Eight Facts About Social Security

[Foxfyre]

Whatever the government does takes more money out of the economy than it infuses back into the economy. That is true even in cases like TARP and the stimulus package that borrowed the money to infuse into the economy. That money still slows the economy with the increased debt hanging like rotting meat over the nation and produces intolerable interest payments not to Americans but mostly to nations that don't have our best interests at heart. And the impending threat of higher taxes and other measures to deal with the staggering deficits and debt is a further drag on the economy.

That is why Social Security that pays out more than it takes in is unsustainable. Like ALL entitlements, it usually takes years, often decades, before the worst of negative consequences kick in, but those consequences will always kick in. Money generated, circulated, invested, and saved in the private sector is a positive for the economy. Government programs rarely are.

 

[Toro]

Well, where does the government get the money to pay you the interest? Black hole?

It gets the money to pay the interest FROM YOU. Or someone else. So for EVERYONE the interest must equal 0. UNLESS some money is invested. You are trying to generate a free cake. Sure YOU can get the interest, but then someone else must then lose it and lose some more. Also, you may not even know if you are getting the interest because you may be paying taxes to cover the interest. Since ALL the money was spent and not only the interest part, young generations are going to be big losers in the SS.

The government gets the money to pay you back from economic growth. Its not a zero sum game nor is it a "free cake." I would agree that generally, the private sector is a better allocator of capital than the government, but your analogy is incorrect. All capital circulates through the economy through different conduits. The government is just one of them. It doesn't matter if it is a bank borrowing or a company borrowing or the government borrowing. The government borrowing from you and investing/consuming is no different than someone from the private sector borrowing from you and investing/consuming (apart from the multiplier affect and returns on capital from various projects).

 

[Norman]

Well, where does the government get the money to pay you the interest? Black hole?

It gets the money to pay the interest FROM YOU. Or someone else. So for EVERYONE the interest must equal 0. UNLESS some money is invested. You are trying to generate a free cake. Sure YOU can get the interest, but then someone else must then lose it and lose some more. Also, you may not even know if you are getting the interest because you may be paying taxes to cover the interest. Since ALL the money was spent and not only the interest part, young generations are going to be big losers in the SS.

The government gets the money to pay you back from economic growth. Its not a zero sum game nor is it a "free cake." I would agree that generally, the private sector is a better allocator of capital than the government, but your analogy is incorrect. All capital circulates through the economy through different conduits. The government is just one of them. It doesn't matter if it is a bank borrowing or a company borrowing or the government borrowing. The government borrowing from you and investing/consuming is no different than someone from the private sector borrowing from you and investing/consuming (apart from the multiplier affect and returns on capital from various projects).

You just can't go without conjuring the cake from thin air, can you?

If that was the case, then you could get the interest ANYWAY (government recieves the econ growth and just gives it to you). Thus, if SS gives you the benefit of economic growth, you miss it via other means. In other words the SS again does not grow any interest because of the opportunity cost.

But again, economic growth does not make stuff magically appear in government coffers. Sure it is easier to tax money and get more taxes after economic growth though. BUT STILL, you pay the interest money, which you could have spent elsewhere.

So, if government gets money to pay to you as interest for SS via economic growth (which is false) you will miss the money it could have given to you via economic growth in other places. Generating 0 interest. You can only get real interest via investing. Sure individuals can loan money to each other without investing to get growth, but that's just because one individual is willing to pay for other's interest. In SS you are all in the same boat, thus no one is left to pay the interest. You are all the receiver and the payer of the interest. Your promise to pay for me is an asset, but my promise to pay for me is an asset and liability and they cancel out, like SS.

 

[Toro]

You just can't go without conjuring the cake from thin air, can you?

If that was the case, then you could get the interest ANYWAY (government recieves the econ growth and just gives it to you). Thus, if SS gives you the benefit of economic growth, you miss it via other means. In other words the SS again does not grow any interest because of the opportunity cost.

That's where you are mistaken. You are assuming - incorrectly - that people will take the taxes that go towards SS and apply those monies towards alternative investments. That is wrong. People woefully undersave. That's why SS came into existence in the first place. I worked as a stock broker a few years out of undergrad and I was shocked at how little people saved. I'd have meetings with professional couples in their 50s who had $10-$20k socked away. I saw thus repeatedly. Apparently, there was an article in USA Today this week saying things have gotten slightly better, but this is almost certainly because of the financial crisis. The savings rate in this country fell from 8-10% in the 80s to negative earlier in the decade.

But again, economic growth does not make stuff magically appear in government coffers.

Actually it does. Tax revenues pretty closely tracks economic growth. This isn't debatable.

Sure it is easier to tax money and get more taxes after economic growth though. BUT STILL, you pay the interest money, which you could have spent elsewhere.

Spending it elsewhere is the problem. People need to be saving more for their retirement, not spending it on the here and now.

So, if government gets money to pay to you as interest for SS via economic growth (which is false) you will miss the money it could have given to you via economic growth in other places. Generating 0 interest. You can only get real interest via investing. Sure individuals can loan money to each other without investing to get growth, but that's just because one individual is willing to pay for other's interest. In SS you are all in the same boat, thus no one is left to pay the interest. You are all the receiver and the payer of the interest. Your promise to pay for me is an asset, but my promise to pay for me is an asset and liability and they cancel out, like SS.

Again, your argument assumes that people save enough, and that everyone's supply and demand for capital is the same. Both are not the case.