Alan Greenspan is a smart guy

[August1991]

... all we get is David Dodge.

(Greenspan) said one idea might be to replace the payroll taxes that pay for entitlements like Social Security and Medicare with a value-added tax while keeping an income tax to pay for other programs.

Reuters

Incidentally, Macleans got this all wrong despite but what this guy's blog says:

Okay so maybe we weren't the catalyst behind this testimony, but still...

The U.S. Federal Reserve chairman essentially echoes all of the key points of this week's cover story:

-The U.S. entitlement programs (medicare, medicaid, social security) are unaffordable.

Steve Maich's blog

You can read his cover story here:

Macleans Cover

But Walker isn't a lobbyist or an activist, he's an accountant. His title is comptroller general of the United States, which makes him the head auditor for the most important and powerful government in the world. And he's desperately trying to get a message out to anyone who'll listen: the United States of America's public finances are a shambles. They're getting rapidly worse. And if something major isn't done soon to solve the country's intractable budget problems, the world will face an economic shakeup unlike anything ever seen before.

This is all about cutting government spending. Bush Jnr is going to try to cut out all the pork in Congress.

[Black Dog]

This is all about cutting government spending. Bush Jnr is going to try to cut out all the pork in Congress.

Soc Security "reform" has absolutely nothing to do with "cutting spending" or reducing the program costs.

Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people's lives better and more secure. And that's why the right wants to destroy it.

Don't forget that Greenspan played a leading role in pushing for increases in the regressive payroll taxes in the 1980s to secure the Social Security system and then, two decades later, advocated for George Bush’s massively regressive tax cuts -- tax cuts that are, of course, the underlying cause of the ostensible Social Security “crisis” he’s so worried about now.

Greenspan is a Ayn Rand disciple from way back, so its no surprise he'd fall in line with those who'd make government small enough to drown in a bathtub (while fattening a few wallets on the way, of course).

[August1991]

Greenspan is a Ayn Rand disciple from way back, so its no surprise he'd fall in line with those who'd make government small enough to drown in a bathtub (while fattening a few wallets on the way, of course).

True, more or less (I'll pass on the snarky wallet comment). Step One is cut taxes. Step Two is to say finances are out of whack so we must cut expenditures.

Military expenditure will not get cut. And Bush Jnr doesn't have to get re-elected. Cheney won't run. Draw your own conclusions.

Soc Security "reform" has absolutely nothing to do with "cutting spending" or reducing the program costs.

I agree.

Social Security is a government program that works, a demonstration that a modest amount of taxing and spending can make people's lives better and more secure. And that's why the right wants to destroy it.

Black Dog, if you are interested, I'll start another thread on this issue. There's a Canadian (in fact, Quebec) angle.

[Guest eureka]

If you two can agree so readily on this, what point debate!

[Hugo]

It's been a while since we've locked horns, Blackdog, what do you say?

Social Security is a government program that works

Not true. You even contradict yourself by stating that it "works" and then admit that the only way it was kept going was through tax increases!

The social security program almost collapsed in 1983, and was "saved" by the Greenspan Commission (funnily enough). He saved it with a series of tax hikes to pays for its increasing costs, which proves absolutely nothing about its viability since you can keep virtually anything going as long as you throw enough money at it, and such money is easy to come by when it is coerced out of people. Since Reagan's presidency, all cuts to income taxes have been more than offset by increases in social security taxes.

Social security will face another huge problem in 2018, when claims upon it will start to exceed the taxes going into it. The administration does have a large amount of claims on the Federal government, however, the feds don't have any cash reserves to honour these claims because they already spent the Social Security "surplus" (one of the reasons for the reform in 1983 was as an exercise in creative accounting to reduce the defecit on paper) and so, in 2018, expect that either taxes will go up, the defecit will balloon, or the age of retirement will be raised to 70 or 75.

President Bush has proposed to partially privatize the system, however, the funds he proposes to use for private investment will come almost entirely from funds allocated to fulfilling pension obligations. This means that the government will have to tax or borrow trillions of dollars before this scheme actually starts to cause any reduction in required social security spending. What the proposal therefore amounts to is an expansion of government rather than any real kind of privatization. It also creates a massive potential for pork-barrelling since government will have to approve the stocks that are purchased, and I think it probable that the likes of Halliburton will mysteriously appear high on that list.

Social Security is basically a big Ponzi scheme. It purports to be almost like a private savings institution, when the fact is that it is nothing more than a wealth redistribution scheme. The idea is that you pay in, your money gets saved and then given back to you in old age. What actually happens is that you pay in and your money is given directly to retirees, and when you retire, the government will take money from other young people to give to you. The difference is that Ponzi did not have the coercive power of the state to back up his deceit.

The other big lie is that it is somehow a welfare scheme. A person who earns $52,000 per year will pay 7.65% of their income to social security, but a person who earns $500,000 a year will only give 0.78%. This is hardly taxing the rich to help the poor!

a demonstration that a modest amount of taxing and spending can make people's lives better and more secure.

Hong Kong only acquired a state retirement funding scheme three years ago, and that didn't stop the residents there from enjoying one of the highest standards of living in the world. Their life expectancy is higher than in the USA.

The social security scheme revolves around a very condescending leftist idea: that people, left to their own devices, are too stupid to plan for their own retirement and must be forced into saving for it. Given the resourcefulness and talent shown by so many in avoiding government interference this is patently untrue.

And that's why the right wants to destroy it.

That was a statement truly worthy of Maplesyrup. The right does not want to destroy it because it is an unbridled success, the right wants to destroy it because they see it as a failure and because they believe there are superior alternatives.

[Black Dog]

The right does not want to destroy it because it is an unbridled success, the right wants to destroy it because they see it as a failure and because they believe there are superior alternatives.

But clearly Bush's proposal is not among those superior alternatives. I am well aware of the liberatarian antipathy towards government programs, but its hard to argue that Gee Dubya is any sort of free market crusader.

[Hugo]

Where did I say otherwise?

[Black Dog]

Where did I say otherwise?

You didn't. I'm agreeing with you (on that point).

[August1991]

The social security scheme revolves around a very condescending leftist idea: that people, left to their own devices, are too stupid to plan for their own retirement and must be forced into saving for it.

Hugo, I have to basically agree with you on this. But there are so many provisos to add.

Social Security was started in the US in the 1930s when confidence in the private banking system was gravely shaken.

As in Canada, pension payments grew tremendously in the 1960s. This was a straight transfer from young people to old people. (Old people at the time were amongst the poorest in society; this is clearly no longer the case.) The greatest beneficiaries were those born between 1900 and 1920.

It can be argued that a society is more civilized if it forcibly takes from the young and gives to the old. One reason for this is that it creates a "prize" available at old age but dependent on good behaviour.

State pensions were created in a world without RRSPs so that there was a large tax distortion in favour of current consumption (excepting house ownership).

----

Hugo, your criticism of US Social Security is that it is "pay as you go". You feel it should be properly funded. Well, the world as whole is "pay as you go". It must be. The US pension scheme cannot be any different.

At issue really is how much grain to put aside this year so that we'll have enough seed for next year's crop. To be more exact, the issue is also what kind of grain to put aside.

By large tax cuts, the Bush administration privatized those decisions. In effect, Bush Jnr refunded to Americans all future social security payments.

The idea of privatizing social security is really an end-run around those who want to make Social Security a publicly-managed fund with private equity. Then, the State would be making decisions about how much and what grain to put aside. As you noted accurately (IMV):

It also creates a massive potential for pork-barrelling since government will have to approve the stocks that are purchased, and I think it probable that the likes of Halliburton will mysteriously appear high on that list.

This is what has happened in Quebec (it's referred to as Quebec Inc.) and is in the process of happening in Canada. I refer you to CPPIB. It has already been criticised for not making "socially progressive investments".

[Hugo]

Hugo, your criticism of US Social Security is that it is "pay as you go". You feel it should be properly funded. Well, the world as whole is "pay as you go". It must be. The US pension scheme cannot be any different.

My problem with Social Security is that it is founded on a hodgepodge of lies and deceit, and that it is a coercive, unjust and frankly, unnecessary institution. It was never intended to be necessary since the original retirement age was fixed at 65 because at the time, the average American didn't even live to 60 and as I said, Hong Kong had no state retirement programme until three years ago and they seemed to get along just fine. Evidently their elderly weren't destitute enough to stop them living longer than American retirees supported by Social Security.

Investments are a claim upon a person to be made in the future. If I put $5000 in a mutual fund, that means I expect at least $5000 back from the holder of the fund in the future. If they are unable to pay (say the investments are unwise), then the claim can't be fulfilled since the person doesn't have the means.

Social Security's "investment" is the Federal Government's claim against itself. How can one pay oneself or owe oneself money? This excuse for logic is why the system is in its current mess.