The debt numbers start to get really hairy when you add in liabilities under Social Security and Medicare — in other words, when you account for the present value of those future payments in the same way that businesses have to account for the obligations they incur[GAAP rules]. Start with the entitlements and those numbers get run-for-the-hills ugly in a hurry: a combined $106 trillion in liabilities for Social Security and Medicare, or more than five times the total federal, state, and local debt we’ve totaled up so far. In real terms, what that means is that we’d need $106 trillion in real, investable capital, earning 6 percent a year, on hand, today, to meet the obligations we have under those entitlement programs. For perspective, that’s about twice the total private net worth of the United States. (A little more, in fact.)This quote is a little bit of a digression from the main point of the post, but his illustrates the fact that the most if not all of the money that the younger generation is paying into the system will simply not be there when we retire and the fact that social security is at the heart of America's coming bankruptcy. (Take away the unfunded liabilities and America's debt problem is still very significant and will be a major drain on the economy's future ability to produce which will not leave enough to fund these programs.) Social security and Medicare taxes take about 15% of your monthly income, assuming you earn a modest, not so modest for me at the moment, 3000 dollars a month this would be 450 dollars a month. Where is this 15% of your monthly income or 450 dollars a month going? It is being wasted and squandered. So how much money could a person born in 1988 expect to have if he took the this 15% of his monthly income and invested it in an investment with a modest 5% return?
Social Security and Medicare taxes are 15.3% of his income. If he[ the person born in 1988 who makes 30,000 a year for his life] invested that 15.3% of his income instead, he would be investing $4,590. Supposing that this annual contribution was invested each year for the next 48 years and the principal was collecting 5% interest, instead of the Social Security value of $212,938.88, he would have $863,036.55! That's a little more than four times the return that Social Security is 'promising.'So basically social security is not only stealing 212,938.88 dollars of your income directly from taxes, 450 dollars a month--which is in reality much more than that as I am sure most of us here plan on earning at least 60,000 a year plus the fact that the tax will have to go up so the initial amount invested or the money directly taxed would be at least doubled and the return from the private investment would be more than double the million dollars rate of return-- it is also stealing the potential uses of this money which could include the potential of earning you 1 million dollars over your lifetime. So basically the government will have stolen over 1 million dollars of the average person's total lifetime income. This is very ingenious way of stealing a significant sum of money from you over your lifetime. The average yearly income earned is 50,000 times this by 40 and you get a total lifetime income of about 2 million dollars. Add this 1 million, still assuming the 30,000 yearly income, and you get three million. So about a potential third of your lifetime income is being stolen.
This is only one little way that the government and the economic system is stealing the fruits of our labor. Combine this with the system of credit, look at how much of your mortgage payments actually go towards the principal; the deprecation of the dollar through inflation,; and all of the other taxes to name a few. Combine all of these together and a significant percentage of our income is being consumed by the government. In the case of social security is could be costing you 1 million dollars over the course of your lifetime and around 450 dollars a month. No big deal though. (Our whole economy is one big bubble after another, none of it is real. While all of these developments in the political and economic realm are nothing new the effects that these various cycles or bouts have are cumulative and is leading to a very big economic upheaval that will occur in our lifetimes which will basically take what little we have left, and along with the transformative effects this will have with our relationship to the government.)
Yeah, the whole problem in a nutshell. Bush tried to rectify it during his 1st term and was hammered for it. Most Republicans supported him, but not enough to overcome the solid Democratic and press opposition. So, even though at the time, the Republicans had the majority, they didn't have enough horsepower to push it through. Sort of a reverse of what Obama is facing now, though the Republicans in Bush's 1st term didn't have the majorities that Democrats have now.
ReplyDeleteI'll turn on my broken record and play one of my main themes again: Social Security, and most other pension plans, are Ponzi schemes that depend on ever growing populations and ever expanding economies. When FDR implimented Social Security in the '30's, the idea that people would quit having babies was unthinkable (since it was roughly 30 years before The Pill was first invented, and even then, it wasn't foreseen that so much of the population would find children to be too inconvenient). So, at FDR's time, even though people knew it was a Ponzi scheme, they thought it would work,and they could take the poorest part of the population at that time (the elderly) and make their lives better. And guess what? They succeeded! Now the elderly are, I don't know, possibly the richest part of the population?
Your point is good that if we took that money and saved it or invested it ourselves, we would come out way ahead of what SS gets us. The problem is, how many of us have the discipline to do that? I think that is a real point to consider. Though I agree, SS must go, and must as in, will go whether the government wants it to or not (hopefully after I run off with my share of the loot!), let's be honest: the truth is that most people, even most RTP&GGrs will not have the discipline to set near that much money aside for retirement, and once they arrive at their Golden Years, will find themselves needing to work until they die, or, requiring assistance from their children. In other words, we will return to the situation that FDR intended to rectify in the 1930s.
Social security helps lazy people (most people), but at a tremendous, no-longer-sustainable cost.
A person could say that the collapse of SS is part of the 'this generation won't have as high a standard of living as that generation' idea, which is highly debateable, but it is certainly an argument that could be presented. But, the collapse of Social Security is a chosen option. The generation that ends SS brings it on themselves partially by making the choice to not have the children to support it. We reap what we sow, or not, as the case may be. Every generation since the early '70's has made the choice not to sow.
One of the main problems with SS reform is that politicians scare the older people into believing that their benefits will be taken away or reduced. I think SS illustrates what happens when people become dependent on the government to meet a responsibility that should be the individual's responsibility.
ReplyDeleteI disagree with your stance that SS is justified because people might not be responsible enough to save for retirement. It is true that some will probably not save, but if people were to deal with the consequences of their actions they would be more responsible. The same argument could be used for the government to force people to eat a certain and and live a healthier lifestyle.
SS was orginially supposed to be used by the very poor in the last couple of years of their lives. And where did all of the poor come from during the 1930's?. The Great Depression that was caused by government trying to help people in the form of programs like SS. Life spans have grown and SS has not had the age requirements increased and SS has now grown to the extent that most people are solely depending on SS to meet their needs for retirement thus taking away the individuals impetus and desire to save for their own retirement. This expansion of SS shows how a government benefits grows and expands until it is simply too big and how these government programs are destructive. The SS trust fund is a pool of money for politicians to buy votes and to use for other government spending problems.
Yeah American's are not having as many kids and the wrong people are producing too many kids. Watch the begining of "Idiocracy", to see this problem illustrated. The problem with SS is not the fact that birth rates are declining but the fact that it has grown beyond its orginial scope and has been mismanaged by the government. SS is part of the expansion of the welfare state that was created by a socialist President.
As the standard of living and wealth of a society grows the birth rates usually falls. It is an inverse relationship.