Tuesday, December 21, 2004

Social Security again

So Bush is starting to come under fire for his handling of the Social Security issue, and more and more it seems like this is a Republican/Democrat dividing line, rather than a good/bad line. Republican rhetoric is exaggerating the state of Social Security right now.

The retirement system faces a projected $3.7 trillion, 75-year shortfall. Bush wants to overhaul the program to let younger workers divert some of their Social Security payroll taxes to personal accounts. But that alone won't fix the problem and could require upfront costs of $1 trillion to $2 trillion over 10

Bush regularly claims Social Security faces a shortfall of nearly $11 trillion, which, Orszag said, is a misleading figure because it makes the system appear to be in worse shape than it is.

So, like I was saying last time, it seems like Bush has got an axe to grind with the fact that there's been a socialist system operating in his country for 69 years, and that it's been working. There's another 14 years before we start giving out more in benefits than we're taking in in taxes, and another 30 or so years beyond that before benefits would have to decrease (during those 30 years, the difference would be paid out of the Social Security trust, which is where the surpluses have been going all this time, and which currently stands at something like $1.5 trillion!). There are a couple of things that could fix this, not least of which would be a change to make more than just the first $87,900 of income taxable for Social Security. If that number was upped to $200,000, the system's viability would be extended like crazy.

But again, the war of rhetoric has been amping up, like I said, and Social Security is "broken." Convincing society that there's major problems to fix in the system has been a major victory for Republicans. The debate isn't about whether or not Social Security is viable, but about how to fix it. The "broken" question is already off the table.

A phrase I'm starting to see more and more with respect to Social Security, at least out of the mouths of conservatives, is "Ponzi scheme," which is a pyramid type of scheme wherein investors are duped by high returns that are actually coming from later investors. The scheme comes about when you realize that under the weight of the benefits paid out, future investors cannot possibly get their expected returns. It works for a while, and people who get the returns off of it usually reinvest and lose. But Social Security is not a Ponzi scheme. A Ponzi scheme relies on deceiving the investors, making them think that their money is coming from somewhere other than other investors. False confidence is also built in a Ponzi scheme by granting high returns in the short run. Social Security doesn't do these things.

But don't be surprised to hear that phrase start creeping into the mainstream "liberal" media.