• Ye olde Ponzi scheme

    It’s become popular these days to blog on how Social Security is or is not like a Ponzi scheme. I hope readers understand what’s going on though. This is all about perception and framing. There’s not a lot of meaning to the use “Ponzi scheme” in this context. You can’t actually convey anything useful about Social Security by labeling it thus.

    Here’s what’s going on: First, you’ve got a program, Social Security, that is in need of modest changes* if it is to maintain projected levels of full benefits over the next 75 years. This is not news. Nobody in public policy should be shocked. It is not as if some new malfeasance has been discovered.

    Next, somebody who doesn’t care to see tax revenue raised to pay out more Social Security benefits decides to label the program a “Ponzi scheme.” But that’s just a label. It sure makes the program sound bad, though. It conjures up memories of Bernie Madoff, and who is a fan of Bernie Madoff?

    But does this label relate to any novel development or insight? No. One could just as easily claim Social Security accounting is a “farce,” and many have. Or, just to mix things up, one could say Social Security is a “cherished social contract” or is as “American as apple pie.” Now it’s sounding good again. I like apple pie!

    What do any of these labels teach us about Social Security and its problems or virtues? Not much.

    Instead of a useless label, Kevin Drum delivers a few, simple sentences about what Social Security really is and how it works. He put the key bit it in bold so that it is not hard to miss.

    Here’s how Social Security works: every month we take in taxes from working people and every month we turn around and distribute those taxes to retirees. That’s it. That’s how it works, and everyone who actually knows anything about the program knows that’s how it works. Taxes come in, benefits go out. And the key to solvency is simple: making sure that those taxes and benefits are in balance.

    This is, of course, the way every government program works. Taxes come in, payments to soldiers go out. Taxes come in, payments to NASA rocket scientists go out. Easy! [Emphasis not mine. Kevin’s!]

    If this is a Ponzi scheme, it’s a very old one, older than America, in fact. It’s as old as tax and spend. It’s Ye Olde Ponzi Scheme and it’s the way governments work. If you don’t like how Social Security and other government programs work then you just don’t like government.

    OK, so maybe the label does convey some meaning, but not about Social Security. It says a lot about the views of individuals who uses it. Now we’re getting somewhere.

    * Yes, of the myriad woes facing federal entitlement programs (like Medicare), what’s needed to shore up Social Security is quite modest.

    • I found Kevin’s post odd, because he describes exactly why people describe Social Security as a Ponzi scheme, in the paragraphs immediately before the ones you posted, he notes that it was, and is, sold as an investment program. Kevin concedes this point—“But that’s always been a lie.” This political marketing is precisely what distinguishes Social Security from other programs (NASA, the military), and what makes it accurate to call Social Security a Ponzi scheme, but not other programs.

      That said, as Kevin and you say, the facts about how Social Security operates have been known, and have not changed. The debate is indeed purely about marketing—how politicians sell programs to the public. Perry and company are merely saying that the program which exists is not the program which politicians have been selling. And Kevin agrees with this in his post.

    • I guess it is better to call it a Ponzi scheme than to try to fix it.


    • You could make your point a bit stronger by pointing out that the original Ponzi scheme had nothing to do with government but was a case of private enterprise run amok. All business enterprises for which you pay now for services delivered in the future could with the same grossly oversimplified logic be counted as Ponzi schemes. Insurance generally is every bit as much a Ponzi scheme as Social Security. Which is to say, when conducted non-fraudulently, not at all Ponzi. Ayyyy!

      (sorry couldn’t help myself)

    • Austin:

      A $107 trillion unfunded liability (2009 trustees report) is not just something that sounds bad. It is bad. And, yes, it is completely in the tradtion of Bernie
      Madoff, together with public officials lying thru the years about how the money has been “invested.”

      What makes this a Ponzi scheme is not its pay-as-you-go nature. It’s public officials telling the public that the scheme is funded, when it is not.

      • So it’s not the program, it is how it is described. So, how is it helpful to call the program a “Ponzi scheme”? Why not just tell folks how the program really works? That’s what Drum did. I find that far more illuminating than cute labels and bumper-sticker slogans.

        • It’s not really a Ponzi scheme, and describing it that way is just political posturing, but it is completely true that the accounting is a farce, and that is crucial to Kevin Drum’s point about the need to balance the taxes and benefits. Part of balancing the taxes and benefits is setting aside the surplus now to pay for years when benefits will exceed taxes. But instead of doing that we’ve spent the money and replaced it with IOUs.

          So really it is incorrect to say that Drum told folks how the program really works. He did not tell folks that SS is supposed to be funded, and that saving the surplus is a key aspect of maintaining the balance he mentioned.

    • SS is NOT a Ponzi scheme but it is a welfare program disguised as an insurance annuity. That disguise makes it make no sense and meant to fool people the disguise exists to perpetrate a bit of a fraud.

      SS as a welfare program should not pay out more to those who made more in their working years. As a welfare/insurance program if everyone got the same minimal amount in retirement, and we can debate what the amount should be, the tax could be lowered allowing individuals more control of their own money and retirement. That would make most everyone better off. It should also be funded through general revenue not some special tax.

    • In the big scheme of things, this is like an ER doctor assessing a car accident patient by fixing his torn fingernail rather than work on closing the gaping wound in his chest cavity.

      Social Security doesn’t pose near the threat to our financial well being that Medicare does. No recipient has ever OT received their benefits, and the program is stable for several years into the future.

    • John Goodman is absolutely correct about the pay-as-you-go nature.
      And, he is correct that the scheme is not funded, other than the current FICA taxes that go to current beneficiaries.
      The excess FICA taxes and interest (which was unfunded debt) were loaned to the Treasury over the years to pay for current expenses.
      The Treasury securities were issued as collateral in order to make good on those loans.
      But the principal and interest dollars cannot be in the Treasury (and spent) and in the trust fund, at the same time.
      In order to tap the trust fund, new monies must be raised, for the trust fund is not funded with gold ingots that can be liquidated without raising new monies.
      It is “funded” with Treasury securities which can be liquidated only by raising new monies, AS IF THE TRUST FUND DID NOT EXIST.
      Tapping the trust fund is the same way government pays all its expenses, pay-as-you-go, with new monies.
      If Social Security was self supporting, as Roosevelt intended, the trust fund would be similar to reserves in an insurance company.
      Those reserves are simply liquidated to pay claims, for they are prefunded with real assets that can be tapped WITHOUT RAISING NEW MONIES.
      The trust fund is merely an accounting mechanism which indicates what can be withdrawn from the Treasury, new revenues, without an appropriation.
      I can provide reputable governmental links to support my statements for those who are interested.
      Don Levit

      • If the FICA taxes had not been lent to the Treasury what do we presume the Treasury would have otherwise done to raise the revenue demanded by the acts of Congress?

        In what form (assets) would you recommend the SS trust fund hold its reserves?

        • I think you are making a mistake in asssuming that people who argue that the SS trust fund has already been spent/doesn’t exist/requires new money are rational. Really, it’s not a rational argument in the slightest. If the SS fund were the only lender to the government, then things might be different, but the SS fund is a small percentage of US debt and there’s no problem whatsoever rolling it over to new debt from other lenders (China and Japan come to mind, but US private and corporate investors have more money in treasuries than any other category of investor.).

          The idea that the US government would default on any of its debts has been, until this summer, something only crazy people suggested. Yet the claim that the SS fund has already been spent is, essentially, saying that the US government will refuse to repay the SS fund the money the fund lent the government. It used to be that buying government savings bonds was the most patriotic thing you could do. And now the anti-SS folks are advocating a default on US savings bonds. Amazing.

    • If the FICA taxes had not been lent there would not have been as much money available for all of those acts of Congress, and they would have needed to raise taxes, run bigger deficits, or spend less. The amount Congress decides to spend is up to them, subject to political pressures of course. But these political pressures are weakened when we don’t have honest accounting and we hide the true future liabilities.

      The unified budget trust fund accounting we use is inherently dishonest.

        • I’m familiar with this argument. There are a number of problems with it. First of all, it assumes that government spending is a force of nature, a quantity outside of our control. We should not have spent beyond our means, and this line of argument assumes a natural connection between the deficits we’ve built up and the SS trust fund. The two had nothing to do with each other, except for the gov’t deciding to raid the trust fund to paper over just how bad our situation was. And the dishonest accounting allows them to do so.

          The second problem is with its entire description of over- and underpaying. It is incorrect to characterize it as such. The tax rates should be set to make the program sustainable and self-funding in the long run, even if individual years or a period of years is out of balance. This would work just fine as long as surpluses are kept to cover future deficits, and the cash flows are actuarially balanced. The only way anyone has “overpaid” is if the tax rates were set such that there was an ultimate projected surplus in the program.

          Those being asked to cover the bill created by the raiding of the trust fund are not lucky duckies who have made out great for so many years the way Kevin Drum describes it. It is all future taxpayers. I am in the Group B being asked to pay off this loan, and I was 5 years old in 1983, and I’m not rich. It’s rather offensive for him to suggest that my desire to not repay the trust fund they depleted with profligate spending is akin to me reneging on a loan I had nothing to do with. For my generation. it’s like someone took out a credit card in our name when we were born, and Kevin Drum is telling me I’m a deadbeat if I don’t want to pay it off. These are not static populations, and it is ridiculous to describe them that way.

          If this was really a “loan” then means test the heck out of Medicare and SS based on income from 1983 until retirement, and use that savings to pay it back. It’s about time the baby boomers start paying their bills instead of asking my generation to do it.

    • Austin:
      In order to invest the surplus FICA taxes in a real reserve, the law will have to be changed to allow something other than non-marketable unfunded Treasury securities.
      For the program to be self supporting, it has to be funded without looking to the government for new monies.
      Maybe investing similar to the federal retirees defined contribution plan could be a model.
      There is a diversity of assets in that fund.
      What you don’t want is a model like the federal retirees’ defined benefit pension plan.
      Its trust fund is invested in Treasury securities, with the same loaning to the Treasury of principal and so-called interest (unfunded Treasury debt).
      The present liability for that fund is $5 trillion and is listed on the balance sheet, for it is an explicit (unfunded) liability, the highest of 4 obligations to fulfill.
      By the way, future Social Security benefits are implicit promises, a level 4 obligation, the weakest obligation to fulfill. It is not technically even a liability.
      Don Levit

      • How would your view of the trust fund change, if at all, if the Treasuries it held were more broadly marketable? What I’m trying to tease apart is whether it is the buying of (investing in) Treasuries that is objectionable or the manner in which they are redeemable, or both. I think what you’re saying is that investing the FICA revenue is fine, but not in non-marketable Treasuries.

    • It’s really frightening that the extreme right is winning the sound bite contest here. The idea that the SS trust fund doesn’t exist is completely and totally insane, yet they assert it, and with the “it’s just IOUs” and “Ponzi scheme” sound bite are getting a lot of people to believe it. This is incredibly dangerous, since it implies that the US Government not only can but will default on it’s debts. Rational people would find that insane and terrifying, but it seems to be what the right in the US wants.

      This isn’t good.

    • Austin:
      The trust fund is not invested in Treasuries.
      If that was the case, the excess FiCA tax dollars would have been invested in Treasuries, and not first loaned to the Treasury Department to pay for current expenses.
      It is not like you or I gave $1,000 for a Treasury security, and expect repayment down the line.
      By being nothing more than collateral, which can be redeemed only by raising new revenues, the trust fund is simply numbers.
      Yes. it is the redemption of these Treasuries i am concerned about.
      They were never paid for. That is why when outgo exceeds income, the interest cannot be simply liquidated to pay the shortfall, as it would be in the case of an insurer. Instead, the interest is “redeemed” by new monies, as well as the principal.
      Now, if you take the position that Treasuries are as good as gold, whether they are funded or used as collateral, then I guess you have nothing to be concerned about.
      There are a lot of people who feel that way. There is even a name for it – the Trust Fund Perspective.
      Adherents of this perspective believe Medicare Part D is fully funded, even though 75% of its funding comes from general revenues, and is a current expense!
      I can provide more information om this perspective from a reputable governmental link, if any one is interested.
      Don Levit

      • I want to understand. My FICA dollars end up in the hands of the Treasury, and the SS “trust fund” is a file drawer of claims on dollars from the Treasury with interest. Have I already made a mistake?

    • Austin:
      You’ve got it right.
      The Treasury has borrowed the principal and interest of the SS trust fund, and the bonds are collateral for the loans.
      From a paper entitled “Social Security: Why Action Should Be Taken Soon,” published by the Social Security Advisory Board:
      Page 14 “The U.S. Treasury’s ability to borrow Social Security’s surplus of payroll taxes over benefit payments and use it for other government purposes helps reduce the projected unified budget deficit.”

      “Repaying these bonds requires the federal government to produce extra cash from elsewhere within the federal budget. This extra cash could come from higher non-Social Security taxes, reduced non-Social Security spending, or increased debt held by the public.”
      If the trust fund was a reserve in an insurer, the assets would simply be liquidated to pay benefits. No new monies would need to be raised from elsewhere, for the reserve was pre-funded and maintained with assets which could be liquidated to cash.
      Don Levit

      • OK, back on track. I’m going to sketch two scenarios, A and B. Here’s A:

        Let’s imagine two time periods. At time 1, FICA revenue is transferred to the Treasury in exchange for an interest bearing IOU (I will not call it a “Treasury security” as per our prior exchange). May I assume that the exchange of FICA revenue for an interest bearing IOU from the Treasury stands in for what would otherwise be higher debt issued by the Treasury? I know there are other options (e.g. higher taxes, lower government spending), but will you object terribly to the presumption, at least for the moment, that FICA revenue prevents higher debt at time period 1?

        Later, at time 2, the Treasury makes good on the IOU, and to do so it issues debt (Treasuries) to the public. Again, other things could happen in period 2, like raising taxes or lowering government spending, in order to pay the IOU. Let me presume, for simplicity, those don’t happen.

        Have I just sketched out what the SS trust fund is/does? It is what happens in time period 2 that you dislike because of the issuing of new debt to pay the IOU, right?

        Now, imagine an alternative scenario, B, that I think you said you’d prefer. Imagine in time period 1, the FICA revenue is invested in a marketable asset. Because it is not lent to the Treasury, as in scenario A, the Treasury issues debt in the same amount (recalling my assumption in scenario A). Imagine that the asset the FICA revenue is invested in is a Treasury security, not a special IOU type, but a real, marketable type (some mix of US bonds, notes, bills, say). In fact, the trust fund could buy the very debt the Treasury issued by necessity of it not borrowing the FICA funds. (I know, ironic, right?)

        Then, in time period 2, the trust fund sells those securities on the open market.

        Have I said anything foolish yet? If so, please point it out. Assuming not, if I look at these two possibilities, I am having a great deal of trouble seeing the difference. I grant that if I permit the raising of taxes and/or the lowering of government spending, the story could be different. My point is only that it seems like all the trust fund machinations do are equivalent to issuing of debt. Now, I understand that’s not how it is described, but I would not call the reality of the trust fund machinations a terrible, horrible thing, in and of itself. Debt is not always bad. To be sure, too much debt can ultimately be bad. But we’ve got loads of debt problems. SS ought not to be singled out to blame for that. Debt is caused by low revenue (tax cuts and low economic growth), unfunded wars, out of control health costs, etc.

        But, before I make my conclusions firm, go ahead and tell me where I’ve gone off the rails. I will also add that I’m learning a lot here.

        SS trust fund in 2011: $2.6T (http://www.ssa.gov/oact/progdata/assets.html)

        Total US debt as of this writing: $14.7T (http://www.usdebtclock.org/)

        • @Austin
          you have it right (or I wrong). I think the questions not stated clearly in discussion are: given the deficit levels of the past, this was an efficient way to finance such. A related question is, did this arrangement help make past deficits larger.?I would think so, but of course if true then the other choices were lower spending or higher taxes. Also everyone keep in mind the 75 year big picture counterfactual: ~half the folks 65+ lived in poverty in 1935 and it is about ~9.5% today. The costs and benefits need to be thought about.

        • “I grant that if I permit the raising of taxes and/or the lowering of government spending, the story could be different.”

          And that’s the key to the story. Because of the way we account for the trust fund and the unified budget, we reduce the incentive/political pressure to raise taxes or lower spending. The SS surplus appears to be “free money”, whereas it supposed to be part of a standalone and sustainable program.

          For years we’ve lived above our means, borrowing more and more to pay for runaway spending and not taxing adequately to pay for it. And the sleight of hand that is the SS trust fund has made it politically easier to do that because it masks what the real budget deficits were.

          You are correct that if all else is equal all this does is negate the need for additional borrowing and the difference is only where the borrowing occurs. But the whole point is that if we didn’t use phony accounting to make it appear as if this was “free money” all else would not be equal.

          A perfect example of how this changes the game is the CLASS Act. A nearly identical accounting fiction was going to happen with CLASS: they would take the early surplus, replace it with treasuries, and call it deficit reduction. In other words, they’d spend that money now and when it’s needed to pay claims later they’d have to raise funds elsewhere. Trust fund accounting in the hands of a politician gives them even more incentive to kick the can down the road. They already have the incentive to do “dessert now, vegetables later” types of things, and trust fund accounting lets them call it simply “dessert now”.

          • @AB
            CLASS actually helps demonstrate limitations of any accounting approach re the deficit. Even if it worked perfectly (people sign up voluntarily and it is self sustaining over long run–this is theoretically possibly) you will still end up with too much credit re deficit accounting short run and too little long run (it would add to deficit in out years even if policy success achieved–self sustaining program). Doesn’t mean accounting approach flawed, it is just can’t answer every question we might ask about public policy.

            • This is true with government accounting methods, but that is not the only way. When a private company sells LTC insurance like CLASS, the early surplus is set aside as reserves, and you also accrue a future liability that offsets the current cash flow. So while what you describe is correct given the current methods, what really ought to happen in the case of something like CLASS is that rather than counting that positive cash flow as deficit reduction, you offset it with a liability and the net result is deficit neutral. CLASS is a perfect example of why the accounting method is flawed: if the program is self-sustaining it should have no impact on the deficit in the short or long run. The entire problem is the use of cash accounting for a program with cash flow mismatches.

              This is a bit of a pet peeve of mine. I’ve spent a decent chunk of my career doing actuarial reserving, and the entire notion of accounting for a program like this on a cash basis is completely absurd.

      • The bottom line is that (a) the SS fund lends Treasury real money, (b) Treasury has to pay it back. That’s all there is. How Treasury uses, or accounts, or pays back that money has absolutely nothing to do with Social Security. If you don’t like the way Treasury works, you have to talk to (or about) Treasury, not SS.
        So this is a sleight of hand. The government borrows money from SS and uses it, so of course it has to use current revenues (or new borrowing) to repay it. That’s what borrowing means, and SS is no more responsible for that borrowing than China is.
        Even worse, if you tried to argue that there’s something wrong with the US government borrowing money (or issuing bonds), you’d get laughed out of the room.

    • David:
      You’ve got the mechanics right
      However, Social Security was originally envisioned as a self-supporting system, with no use of general revenues.
      In order to pay back the loans, the government must use general revenues, or if a deficit, increase the debt held by the public.
      To answer Austin’s scenario number one, the debt owed by the Treasury to the trust fund is intragovernmental debt, which is about $5 trillion of the $14 trillion debt.
      Intragovernmental debt includes other trust fund accounts, including the defined benefit portion for federal retirees.
      The same thing is occurring with the defined benefit portion for federal retirees.
      The excess monies are loaned to the Treasury, so there really is no reserve fund to tap.
      That is why there is a liability, in the trillions, of this portion of their retirement plan listed on the federal government’s balance sheet.
      Now, we are talking about raiding federal retirees’ retirement plans.
      Is that okay with you, or should that “privilege” be restricted only to American citizens paying into Social Security?
      In order for the trust fund to represent a real reserve, which is liquidated without raising general revenues or debt held by the public, the law must be changed.
      I would change it to allow investments similar to the federal retirees’ defined contribution plan.
      Don Levit

    • “However, Social Security was originally envisioned as a self-supporting system, with no use of general revenues.”

      And that’s still exactly what it is, no more, no less. (Or would be were the cap raised.)

      “In order to pay back the loans, the government must use general revenues, or if a deficit, increase the debt held by the public.”

      And that’s exactly what anyone, any company, any government that borrows money has to do. That’s what it means to borrow money; the money comes in, you use it, and you repay it down the line from other sources.

      “The excess monies are loaned to the Treasury, so there really is no reserve fund to tap.”

      Of course there is: US government debt is, by definition, the safest investment in the US. The idea that there isn’t a trust fund implies that the US government can’t be trusted to repay its debts. (Of course, that may be what you want: it’s what many current Republicans seem to want.)

      • David I don’t think you’re quite understanding the issue. If SS is a self-sustaining program that means it should not need to “repay it down the line from other sources”.

        I’ll try a brief and simplified illustration. Imagine that SS was a 100 year program, with tax receipts that were 100M greater than payments for the first 50 years, and 100M less than payments for the 2nd 50 (we can ignore interest here for simplicity’s sake). If you hold onto that cash for the first 50, the program is self-sustaining and all of the cash flows are equal in the long run. But if you instead spend that extra money on other unrelated things and replace it with treasuries, during that 2nd 50 years you’ll need to raise money from elsewhere to pay it back, and the program is no longer self-sustaining.

        –“The idea that there isn’t a trust fund implies that the US government can’t be trusted to repay its debts.”

        There is no such implication. Yes, the US gov’t can repay its debts, but this is a debt that should not have existed. SS was designed to not need money from general revenues, but it will now need them because the trust fund has been depleted. You’re making the very mistake that the shoddy accounting allows, ignoring the liability created when you borrow from the trust fund.

        How can you, in the course of one comment, claim that SS is indeed self-sustaining, but then say that it needs to be repaid from other sources? Don’t you see the contradiction?

        • Is it legitimate to make the following distinction? There is, on the one hand, the issue of what the SS trust fund does with the FICA revenue: hold it in cash (what does that mean, exactly?), invest it in marketable assets, or trade it for nonmarketable IOUs from the Treasury. (I’m not saying SS has these options at its disposal under the law–I don’t know, actually. I’m saying, in principal, there are options.)

          On the other hand, and as a separate matter, there is a question of how much debt the US takes on.

          These two issues are separable, no? That is, just because the SS trust fund “accounts” for its revenue by holding IOUs from the Treasury does not itself mean there must be higher debt. I grant it is reasonable to argue that it does lead to higher debt, but that’s not required.

          What I’m getting at, is that the objection is to the debt, not to the SS accounting per se, right? The reason I am getting to this is that I think bashing SS accounting is not helpful in explaining the core objection. I understand that people believe the SS accounting methods are part of the cause of higher debt, but I would find the whole debate much clearer if the focus were more on the debt issue than the accounting methods.

          Now, as for the debt, as I already pointed out, the SS trust fund accounts for 18% of outstanding US debt. There’s a lot more to the debt than SS and there’s a lot more to debt than just spending. If one is concerned about debt only then one should take a more holistic view. If one focuses on SS only, one’s listener is bound to start to think debt isn’t the concern, but, rather, redistribution and/or taxation. Which is it?

          • Austin, Don Levit has answered this adequately below, but I would add that the problem in my eyes is not redistribution or taxation, but the misrepresentation of our fiscal position.

            You mentioned earlier that without these SS funds if all else were equal we would have issued more debt. This is true, but were that to happen we would have larger deficits. If we were to simply sell more debt to China rather than take money from the trust fund, we would not call that money “revenue”. When China or anyone else buys our debt, we have not improved our fiscal situation, we’ve simply found a source of cash to cover our current spending. Yet when the SS trust fund buys our debt it is accounted as if it were revenue. The two transactions are functionally identical, yet one of them increases the deficit and the other doesn’t.

            It is no different than if you were to start paying your mortgage and buying your groceries with a credit card instead of a debit card, and then claiming that you’ve improved your personal balance sheet because your bank account balance grew. The trust fund is a source of borrowing that doesn’t “count”, and thus glosses over the true fiscal imbalance.

            • I understand and I do not dispute what you have said. Not directed at you, but more generally, I personally prefer value-neutral descriptions and those are usually sparse in debate over this issue.

    • ” But if you instead spend that extra money on other unrelated things”

      Here’s your problem. SS didn’t spend it on unrelated things. Period. Full stop. The idea that “SS spent the money” is pure right wing talking point. SS stashed its money in the safest place you can possibly stash money the whole US: the US government.

      And the US is perfectly capable of paying back SS over the next 25 years.

      • “Here’s your problem. SS didn’t spend it on unrelated things. Period. Full stop”

        That is an untrue statement. The money is not “stashed”, it has been spent elsewhere. That is the entire reason we are discussing this, because the government takes money that is supposed to be for SS and spends it on unrelated things.

    • Austin wrote:
      The objection is to the debt, not to the Social Security accounting, per se.
      Actually, it is both.
      The accounting is fraudulent, for people believe because the trust fund shows a positive balance, it means there is money set aside to pay that balance.
      That is not true.
      Those numbers simply mean the amount that can be drawn on the Treasury, without an appropriation. The financing is the same for battleships, although they need an “official” appropriation.
      This is not my personal opinion.
      This is the assessment of several reputable governmental agencies, which I would be glad to post for those who are interested.
      To debate whether the Treasuries will be made good or not is not the issue.
      The issue is that the reserve fund does not exist as we envision reserve funds to be funded, and, apparently, how Roosevelt viewed it.
      I can provide excerpts to show that the money was taken from the Social Security fund, loaned to the Treasury, and spent for current expenses.
      I was under the impression we agreed to that, and that the money cannot be in 2 places (and spent) at the same time.
      On a related matter, Medicare Part D is funded 75% by general revenues, which is a current expense, and 25% by participants.
      Do you believe that Part D is “fully funded?”
      Don Levit

    • “The trust fund is a source of borrowing that doesn’t “count”, and thus glosses over the true fiscal imbalance.”

      Yes, but that’s a problem that’s totally on the US government side of the fence. The US government borrowed money and has the resposnibility to pay it back, period. That the US government confuses itself by accounting handwaving doesn’t change the fact that the SS trust fund has a real surplus. That the US government will pay back.

      The problem is that Don Levitt wants to use that accounting strangeness to declare the trust fund already spent, when it hasn’t been. Basically, he wants to steal 14 trillion dollars from the US elderly. That’s one seriously criminal and immoral bank robbery.

      “The trust fund is a source of borrowing that doesn’t “count”, and thus glosses over the true fiscal imbalance.”

      OK, if you say so. But, again, that isn’t about SS as a system, it’s about how the government juggles its books. The good news, though, is that SS is starting to draw down its trust find at a time when the Government can borrow at the lowest rates in history.

      The bottom line is that SS is in the black through 2035 or so and needs to raise the ceiling on the payroll tax at some point to keep going beyond that. How the Feds/Treasury comes up with the money to repay SS has nothing to do with the financial soundness of the SS system as a system.

      Unless the crazed radical right gets away with its lies.

    • SS didn’t spend it on unrelated things.

      “That is an untrue statement.”

      No. It’s a true and accurate statement. SS collected money and (as you state) “the _government_ takes money that is supposed to be for SS and spends it on unrelated things.”

      That’s a problem on the government side, not SS.

      “people believe because the trust fund shows a positive balance, it means there is money set aside to pay that balance.
      That is not true.”

      No one would believe that even if the government accounted the SS trust fund as borrowed money. Any time money is borrowed (or even placed in a savings account), the borrower (or savings instituttion) spends it (or lends it out) and pays it back from current income or new debt. So the only difference is how much debt the US govt. thinks it has.

      Which has nothing to do with SS. To claim it does, of course, means you intend to steal that 14 trillion or so from the elderly who paid it in. And I do object to that. Strongly.

    • I believe more than anything we are arguing over the proper classification of a Ponzi scheme and if social security fits into that definition.

      Here’s an innocent thought experiment to try to figure this out. (I have no opinion on the usage of the term or not.)

      If we stipulate what Bernie Madoff did was a Ponzi scheme and if Bernie Madoff was running his scheme as he did, *but* he had a very profitable subsidiary which allowed him to make payments to those clients that were a part of his scheme, was it still a Ponzi scheme?

      Let me know if this is an accurate hypothetical or not; my intuition is that the answer is yes.

      All the best,


    • I’m surprised this debate has gone on so long here and elsewhere. If you look at Medicare and Social Security, only one of them has the markings of a Ponzi scheme, and it isn’t Social Security.

      Basically, what you pay in to SS is what you get out. Putting aside the earliest recipients (now pretty much all dead), the only big deviation from this is for spouses who do not work outside the home. Social security serves two main functions: it protects people who would be inclined to undersave due to irrationality, ignorance and/or heavy time-discounting of future happiness, AND it is a wealth transfer to families with one wage earner (which happens to benefit white women most of all).

      These graphs tell the story: