest rate continues for several years he may eventually be required to draw down some principal. Just the same he will be far ahead of SSI.

    • anonymous

      You read things into what I write that are not remotely there. First, the government does not “run the retirement system.” It runs a part of retirement called SSI. You and I and everyone else are still free to save, invest, get a job with a defined pension, and so forth. We are also free to watch our private investments and pensions go down the drain along with Bernie Madoff.

      Through it all, the SSI checks are the only thing people can rely on. SSI works, has worked for over 70 years, and will continue to work indefinitely as long as we the people decide to keep it working. The same can’t be said for any private investment or pension.

      “So I ask again. In support of your position on SSI, how do you know the world works the way you think it works?”

      I stated clearly (I thought) that I do not KNOW how the world works.
      One develops a hypothesis about how the world works, and can test that through observation, experience, and study as you describe. If one KNOWS how the world works, there is no need for a hypothesis or any testing is there?

      Your neat and tidy analysis relies on a straight line projection of what one earns to what one will ultimately receive and end up with. And you make a silly error in stating that if one is left with $97K that is subject to a “death tax.” Very few Americans leave enough of an estate to be subject to inheritance taxes., certainly no one who earns a mere $40K a year over 49 years.

      THe reason straight line projections are problematic is that Congress can, has, and will again change or adjust the terms of SSI as needed to keep the system solvent. Ther has never been a 49 year period over which this has not happened. (And anyway, who the heck would ever earn the same exact amount every month for 49 years?)

      As for your CD comparison, the problem with it is that this is not the alternative most people would choose. We can see from experience that many if not most people are not savvy investors, and those who ARE savvy investors don’t put all their eggs in a low yeild basket like CDs, whcih in any case do not pay the same intrest rate over time. The interest rate goes up or down. Any you fail to factor in inflation, which makes that $1.7 million orth a lot less in the future. AND you fail to factor in all teh stuff that happens to people over the years, like medical emergencies, loss of employment, and so forth that compell people to raid their savings, including retirement savings, to get by for a time.

      People assume investment risks, and sometimes those risks blow up, as just happened. Risks need to be hedged, and SSI is a giant hedge for society against the roulette table that is Wall Street. Those SSI checks still arrive in the mail, the geezers still spend them, and it stablilizes the entire economy.

      Your world of steadily accumulating wealth across the board to every worker, is a fantasy. It could only happen if the same government you don’t trust managed the accounts for everyone and backstopped the risk. At that point you may as well just keep SSI.

      You have to build stochasticity into your economic model. Without it you only mislead yourself.

  • John in Oregon

    > *First, the government does not “run the retirement system.” It runs a part of retirement called SSI.*

    The public / private thing is warn and fuzzy and all. We were however discussing how the world of retirement works. Lets look at what else you said:

    1] We are also free to watch our private investments and pensions go down the drain.
    2] SSI checks are the only thing people can rely on. The same can’t be said for any private investment.
    3] [T]he problem with it is that this is not the alternative most people would choose.
    4] [M]any if not most people are not savvy investors.
    5] [T]eh (sic) stuff that happens to people over the years.
    6] [S]ometimes those risks blow up.
    7] [A]ccumulating wealth across the board to every worker, is a fantasy.
    8] It could only happen if the same government you don’t trust managed the accounts for everyone.

    So to summarize the progressive view of people saving and investing for retirement. Money saved and invested goes down the drain and only SSI will be there. People are irresponsible and won’t save, and if they do save they are poor investors. But if they do make good investments, stuff happens and it all blows up. Besides, people creating wealth and accumulating assets is a fantasy and can only happen if the Government supervises the people.

    My view. The people are the best stewards of their earnings, intellectual property, investments, real property, and savings.

    Victor Massad some examples for other subjects.

    *Human Behavior*

    Progressive world. People do not behave rationally. They act on their emotional intuition and attitudes. These attitudes, especially attitudes about society can be influenced via mass communication. In order to have an orderly and productive society, a central authority is therefore necessary to control the behavior of people.

    My view. People are the best stewards of their lives. They behave in rational, predictable ways. They seek pleasure and avoid pain. When success is rewarded, the people will repeat the behavior in the future.Conversely, if the success of the people is punished, the behavior will not be repeated.

    In order to have an orderly and productive society, it is best to reward success and discourage failure.

    *Taxation*

    Progressive world. Big tax breaks for business encourage the public to believe their government is not fair. This lowers morale and causes people to drop out of society, increasing unemployment. Conversely, increasing taxes on business will increase employment.

    My view. Allowing business to keep its earnings encourages business to invest in long-term capital and employ more people.

    *Government Spending*

    Progressive world. Government is the host and business is a parasite. Government social services will improve people’s attitudes about their society and encourage people to become more productive for the common good.

    My view. The people and business are the host and government is a parasite. The government social spending or extending welfare benefits will reward people for doing nothing and discourage them from becoming productive citizens.

    *Individuals*

    Progressive world. Successful people are successful because they exploit other people. Successful people are wasteful in their spending habits and use up resources for excess personal consumption. It would be preferable to take resources from successful people and distribute them to greater numbers of people.

    My view. In most cases, the best thing that a person can do for himself, for his family, and for his society is to maximize his productivity and prosper. People who succeed are positive role models to others, and therefore encourage others to maximize their productivity and succeed themselves.

    *History and the World*

    Progressive world. The planet is on a perilous course. Capitalism and individual initiative are largely to blame, and unless we reverse course very soon we will destroy this planet’s habitability. The only hope for the planet is for us to organize as a global collective in order to allocate the planet’s resources fairly. People need to understand how critical this problem is because they will have to put aside their archaic loyalties to self, family and country in order to fix the planet and what is wrong with it.

    My view. I am lucky to be alive at a time when humans have reached their greatest potential in history. Given the long periods of dark ages, and the various tyrannies that have occurred in the past, the likelihood of my lifetime landing on this pinnacle of achievement not so great. So I am truly blessed.

    The things that man has accomplished, most of which were created by people in my country based on its notions of liberty, are truly astonishing. If we want this trend to continue then it is imperative that we preserve the foundations of liberty that enabled this progress.

    In 1979 a remarkable exchange took place between Progressive Phil Donahue and free market propionate Milton Friedman.

    *Phil Donahue* [Y]ou see around the globe the mal-distribution of wealth. [T]he desperate plight of millions of people in underdeveloped countries. [Y]ou see so few haves and so many have-nots, you see the greed and the concentration of power [and wealth]. Is capitalism and greed a good idea?

    *Milton Friedman* Well, first of all, tell me is there some society you know that doesn’t run on greed? You think Russia doesn’t run on greed? You think China doesn’t run on greed? What is greed? Of course none of us are greedy; its only the other fellow who’s greedy.

    The world runs on individuals pursuing their separate interests. The great achievements of civilization have not come from government bureaus. Einstein didn’t construct his theory under order from a bureaucrat. Henry Ford didn’t revolutionize the automobile industry that way.

    In the only cases in which the masses have escaped from the kind of grinding poverty you’re talking about, the only cases in recorded history are where they have had capitalism and largely free trade.

    If you want to know where the masses are worst off, it’s exactly in the kinds of societies that depart from that.

    So that the record of history is absolutely crystal clear: that there is no alternative way so far discovered of improving the lot of the ordinary people that can hold a candle to the productive activities that are unleashed by a free enterprise system.

    Milton Friedman was very clear about how he thought the world works. More than that he stated why he knows the world works as he believes it does.

    • contrarian

      “My view. The people are the best stewards of their earnings, intellectual property, investments, real property, and savings.”

      You are of course entitled to your view. Unfortunately there is no evidence whatsoever this iview is based on reality. Private investors, many of them very intelligent, well educated people, handed their money to Bernie Madoff. Others handed theirs to AIG, to City Bank, Lehman Brothers, and so forth. Countless numbers bought highly inflated real estate under baloon mortgages. Millions of others buy lottery tickets, vacation in Vegas, and play the lotto. Some buy Hummers to drive to the store to buy groceries.

      People are flawed critters John. You can make an ideological argument that people ought to be able to spend and invest as they want and suffer the consequences, but you can’t really make a case that people are inherently wise about it.

      • Steve Buckstein

        contrarian, if you’re right about people being “flawed critters”, then that truth carries into the halls of government where flawed critters designed and force us to pay into a flawed Social Security System. I would therefore much prefer to let them chose which flawed retirement plan, if any, they want to put their hard-earned money into.

        • contrarian

          Yes, us being flawed criters extends to those who govern. There is ample eveidence of that.

          Its fine to make an argument on principle that people should fend for themselves with their retirement planning, thus eliminate SSI, Medicare, etc. But if the consequence of that as a policy is to end up with 50% of people over 65 becoming destitute, then you and John need to own up to that and not pretend all or even most people will save and invest wisely and avoid destitution in old age, because the evidence is that this would not be the case. It would take the same flawed government forcing people to save and restricting their investments to safe harbors, and I doubt you would accept that.

          • Steve Buckstein

            I do believe that most people will “save and invest wisely” when they are not forced to fund a government program that is neither a savings account nor a wise investment by any stretch of the imagination. Of course some will not, just like some people make poor decisions on all kinds of things already. But to continue a pay-as-you-go unfunded Social Security and Medicare system is guaranteed to make future generations poorer, not better off.

            The political reality is that we are not going to “end” either of these systems in the foreseeable future, but we can turn them toward more sustainable, personally funded programs with property rights attached.

  • John in Oregon

    When I said “The people are the best stewards of their earnings, intellectual property, investments, real property, and savings.” Contrarian Dean smashed my observation saying > *Unfortunately there is no evidence whatsoever this iview (sic) is based on reality.* A few examples of mistakes are added to complete the devastation. People are flawed.

    Problem is what was smashed wasn’t what I said. Lets review what I said. I did not say people are flawless stewards. Nor did I say people are perfect stewards. What I said was “The people are the best stewards of their earnings, intellectual property, investments, real property, and savings.” In other words the people are better stewards than other stewards.

    For this contrarian Dean contends there is no evidence whatsoever. The Declaration of Independence and the Constitution of the United States are evidence of noting but out of date, irrelevant ideas of old white people. So yesterday. Unless of course the President needs a proper background for a policy speech.

    contrarian also overlooks the data I presented earlier showing the same money placed in FDIC insured Certificates of Deposit would produce six times the monthly retirement income and leave an estate at death. Across the board SSI is a far worse steward.

    However let me add other evidence that contrairian Dean says does not exist whatsoever. Myanmar/Burma, Nazi Germany, Talaban Afganastan, Darfor, Pol Pot Cambodia, Vichy France, Sadam Iraq, Rwanda, Zimbabwe, Mussolini Italy, Stalin Russia and Khomeini Iran.

    I am sure contratian would respond, but John you have mentioned the worst examples. Surely there must exist an example where Government has control of the peoples earnings, intellectual property, investments, real property, and savings and those people have prospered.

    I will say sure, many strange things are possible. Feel free to name that government.

    As contrarian points out Bernie Madoff was the darling of the Palm Springs and New York Progressive crowd, what conclusion ought we draw from that?

    Then the true prospective of contrarians belief comes into view. > *Some [people] buy Hummers to drive to the store to buy groceries.* Now we know contrarians definition of stewardship. When the government forces the people to think, behave, act, and live as contrarian determines is best.

    > *SSI and Medicare are not “unfunded,” and it does not advance your argument to claim this.*

    Generally facts speak best. According to the SSI trustees in less than 12 months SSI will begin to draw upon the “trust fund”. Congress has used the proceeds from the trust fund purchase of bonds for such vital investments as the bridge to no where and the airport for no passengers.

    Since the trust fund is not actual cash or assets congress will be forced to either tax, borrow, or print the money to cover the redemption of the trust fund. Once the “trust fund” is exhausted the more moderate accountants place the additional “unfunded” SSI liability at $12.8 TRILLION.

    > *Medicare funding is going to fll (SIC) short of the need soon unless the government is successful in restraining the cost of health care.*

    This is an accurate statement of the policy of the current White House and many in Congress, primarily Democrats.

    They see a need to immediately begin to ration health care services just as all nationalized systems currently do. For example the UK system prohibits the elderly and unproductive (retired) from receiving even short term kidney dialysis due to illness or injury.

    The British have a quaint way of putting it. “The elderly should just get on with it.” What the health care bureaucrats mean of course is the elderly should just get on with dying so they are no longer a burden. A sentiment echoed recently by the Oregon Health Plan. While informing patients that care would not be provided the Health Plan bureaucrats were quick to note the plan would pay for a cup of Hemlock.

    Congressional, White House and Federal Bureaucrat retirees are unconcerned with rationing. They will continue to receive their separate but equal gold plated unrestricted health care services. What is it I remember from a book I once read? Oh yes. Pigs are more equal than other animals.

    > *You can make an ideological argument that people ought to be able to spend and invest as they want and suffer the consequences.* … *[T]hen you [Steve Buckstein} and John need to own up to that and not pretend all or even most people will save and invest wisely and avoid destitution in old age, because the evidence is that this would not be the case.*

    I can’t ignore a point of supreme irony. To the concept of “The People as stewards” contrarian Dean attaches the penalty of suffering consequences while totally ignoring reaping any rewards. Apt demonstration of the progressivist thinking of some political discussion. Self reliance is deamonized and punished. Dependence extolled and rewarded.

    We get more of what we reward, less of that which we punish. Yet people save. People rely upon them selves and their families. Private savings so great that Democrat float trail balloons to federalize and confiscate peoples private 401 and IRA savings.

    It has taken 70 years promoting a flawed SSI system. Seventy years expanding and papering over the cracks. Running the system off books. Letting the short fall build and grow while pushing to imminent collapse.

    • contrarian

      Contrarian won’t bother to respond because the Catalyst appears to fear his or her responses, and removes his or her posts when they don’t want others to read an actual argument against Catalyst conventional wisdom.

      That says a lot more about the Catalyst than it does about Contrarian.

      • Steve Buckstein

        contrarian, I don’t know of any of your posts that have been removed. There are several in this thread now. As I understand it, Catalyst doesn’t remove any posts unless they contain profanity, spam or are simply ad hominem attacks. If you know of some substantive posts that were removed, feel free to repost them.

        • contrarian

          If you are not doing it then someone is hacking into your system and doing it for you. There have been at least 4 posts of mine removed over the past 2 days. None contained profanity or personal attacks on anyone. I can’t re-post them because I don’t save them, and anyway what good is re-posting if the same person simply removes them again?

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