Krugman 1997: Social Security Is a Ponzi Scheme

[PapaG]

Is there anybody left that doesn't see what a hack this guy is?

Social Security is structured from the point of view of the recipients as if it were an ordinary retirement plan: what you get out depends on what you put in. So it does not look like a redistributionist scheme. In practice it has turned out to be strongly redistributionist, but only because of its Ponzi game aspect, in which each generation takes more out than it put in. Well, the Ponzi game will soon be over, thanks to changing demographics, so that the typical recipient henceforth will get only about as much as he or she put in (and today's young may well get less than they put in).

http://www.bostonreview.net/BR21.6/krugmann.html

More info on Krugman's hypocrisy at ZeroHedge.

 

[barfo]

Gotta admit, that is pretty amusing.

barfo

 

[Masbee]

Gotta admit, that is pretty amusing.

barfo

So, now that you see Krugman talking about the massive future problems of Social Security way back when;

and, now that we have experienced the Great Recession which has completely derailed the US GDP and tax collections for years already, and most likely for many more years to come, and;

now that many economists are in agreement that the old GDP (and thus tax collection) estimates were wildly over optimistic and have recently been adjusted for the new projections, and;

now that the Great Recession has caused millions to apply for Social Security early instead of waiting for full retirement age, thus swelling the rolls years before prior projections, and;

now that the very latest projections from the govt economists that take into account the huge changes in tax collections, GDP projections, swelling rolls, the inability of the current government to raise payroll taxes for fear of precipitating a Great Depression, etc.;

do you now take back your snide bs in the other thread about me being an expert?

Keep in mind - government economists project that Medicare/Medicaid are fiscal train wrecks signifcantly more expensive than Social Security.

 

[barfo]

So, now that you see Krugman talking about the massive future problems of Social Security way back when;

and, now that we have experienced the Great Recession which has completely derailed the US GDP and tax collections for years already, and most likely for many more years to come, and;

now that many economists are in agreement that the old GDP (and thus tax collection) estimates were wildly over optimistic and have recently been adjusted for the new projections, and;

now that the Great Recession has caused millions to apply for Social Security early instead of waiting for full retirement age, thus swelling the rolls years before prior projections, and;

now that the very latest projections from the govt economists that take into account the huge changes in tax collections, GDP projections, swelling rolls, the inability of the current government to raise payroll taxes for fear of precipitating a Great Depression, etc.;

do you now take back your snide bs in the other thread about me being an expert?

Wasn't meant to sound snide. Was trying to be funny. And no, I still don't recognize you as an expert, sorry.

Sure, social security has future funding problems, but they aren't insolvable, nor is it an immediate crisis. The sky is not falling.
We can either raise taxes (or increase the percentage of current taxes we spend on SS) to pay for it, or we can cut benefits. It might be painful, but it is not a complex problem. The solutions are completely obvious.

Keep in mind - government economists project that Medicare/Medicaid are fiscal train wrecks signifcantly more expensive than Social Security.

That is certainly true. Medicare is a much bigger issue than SS.

barfo

 

[Masbee]

Wasn't meant to sound snide. Was trying to be funny. And no, I still don't recognize you as an expert, sorry.

Krugman is an expert. Dozens of government economists are the experts. Duh.

Sure, social security has future funding problems, but they aren't insolvable, nor is it an immediate crisis. The sky is not falling.
We can either raise taxes (or increase the percentage of current taxes we spend on SS) to pay for it, or we can cut benefits. It might be painful, but it is not a complex problem. The solutions are completely obvious.

See, that is what prompted my over-the-top rant about AARP.

This SS problem was a moderately easy fix. In the 1990's.

Economy was booming. That is the time to raise taxes.

Baby Boomers were years away from retirement. That is the time to adjust the COLA computation formulas so the SS checks of the future rise at smaller rates each year. That is the time to bump up the retirement age - when the pig in the python has extra years to save to make up the difference of smaller benefit checks.

But no. AARP led the charge to demonize and destroy the political career of every national pol who dared to even launch a serious, adult conversation.

Now. The "easy" fixes you talk about are much harder.

Can't raise taxes now. Would crush the economy. In fact, your boy Obama, wants to LOWER SSI taxes. Oops. We are going in the wrong fucking direction to "fix" Social Security.

Sure, we can raise the retirement age and adjust the yearly increase formulas and means test, etc. But, no one has ever proposed - and will not - that the main brunt of any of these changes will apply to those already retired or even near retirement. Now that the Boomers are aleady collecting, the savings will be disproportionately less - as it will apply to fewer retirees than if we had made these changes years ago.

Which means even higher taxes / deeper benefit cuts required to make the numbers work. Bad news for the youngins. More politically painful too. Thus, we come back to Krugman's rant that it was a "Ponzi" scheme. When he actually meant that it was a massive intergenerational transfer of wealth.

 

[barfo]

This SS problem was a moderately easy fix. In the 1990's.

Economy was booming. That is the time to raise taxes.

No doubt about that. Too bad we did the opposite.

Now. The "easy" fixes you talk about are much harder.

Can't raise taxes now. Would crush the economy. In fact, your boy Obama, wants to LOWER SSI taxes. Oops. We are going in the wrong fucking direction to "fix" Social Security.

Getting the economy back on its feet is a higher priority than fixing SSI (especially since the former will help fix the latter).

Which means even higher taxes / deeper benefit cuts required to make the numbers work. Bad news for the youngins. More politically painful too. Thus, we come back to Krugman's rant that it was a "Ponzi" scheme. When he actually meant that it was a massive intergenerational transfer of wealth.

Maybe we'll get lucky and the boomers will all die earlier than expected. Oh, wait, I'm a boomer.

barfo

 

[Denny Crane]

Unfortunately, the "never let a good crisis go to waste" "bad economy" has become an excuse to transfer assets from the trust fund to the Chinese. First they looted the fund and left IOUs, now they're giving those IOUs to the Chinese.

It already was so broken that you couldn't raise taxes on EVERYONE high enough to make it work. I don't see how it's going to survive into the 2nd half of the century.

 

[barfo]

It already was so broken that you couldn't raise taxes on EVERYONE high enough to make it work. I don't see how it's going to survive into the 2nd half of the century.

That might be the most ridiculous thing you've ever posted, and it has some pretty stiff competition.

Let's get real here. As the graph below shows, the unfunded portion of SSI amounts to 1.5% of GDP. And you are claiming there is no possible way to pay for something that amounts to 1.5% of GDP?

Yes, it's a problem. But it's not an insolvable problem. Instead of spending 4.5% of GDP on it, we need to spend 6% of GDP on it. Or cut benefits, or some mixture of both.

barfo

 

[Denny Crane]

It's 1.5% of GDP today, but it's growing fast. It's liabilities are at lest 3x GDP.

When the boomers are fully retired in 15 years and the IOUs in the trust fund are all cashed in, the massive deficits will be far greater than 1.5% of GDP. The baby boomers are 40% of the population who will be paid and no longer paying in.

Your 1.5% is wrong, too. SS is about 1/15 of GDP. It's more than we spend on anything else. More than defense and interest combined.

 

[Denny Crane]

I'll add that Medicare expenses will be 6% of GDP at the same time OASDI will be. Combined that's 12%+ of GDP.

Both programs are already running a deficit with current tax collections. To cover an increase of expenses from 1.5% of GDP to roughly 15% of GDP would require a 10x increase in the taxes that pay for those benefits.

 

[BLAZER PROPHET]

I'll add that Medicare expenses will be 6% of GDP at the same time OASDI will be. Combined that's 12%+ of GDP.

Both programs are already running a deficit with current tax collections. To cover an increase of expenses from 1.5% of GDP to roughly 15% of GDP would require a 10x increase in the taxes that pay for those benefits.

That's why we're going to increases taxes on people making more than $150K per year, silly!

 

[ABM]

That's why we're going to increases taxes on people making more than $150K per year, silly!

That's certainly one way to unsettle a pyramid.

 

[barfo]

It's 1.5% of GDP today, but it's growing fast. It's liabilities are at lest 3x GDP.

When the boomers are fully retired in 15 years and the IOUs in the trust fund are all cashed in, the massive deficits will be far greater than 1.5% of GDP. The baby boomers are 40% of the population who will be paid and no longer paying in.

Your 1.5% is wrong, too. SS is about 1/15 of GDP. It's more than we spend on anything else. More than defense and interest combined.

You need to go back and read my post a little more carefully, and maybe look at the graph I helpfully provided.

barfo

 

[barfo]

I'll add that Medicare expenses will be 6% of GDP at the same time OASDI will be. Combined that's 12%+ of GDP.

Both programs are already running a deficit with current tax collections. To cover an increase of expenses from 1.5% of GDP to roughly 15% of GDP would require a 10x increase in the taxes that pay for those benefits.

Gah. More DennyMath. It's not an increase from 1.5% to 15% of GDP. For SS, it is an increase from 4.5% to 6.0%.

barfo

 

[Denny Crane]

Add them together.

 

[barfo]

Add them together.

Yes. And what do you get? You get about 12%. And we already are paying most of that. There is a gap that needs to be made up, but it's not some impossible chasm.
This graph that you just posted shows why there is no need to run around like chickens. The sky is not falling.

barfo

 

[Denny Crane]

Yes. And what do you get? You get about 12%. And we already are paying most of that. There is a gap that needs to be made up, but it's not some impossible chasm.
This graph that you just posted shows why there is no need to run around like chickens. The sky is not falling.

barfo

The ENTIRE govt. revenues is 15%, barfo.

 

[Denny Crane]

 

[barfo]

The ENTIRE govt. revenues is 15%, barfo.

But it will be increasing as the economy improves.

Besides, 15% > 12%, and we don't hit 12% until 2045 or so, so obviously we can afford to continue these program as-is if that is our number one priority.

Maybe it's not, so maybe we will end up cutting benefits. Or maybe we will raise taxes. Or maybe we'll do both.

But the sky won't fall. It's not an impossible problem like you were claiming (and that was when we were discussing just SSI, before you changed the subject to all entitlement programs).

barfo

 

[Denny Crane]

But it will be increasing as the economy improves.

Besides, 15% > 12%, and we don't hit 12% until 2045 or so, so obviously we can afford to continue these program as-is if that is our number one priority.

Maybe it's not, so maybe we will end up cutting benefits. Or maybe we will raise taxes. Or maybe we'll do both.

But the sky won't fall. It's not an impossible problem like you were claiming (and that was when we were discussing just SSI, before you changed the subject to all entitlement programs).

barfo

Historically, Social Security was never even 1/2 the budget, let alone 80% of it. What gets cut to pay for these programs?

Factor in the payments on the debt, barfo. You think we're going to be able to pay near 0% interest rate for long? (I don't). It's currently 6% of the $3.5T budget.

We won't have a military at all. There won't be money for education. There won't be money for roads, bridges, to pay for the courts, foreign aid, medical research, a space program, etc.

http://www.ssa.gov/oact/trsum/index.html

Social Security and Medicare are administered by Social Security (the bureaucracy).

 

[barfo]

Historically, Social Security was never even 1/2 the budget, let alone 80% of it. What gets cut to pay for these programs?

It isn't 80%, and won't be. Quit playing with DennyMath. SS + Medicare reaches 12% in 2045. This current economic crisis will be long over by then, so revenue won't be 15% of GDP anymore. Let's say it is 20% of GDP, which is more realistic historically. Then SS+Medicare would be 60%, not 80%, of the budget.

Still large, no doubt. But not so large that

It already was so broken that you couldn't raise taxes on EVERYONE high enough to make it work. I don't see how it's going to survive into the 2nd half of the century.

Factor in the payments on the debt, barfo. You think we're going to be able to pay near 0% interest rate for long? (I don't). It's currently 6% of the $3.5T budget.

We won't have a military at all. There won't be money for education. There won't be money for roads, bridges, to pay for the courts, foreign aid, medical research, a space program, etc.

Blah blah blah. So yes, as I've been saying, we'll either have to cut benefits or raise taxes, or both. So what? Either way, the world will keep on spinning. If we want to spend 60% of the budget on SSI and Medicare, we can do that. If we don't want to, we don't have to. Eventually, we'll make a decision on that.

barfo

 

[Denny Crane]

It isn't 80%, and won't be. Quit playing with DennyMath. SS + Medicare reaches 12% in 2045. This current economic crisis will be long over by then, so revenue won't be 15% of GDP anymore. Let's say it is 20% of GDP, which is more realistic historically. Then SS+Medicare would be 60%, not 80%, of the budget.

Still large, no doubt. But not so large that





Blah blah blah. So yes, as I've been saying, we'll either have to cut benefits or raise taxes, or both. So what? Either way, the world will keep on spinning. If we want to spend 60% of the budget on SSI and Medicare, we can do that. If we don't want to, we don't have to. Eventually, we'll make a decision on that.

barfo

If you cut benefits, it's no longer social security.

How is the GDP going to grow to the point it's sustainable with 40% of the population retiring?

Look again - it's 35% of GDP, not 12%.

http://cboblog.cbo.gov/?p=2724

Testimony Before the Joint Select Committee on Deficit Reduction

If the laws governing Social Security and the major health care programs were unchanged, and all other programs were operated in line with their average relationship to the size of the economy during the past 40 years (more than 11 percent of GDP), total federal spending excluding net interest would be nearly 24 percent of GDP. That amount exceeds the 40-year average for revenues as a share of GDP by nearly 6 percentage points—even before interest payments on the debt have been included.

At the same time, the sharp increase in federal debt and a return to more-normal interest rates will boost the government’s net interest costs. They are projected to reach 2.8 percent of GDP in 2021, compared with only 1.5 percent of GDP in 2011 and an average of 2.2 percent of GDP during the past 40 years.

What does the bolded part mean?

To increase federal spending (excluding debt interest) by 6% over the 18% 40-year average means a 33% tax hike on everyone and everything.

Tack on another ~3% of GDP for debt service, and the govt. needs a 50% tax hike on everyone and every thing.

This is by 2021, before SS (just OASDI part) eats up another 1.5% of GDP. Look at the graph you posted.

Now we're talking a 60% tax hike on everyone and everything.

Don't like my math? How about Bruce Bartlett's.

http://economix.blogs.nytimes.com/2...rity-and-medicare-problemand-a-doable-fix/?hp

Thus we see that Social Security and Medicare are underfunded relative to promised benefits by $56.4 trillion or 3.8 percent of G.D.P. per year forever. To put these programs on a sound footing, federal income taxes would have to rise from 6.2 percent of G.D.P. to 10 percent, an increase of 61 percent.

In other words, whatever amount you paid on your federal income tax return this year would need to be 61 percent more, now and forever, to pay all the Social Security and Medicare benefits that have been promised over and above the payroll tax.

What’s worse, these numbers may be conservative.

 

[Denny Crane]

http://www.ncpa.org/pub/ba616

The 2008 Social Security and Medicare Trustees Reports show the combined unfunded liability of these two programs has reached $101.7 trillion in today's dollars! That is more than seven times the size of the U.S. economy and 10 times the size of the outstanding national debt. The unfunded liability is the difference between the benefits that have been promised to retirees and what will be collected in dedicated taxes and Medicare premiums. Last year alone, the size of the debt rose by $11.5 trillion. If no other reform is enacted, this funding gap can only be closed in future years by substantial tax increases, large benefit cuts or both.

Future Payroll Tax Burdens.

Currently, Social Security and Medicare Part A (Hospital Insurance) benefits are funded by a 15.3 percent payroll tax on wages — 12.4 percent for Social Security and 2.9 percent for Medicare. But if payroll tax rates rise to meet unfunded obligations:

• When today's college students reach retirement, Social Security alone will require a payroll tax of 16.55 percent, one-third greater than today's rate.
• When Medicare Part A (hospital insurance) is included, the payroll tax burden will rise to 25.25 percent — more than one of every four dollars workers will earn that year.
• If Medicare Parts B and D are included, the burden of Social Security and all of Medicare will climb to 33.6 percent of payroll by 2054 — one in three dollars of taxable payroll, and twice the size of today's payroll tax burden!

Impact on the Federal Budget.

Until recently, the combined effect of Social Security and Medicare on the rest of the federal government was relatively small. The combined deficits of both programs now require about 8 percent of general income tax revenues [see the figure]. As the baby boomers begin to retire, however, that number will soar, and, as a result, it will be increasingly difficult for the federal government to continue spending on other activities. In the absence of a tax increase, if the federal government keeps its promises to seniors and balances its budget:

• By 2012, the federal government will stop doing 1 in 10 other things it has been doing.
• By 2020, the federal government will stop doing 1 in 4 things.
• By 2030, about the midpoint of the baby boomer retirement years, the federal government will stop doing about 1 in 2 things.

(My note: govt. isn't stopping doing anything, it's just increased the deficit to $1.5T and has printed $2.5T more money)

Impact on Federal Revenues.

Total health care spending in the United States has historically grown 2.5 percentage points faster than per capita Gross Domestic Product (GDP). In particular, Medicare spending may rise even faster than the Trustees report estimates. According to the Congressional Budget Office (CBO), if Medicare spending continues to grow at the historical growth rate of total health care spending:

• Social Security, Medicare and Medicaid (the health care program for the poor) will consume nearly the entire federal budget by 2050.
• By 2082 Medicare spending alone will consume nearly the entire federal budget.

Can Higher Taxes Solve the Problem?

The CBO also found that if federal income tax rates are adjusted to allow the government to continue its current level of activity and balance the budget:

• The lowest marginal tax bracket of 10 percent would have to rise to 26 percent.
• The 25 percent marginal tax bracket would increase to 66 percent.
• The current highest marginal tax bracket (35 percent) would have to rise to 92 percent!
• Additionally, the top corporate income tax rate of 35 percent would have to increase to 92 percent.

 

[Denny Crane]

Here's excerpts from a speech by Richard W. Fisher, president of the Federal Reserve Bank of Dallas:

http://dallasfed.org/news/speeches/fisher/2008/fs080528.cfm

Let’s say you and I and Bruce Ericson and every U.S. citizen who is alive today decided to fully address this unfunded liability through lump-sum payments from our own pocketbooks, so that all of us and all future generations could be secure in the knowledge that we and they would receive promised benefits in perpetuity. How much would we have to pay if we split the tab? Again, the math is painful. With a total population of 304 million, from infants to the elderly, the per-person payment to the federal treasury would come to $330,000. This comes to $1.3 million per family of four—over 25 times the average household’s income.

Clearly, once-and-for-all contributions would be an unbearable burden. Alternatively, we could address the entitlement shortfall through policy changes that would affect ourselves and future generations. For example, a permanent 68 percent increase in federal income tax revenue—from individual and corporate taxpayers—would suffice to fully fund our entitlement programs. Or we could instead divert 68 percent of current income-tax revenues from their intended uses to the entitlement system, which would accomplish the same thing.

Suppose we decided to tackle the issue solely on the spending side. It turns out that total discretionary spending in the federal budget, if maintained at its current share of GDP in perpetuity, is 3 percent larger than the entitlement shortfall. So all we would have to do to fully fund our nation’s entitlement programs would be to cut discretionary spending by 97 percent. But hold on. That discretionary spending includes defense and national security, education, the environment and many other areas, not just those controversial earmarks that make the evening news. All of them would have to be cut—almost eliminated, really—to tackle this problem through discretionary spending.

I hope that gives you some idea of just how large the problem is. And just to drive an important point home, these spending cuts or tax increases would need to be made immediately and maintained in perpetuity to solve the entitlement deficit problem. Discretionary spending would have to be reduced by 97 percent not only for our generation, but for our children and their children and every generation of children to come. And similarly on the taxation side, income tax revenue would have to rise 68 percent and remain that high forever. Remember, though, I said tax revenue, not tax rates. Who knows how much individual and corporate tax rates would have to change to increase revenue by 68 percent?

 

[barfo]

Some serious topic inflation here Denny. This thread was about Social Security. Not Medicare. Then to defend your point you made it into Social Security + Medicare. Then when that wasn't enough, you changed it to Social Security + Medicare + Medicaid + ...

So yes, if you keep adding stuff in, the cost keeps growing.

But let's get back to the topic at hand: Social Security. None of the graphs you've shown show Social Security blowing up, because it isn't. Social Security can be fixed relatively easily.

Medicare and Medicaid, I agree - they have problems. But the fact that they have problems doesn't mean Social Security does (and no, you don't need to point out again that Medicare is in the same agency as Social Security - if you look at the first few posts in this thread, it's quite clear what we were talking about, and it wasn't Medicare).

barfo

 

[PapaG]

I was wondering why very few Obama clones were posting OT these days (chrisinpdx being the most hilarious example).

Then I decided to click on a barfo post to find out why. Wow. Are things really that bad for Obama? His 'defense' is an embarrasment, isn't it? No wonder others are calling for a sub-forum.

 

[barfo]

Here's excerpts from a speech by Richard W. Fisher, president of the Federal Reserve Bank of Dallas:

I have to say, Richard W. Fisher is full of shit.

Let’s say you and I and Bruce Ericson and every U.S. citizen who is alive today decided to fully address this unfunded liability through lump-sum payments from our own pocketbooks, so that all of us and all future generations could be secure in the knowledge that we and they would receive promised benefits in perpetuity. How much would we have to pay if we split the tab? Again, the math is painful. With a total population of 304 million, from infants to the elderly, the per-person payment to the federal treasury would come to $330,000. This comes to $1.3 million per family of four—over 25 times the average household’s income.

Why would anyone consider that? The concept is moronic. Should we also fund all future defense department expenses with a one-time tax? How big is the 'unfunded liability' for all future defense spending? How about highways? A one-time tax to fund all future highway construction?

This is the sort of calculation one does when one is more interested in scaring Denny than in the truth.

barfo

 

[barfo]

Future Payroll Tax Burdens.

Currently, Social Security and Medicare Part A (Hospital Insurance) benefits are funded by a 15.3 percent payroll tax on wages — 12.4 percent for Social Security and 2.9 percent for Medicare. But if payroll tax rates rise to meet unfunded obligations:

• When today's college students reach retirement, Social Security alone will require a payroll tax of 16.55 percent, one-third greater than today's rate.

• 
  
  Which is pretty much what I've been saying all along - an increase by 1/3rd (4.5% to 6% of GDP). That isn't pretty, but obviously if we choose to, we can afford to pay 16% instead of 12% for SS. Or if we don't choose to, we can reduce benefit payments accordingly.
  
  barfo

 

[barfo]

I was wondering why very few Obama clones were posting OT these days (chrisinpdx being the most hilarious example).

Then I decided to click on a barfo post to find out why. Wow. Are things really that bad for Obama? His 'defense' is an embarrasment, isn't it? No wonder others are calling for a sub-forum.

Here's a little hint for you PapaG, Social Security wasn't invented by Obama. If I'm defending someone here, I'm defending FDR.

Despite the fact that FDR raped me with advanced metrics.

barfo

 

[barfo]

Now since Denny was so kind as to bring up Medicare and Medicaid, let's explore why the cost of those programs is projected to blow up.

It's been suggested that the aging of the boomers is the issue. But if that were true SSI would blow up too. SSI isn't going to blow up (it hits 6% of GDP and stays there).

What's the difference between SSI and Medicare/Medicaid? The obvious answer is the latter two start with Medica...

Here's the graph.

See, us damn boomers aren't actually the problem. The problem is that healthcare costs are rising much faster than inflation, and are projected to continue to do so ad infinitum.

While I imagine that the graph is accurate if healthcare costs do continue to rise at the same rate they have been, I don't actually believe they will continue to rise at the same rate for the next 70 years. The idea that they would is actually pretty ludicrous. One way or another, we'll either reform healthcare, or we'll develop alternatives to the current system. I don't know what the solution will look like, but I'm sure there will be a solution. Show me another service whose cost steadily rose much faster than inflation over a period of 70 years.

But what this graph shows is, we don't need to reform the entitlement programs. That's just what those who oppose those programs for other reasons want us to believe. What we need to reform is healthcare. Fix the healthcare problem, and the entitlement problem goes away.

barfo