Security? What Security?

For months now, we have been hearing about the problems with Social Security. President Bush, on the one hand, has proposed something as an alternative approach to the problem; the Democrats, who agreed the problem was severe during Clinton's reign, seem afflicted with amnesia now, and are in deep denial. On the other hand, the position of many Republicans is hardly supportive of the President's position.

Repeatedly, we hear from the media about the cost of the President's proposal: some $2,000,000,000,000! (Counting the commas here... yup, $2 trillion.) Now, as the President has not yet presented a detailed plan, and has, in fact, suggested only in broad strokes, for Congress to define and implement, one may fairly ask whence come these figures. In fact, one must ask, as no one has so far presented (in my hearing, at least) any explanation. The report of the Trustees for 2004 makes plain, in summary, their data:

"At the end of 2003, 47 million people were receiving benefits: 33 million retired workers and their dependents, 7 million survivors of deceased work-ers, and 8 million disabled workers and their dependents. During the year an estimated 154 million people had earnings covered by Social Security and paid payroll taxes. Total benefits paid in 2003 were $471 billion. Income was $632 billion, and assets held in special issue U.S. Treasury securities grew to$1.5 trillion."

OK. $471 billion in benefits paid, and $632 billion income. By my calculations, the overpayment of payroll taxes comes to some $161 billion, not exactly small change. And there's that statement of "assets held in special issue U.S. Treasury secutities", which is their way of talking about the so-called trust fund. The problem with that fund is that it exists only as Treasury notes, and those are simply I.O.U.s declaring a debt on the U. S. government. They do not represent a fund as you and I might think of such things; they most particularly do not exist as money.

Pay Me Now or Pay Me Later...

The $1.5 trillion in "assets", vapor though they are, represent the SSA's ability to pay out benefits in the future. When the time comes, those benefits will have to be paid, unless Congress again diddles the rules, postponing the inevitable, or even revoking obligations (an increasingly likely scenario.) Where do the politicians suppose they will get the needed dollars? Lest there be any confusion, the ultimate recourse of the government will be to issue new currency in support of those obligations, and the end product of that act will be to deflate the U. S. into a state more closely paralleling that of one of our neighbors in South America.

As has been pointed out, the cost of doing nothing is some $10 trillion. And that's the legacy we are about to bequeathe to our children and grandchildren; it may well be the most irresponsible single act ever perpetrated by politicians.

Growing Danger

To underscore the risks of delaying repairs to the system, here is the corresponding paragraph from the Trustees for 2005:

"At the end of 2004, 48 million people were receiving benefits: 33 million retired workers and their dependents, 7 million survivors of deceased work-ers, and 8 million disabled workers and their dependents. During the year an estimated 157 million people had earnings covered by Social Security and paid payroll taxes. Total benefits paid in 2004 were $493 billion. Income was $658 billion, and assets held in special issue U.S. Treasury securities grew to $1.7 trillion."

In one year, the benefits paid rose by $22 billion, and the income rose by some $26 billion. On its face, that sounds relatively good, as the income is rising more rapidly than the benefits. But remember, the excess is replaced by Treasury bills, and thus the long-term liability represented by those securities is growing more rapidly than the current liabilities.

Only in Washington, D.C., could a cash surplus be so quickly turned into a liability.

How Do They Do That?

The surplus in payroll taxes, once replaced by Treasury bills (and special ones, remember), is diverted to the general fund. And there's why Congress is so reluctant to do anything to change the status quo: any such change means the loss of monies from the general fund, and as we are already running in deficit-spending mode, that means directly increasing the deficit.

One thing is clear: Congress must learn from ordinary citizens that a critical part of any solution involves not spending money they do not have. But of course, spending is more fun than not spending, and most congress-critters do seem more focused on fun than on responsibility.

Stop the Madness!

Believe it or not, the folks we elect, do listen, if we scream loudly enough. But only if they hear long, loud and continuing screams from their constituents will they finally begin to take seriously the problem that is Social Security. We must all take responsibility for writing them, phoning them, and lobbying them when they deign to visit their home precincts. Do it for your kids!

References

The reports of the Trustees on the state of the Social Security system are here:

http://www.ssa.gov/OACT/TR/

The reports, in PDF format, can be downloaded directly here:

2005 OASDI Trustees Report

2004 OASDI Trustees Report

May the Force be with You...

OK, you may think that force of the world stuff sounds a bit overblown, but consider:

• Interaction among people is based on exchange of values
• The sense of property is innate (watch small children at play)
• In an exchange of values, each party gets something he values more highly than that which he exchanges
• Any exchange of values is entered into voluntarily

Ah, but that last point is difficult. Some exchanges are entered into involuntarily, such as taxes. But on reflection, most of us would acknowledge that there is a good reason for taxation in support of roads and the common defense. What we really find objectionable is a particular level of taxation, or the way those taxes are spent, not the principle of taxation.

But I digress...

The basics of economics are at play whenever you buy gasoline, or groceries. And if you can but understand why spending money you do not possess is a Bad Thing, then you have reached a point at which the essential principles are understood.

Now comes a critical point.

The same principles that apply to personal spending (and debt) are equally applicable to government spending (and debt.)

Read it again, and think it over. It's crucial.

...and once you've got it, then you must logically determine that deficit spending is a Bad Thing, and that the Ponzi scheme known as Social Security is in great danger. But even more important, you have already learned as much as is essential to recognize when a politician is lying to you (which is almost always about money!)

More anon...

Why focus on economics?

Many years ago, when I first attended college, I had no interest whatever in economics, and therefore, of course, avoided taking any classes in it. Over the years, both as an employee, and as the owner of my own business, I learned many of the principles of economics first hand, as they apply to real money (and real bills!)

More recently, I have taken the opportunity to study the subject on my own, with the assistance of some great authors, such as Milton and Rose Friedman, Thomas Sowell, Ludwig von Mises, and George Reisman. What I have learned from these authors has confirmed all that I had observed in my career, and has opened my understanding to many things I had not observed. I find that the more I learn about economics, the more I wish to learn.

Why?

Because economics is the force of the world.

Setting Forth...

Beginnings are always difficult, but I hope this one may be less painful than some...