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  • From: Jim Allman <jim AT ibang.com>
  • To: "Internetworkers: http://www.ibiblio.org/internetworkers/" <internetworkers AT lists.ibiblio.org>
  • Subject: Re: [internetworkers] Social Security reform? (was: UK contracting)
  • Date: Wed, 9 Feb 2005 00:23:06 -0500

Regarding doomsday scenarios (massive default on US government obligations), Tony Spencer wrote:
Stop just starting to think that is the scenario and accept it to be fact!

If the US defaults on its obligations to the SS trust fund, which is a type of Treasury bond, then what are we saying to foreign bondholders? Euro, here we come! Seems to me this would be a good thing to avoid if we can (and I think we can).


Social Security was a failed theory from day one. When it started we has 11
people paying into the system for every one taking money out. Now it 2 or 3
paying in for every one taking money out right?

Granted, it's a big demographic challenge. Interestingly, this problem was anticipated by the system's original designers, who recommended the kind of measures that Greenspan & Co. undertook in the 80s: build up a surplus, then spend it down.

The remarkable thing is that the whole system *could* still work indefinitely, by adjusting the variables:
- increased payroll taxes (already largely done, thanks to the 80s reforms)
- increased retirement age (proportional to increasing lifespans)
- possibly adjusting the cost-of-living increases to something between wage and price inflation

Keep in mind, the shortfall disappears entirely if the economy keeps chugging along at its historic average rate. And if it doesn't, private accounts aren't going to be an improvement.


The details will need some working out but there is no reason that we shouldn't expect more than a 1% return on our SS investment, not to mention the problem of massive taxation we face if we don't do something enterprising quick.

The real fixes (assuming they're needed, which is a tough call 40+ years out) are in benefit cuts, or in the kind of adjustments listed above. Even the administration now says that private accounts won't address a shortfall.

Regarding "1% return," I believe the return quoted by the administration for conventional SS benefits is actually 3% above inflation. Of course, talking about return is meaningless without considering risk, and that's a pretty good return for the minimal risk of Treasury bonds.

Unless, of course, this is just a race to the lifeboats while our captain scuttles the ship.

=jimA=

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Jim Allman
Interrobang Digital Media
http://www.ibang.com/
(919) 649-5760





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