The Social Security Trust Fund

John Holbo: “Is that right?”

Well, it is, and it isn’t. :)

John Holbo: “To repeat: it can’t be the mere fact that parents indulge in semi-fictional accounting that’s the problem.”

That is absolutely right. :) The talk about how the Social Security Trust Fund (SSTF) is a fiction is propaganda, aimed at suggesting that Social Security is a fiction. That, as you say, it is full of worthless IOUs. OC, if the IOUs in the Trust Fund are worthless, then so are other U. S. gov’t IOUs, like the treasuries that so many people and gov’ts are buying (and the Fed is buying, too). It is amusing to think that the same people who are questioning the treasuries in the SSTF are up in arms about the Fed buying treasuries and taking them off the market. If they are worthless, who cares?

John Holbo: “If the US government falls on seriously hard times, economically, there may need to be belt-tightening. Maybe the US government will have to break the deal it made, not making good on the IOU’s in the Social Security Trust Fund. Likewise, if our family falls on hard times, I may be driven to spend my daughter’s back allowance money on food for our table, in the sense that I may never pay her that money.”

This is not quite right, and in an instructive way. As you indicate, if the US ceases to exist, its obligations will (probably) cease to exist. (Not necessarily. Its successor may honor them.) But that is not what is being claimed. What is not quite right is separating the US gov’t from the US. Technically, the US gov’t cannot fall on hard times. The US can, of course, but not the gov’t per se. The gov’t is the ultimate source of US dollars. It is inaccurate to think that it has money or that it does not have money. It creates money. (And destroys it, too. It burns dollars all the time.) Now, state and municipal gov’ts can fall on hard times, because they cannot create US dollars, only the US gov’t can do that. So it will never be a problem that the US gov’t cannot pay social security benefits because it is spending money on something else. (It may be that stingy bastards in Congress will reduce benefits or something, since they write the laws, but that is a different matter.)

Now, let us suppose that really hard times come. Say that the Yellowstone supervolcano erupts, not only killing millions of people but destroying agriculture more thoroughly than the Dust Bowl did, and leaving society in shambles. It may then be the case that the US (not the gov’t per se) will have trouble feeding its people. The gov’t can (and will!) pay its obligations under social security, but that may not prevent social security recipients from starving to death. It is real problems that we have to worry about, not whether the gov’t will renege on its obligations to its own people. The only people who are raising the question are those who want the gov’t to renege on its social security obligations.

John Holbo: “The moral of the story is that it’s perfectly reasonable to worry about how the US is ever going to manage to pay for stuff it needs/wants.”

That is true. But before you were talking as though it were perfectly reasonable to worry about how the US gov’t will be able to pay for things. That is an unnecessary worry. :)

John Holbo: “But accusing the Social Security Trust Fund of being a mere accounting fiction does not 1) do much to explain, analytically, why the budget is tight; 2) provide any justification for dealing with budget tightness by cutting Social Security, rather than some other thing, or by raising taxes.”

The US gov’t may run a deficit. (In fact, it does more than half the time.) But that is not the same thing as the budget being tight.

John Holbo: ” (It could well be that the optimum way of dealing with budget problems it to cut back Social Security in some way, but to talk yourself into this on the vaguely moralistic grounds that mere accounting trickery should be regarded as non-binding is quite confused.)”

Looking forward, the obvious challenge to the Federal budget is the cost of health care. OC, it is a concern for the Federal budget because it is a concern for the US as a whole. It makes no sense to address it as merely a question of balancing the budget. We cannot continue to spend more and more of our national income (GDP) on health care. Our health care costs have risen dramatically since 1980. But we did have a period of years when they did not rise as a percentage of GDP. They might have been too high, in a sense, but they were sustainable. (Those were the Clinton years.) Since then, GDP has not kept pace with health costs. We will not solve our problems with the cost of health care by draconian measures aimed at our seniors. The problems will still be with us, even if we eliminate Medicare entirely. Restoring economic growth would not solve the problems, either, but it would put us in better shape to deal with them. Likewise, the best way to meet the challenge of the budget is to restore economic growth. Right now, efforts to balance the budget are likely to hinder growth. The time to think about balancing the budget is when growth is robust. Like the Clinton years. Counter-cyclical policy is not rocket science, it is fiscal responsibility. :)

The trust fund isn’t real money, and it *is* a real promise. Sometimes it’s good to believe in it, sometimes it isn’t.

One good time to regard the trust fund as a fiction would be this. “Oh no, we can’t afford to pay for college, there aren’t enough IOUs in the college box!”. Well, you can or you can’t. The supply of IOUs isn’t a real constraint. And you might think sending your kid to college is worth spending your money on even if it takes more than you projected ex ante.

The trust fund and the general budget fund are two separate financial entities, with different sources of revenue. It’s nothing like children and allowances; there’s nothing complicated here, and there’s only one way to think about it.

1. Adrian – “The trust fund isn’t real money” – It was real money at the time we paid it in. How did it become imaginary?

2. The trust fund has always sounded like a “mistrust” fund. This is particularly true at the point where our family is poised to get some of our money back. Apparently we, as a people, cannot afford the security we contributed to during our entire working lives. It makes one wonder what other “essential” government functions are bankrupt in concept.

3. I hope China decides that it is in its best interest to maintain old folks in the USA. We have certainly been the teat which has nourished them into an economic superpower today.

Whether the trust fund is real money depends on how you count entities. You can’t owe yourself money, so whether the federal-government IOUs held in the trust fund are real depends on whether they’re owned by something that isn’t the federal government. For accounting purposes the fund is a separate thing: that’s why the most irrealist position calls the trust fund an “accounting fiction”. For legal purposes, as I understand it, the fund is also separate. That’s why the Treasury instruments concerned can be held without merger, and it also affects things like what happens by default if Congress does nothing.

But for economic purposes it’s all “the government”. So, in particular, the trust fund is irrelevant to whether “we” can afford to pay retirees a given level of benefits.

None of this affects Holbo’s point that the trust fund represents a commitment to pay which can’t be disregarded. In moral terms, I’d argue, the IOUs are held by future retirees collectively.

To keep with your family analogy, the problem is that when the dad owes the girl her accumulated allowance, his other expenses have increased and his savings are gone, such that his choices are: reneg on part of the allowance owed; work more hours (tax more); cut other expenses to compensate (non SS budget cuts); or borrow the money (issue new bonds to meet the SSTF obligations).

The worry is that the last option will be harder to do 30 years out. In high school a classmate had a semi-Swiftian solution: cut off all payments to those older than average life expectancy since they should be dead.

Social security obligations are indexed to greater than the level of inflation. It is not possible to inflate your way out of the social security obligations. If you want to cur their real impact you have to cut the benefits with legislation.

The problem with discounting printing money as the “Zimbabwe way” is that we seem to have gotten the idea that any expansion whatsoever of the money supply is hyperinflationary. This is buying into a right-wing, Glenn Beckian frame; right now, the great risk is deflation and some modest inflation would be good for us.

(Correct me if I’m wrong, but it’s not just the government that creates money, is it? It’s any bank that can make loans on a fractional reserve. But the government has some control over the rate at which this happens, through monetary policy. One problem right now is that the banks, having burned themselves, are not doing enough of this, and the government’s ability to prod private banks into creating more money is close to fundamental limits. Yet Very Serious People are still warning that they need to tighten up against inflation.)

As the thoughtful comments above reveal, what we have here is not rocket surgery. Pray tell, then, why it is that seemingly sophisticated persons of considerable experience in running the government–say, Erskine Bowles–when exposed to this and related subjects have a reaction just a few degrees from Abolish Social Security! Cancel The National Debt!

Perhaps that’s merely the logical extension of the oversimplified notion that we just owe those IOUs to ourselves. Which brings to mind Will Rogers’ observation: “It’s not what we don’t know that hurts. It’s what we know that ain’t so.”

John Holbo: “I suppose I was just eliding over the (obvious, yes) possibility that the government could just print its way out of any debt hole, Zimbabwe hyper-inflation style. Standardly this is how the argument that there is no trust fund runs, after all: the only way we can pay this debt is to print our way out of it, Zimbabwe-style. Which is regarded, not implausibly, as a reductio ad absurdum on the idea that we can really pay this debt, in a substantive sense.”

Well, of course, the problem is that phrase, “Zimbabwe-style”. How about “every day style”? The US has been increasing the Federal debt since 1837, most of that time with money backed by metal. We went completely off the gold standard under Nixon, on the advice of Milton Friedman. As did the rest of the world, perforce, since the US dollar was the world’s reserve currency (as it is today). There is no danger that Social Security will lead to hyperinflation.

As for the obviousness of the fact that the US gov’t cannot run out of money, the claim that it can is at the center of debt/deficit hawk rhetoric. “Social Security is broke!” “The US is going broke, like Greece!” “The gov’t has run out of money!” “What will we do if the bond market does not give us money?” Etc., etc. It is not obvious to our citizens or politicians, especially as the “starve the beast” crowd is spreading such lies.

One Eyed Man: “Social security obligations are indexed to greater than the level of inflation. It is not possible to inflate your way out of the social security obligations. If you want to cur their real impact you have to cut the benefits with legislation.”

Isn’t the indexing that you are talking about indexing to wages, which increase more than inflation? We are an increasingly prosperous country. We are not just keeping up with inflation. What is the problem? :)

Adrian: But the whole idea of a trust fund is, arguably, non-liberal. It represents the idea that social security benefits should, over time, equal the proceeds on a dedicated tax imposed on wage earnings below a cap. No, it’s the idea that the government will honor its obligation to bond purchasers. The attack on the Social Security fund’s reality is at heart the argument that the government doesn’t have to pay its bond obligations, any more than mortgage sellers have to keep accurate timely records or have any records at all with which to mount foreclosures. It’s the same social scene at work, and the stuff you’re talking about isn’t relevant to it at all.

Nothing would prohibit the legislature from allocating funds to Social Security entirely apart from its earmarked tax revenues. It’s just that our beloved masters have decided they can do without bonds being taken seriously.

I cracked the lockbox open, stole some of the Trust Fund notes, and now they can be yours for the low, low price of your intellectual honesty. Half-off for CT members.

Adrian,

It seems to me that you need to resolve the tension between this:

“… everyone’s pretending that workers are investing for their own pensions, so it’s not really soshalizm. But that’s silly.”

And this:

“The trust fund makes a certain sense as a way of promising to spend at least so much on old-age benefits in the future—and such promises, including those embodied in the 80s fix, shouldn’t be broken.”

I’m not American so it’s not my problem really. But why on earth shouldn’t workers who have paid into a system believe that they have as good a right to get paid back as bondholders have to their interest payments? Defaulting on the former is every bit as shameful as defaulting on the latter.

This whole question a effective, possibly deliberate, distraction: it DOES NOT MATTER THAT MUCH.
Let’s suppose the trust fund is real. Nevertheless: It’s not like someone’s 401(k), not like a company’s pension provisions (not even like a rather crooked company’s pension provisions): it is NOT an endowment meant to cover future SS obligations. It’s a tiny, tiny, fraction of what that would require … but that’s not it’s job.
It is more like a buffer account, a working person’s checking account rather than their savings account. The entire amount in it (assumed “real”) could play _current_ retirees for a few (4-5???) years at most; it certainly does not have assets accumulating (e.g. in the fashion of a 401(k) or any nominally funded pension fund) that pay currently working people’s retirement. It’s not supposed to.
The status of the trust fund is just not that important. Social Security benefits in year N are going to be paid – to between 95% and 105% accuracy – but employed workers in year N; the ontological status of a buffer fund to paper over any difference is mildly interesting and important. But in the scheme of things, no more than mildly so.

“In high school a classmate had a semi-Swiftian solution: cut off all payments to those older than average life expectancy since they should be dead.”

If they then proceeded to starve to death, that would lower the average age, bringing more people under the axe. A nice side-effect.

Henri, there was the 1983 act gradually increasing the eligibility age which is in effect lowering benefits. It has also variously increased and decreased the payroll tax (always in the favor of the baby boomers). The government already has done the thing you think the government has no reason to do. And it is talking about doing it some more.

The Social Security trust fund has no financial/economic significance to anything. It doesn’t change (either increasing or decreasing) the government’s ability to pay. It doesn’t change (either increasing or decreasing) any of the options for paying Social Security benefits. When people are talking about it as an investment or whatever, they are talking nonsense.

It may be useful for rhetorical purposes or as propaganda to people who know little about money, but that doesn’t make it a non-fiction. And the hysterical defenses about how T-Bills are backed by the full faith and credit of the United States of America which are sure to show up in such a discussion, don’t change anything.

And the policy difference between having a “trust fund” and not is what again?

You have to raise taxes to cover it in 1983? Really? It is almost like the trust fund is some sort of accounting fiction or something.

“Today it’s fully funded for the next few decades”

Not particularly, see this year’s trust fund report:

“When cost exceeds income excluding interest (Chart C), use of trust fund assets occurs in stages. For HI, non-interest income fell short of expenditures in 2008 and again in 2009, when the HI fund used interest income ($15 billion) and assets ($17 billion) to meet expenditures. This year’s report anticipates a large deficit for 2010, due mainly to the recession’s negative effect on payroll tax revenues, followed by periods of declining deficits (2011-14) and small surpluses (2015-19) as tax revenues increase with the economic recovery from the recession and the ACA’s deficit-reduction provisions take effect. In 2020, demographic change causes projected annual deficits to re-emerge and increase until 2045, after which the cost rate exceeds the income rate by decreasing amounts through 2084. In 2020, under current law, interest income will again be required to meet projected HI expenditures and beginning in 2022, drawdown of assets will again be required each year until the trust fund is exhausted in 2029, after which tax income is estimated to be sufficient to pay 85 percent of HI costs, declining to 77 percent in 2050, and then increasing to 89 percent by 2084.”

Note that since the federal government has been spending 100% of the trust fund, all the time, the economic choices I outline above start hitting home the moment the cash flow goes out of surplus, which has already happened.

@ Min: I meant to write cut and not cur in my comment. I hope that eliminates any confusion. If not, here it goes:

” Isn’t the indexing that you are talking about indexing to wages, which increase more than inflation? We are an increasingly prosperous country. We are not just keeping up with inflation. What is the problem? :)”

I’m not saying it is or isn’t a problem to index to wages rather than prices. What I’m saying is that when social security obligations are designed to grow faster than inflation it is going to be awfully difficult if not impossible to eliminate those obligations by trying to print money or otherwise inflate the general level of prices.

I guess it might be possible with accelerating rates of inflation timed carefully to exploit the time difference between when inflation is calculated and when social security is paid but that’s playing a very dangerous game with hyperinflation and the politics stink to boot.

If we are not prepared to fund the obligations out of general revenue then we should reduce those obligations by statute, not monetary shenanigans.

“is because of interest on the T-bills, which is to say deferred taxation.”

You would like Interest on T-bill *you* buy to be considered “deferred taxation”?
If a mutual fund buys them? Why is it any different for SS? The only difference is that the mutual fund manager happens to be a appointed by the government. Many pension funds are often run by government appointees in almost every part of the world. Treating pensioner savings in bonds as “accounting tricks” would certainly send said appointee to jail.

I really can’t believe the gall it takes to treat SS in any way other than a pension fund that invests very conservatively in bonds. Robbing pensioners seems to me to be the only way to look at any suggestion of not paying the US’s obligations to the fund.

Sheesh, five years from now. Bad fingers!

John, when you compare what I’m saying to “Zimbabwe-style,” you are falling under the sway of what tPaul Krugman calls “the priests of some ancient cult, demanding that we engage in human sacrifices to appease the anger of invisible gods,” and you are heading those who, as Brad DeLong says, are “crying Fire! Fire! In Noah’s Flood.”

I don’t expect that I will convince you (I am no more than a disembodied conglomeration of unpronounceable letters) but I urge you to begin reading Krugman and DeLong on a daily basis. You might also look at Eric Rauchway’s older posts (at Edge of the American West) on the Great Depression, and if you’re looking for a good book to sink your teeth into, you might try Lords of Finance by Liaquat Ahamed. Or you could read the work that made Ben Bernanke famous – his demonstration that the countries that stayed on the gold standard longest had the deepest and longest Great Depressions (in “Essays on the Great Depression”), or even Milton Friedman and Anna Schwartz, in A Monetary History of the United States.

What is bizarre about the current discourse, among even very educated people, is that we have forgotten almost everything that has been learned about money over the past 150 years, and instead seem to think that we can understand it through “common sense” metaphors, like comparing the entire economy to a family or a firm. You can’t do that, except as a very imprecise metaphor, and if you try to reason from metaphors you’ll make grievous errors.

The error you’re making when you talk about Zimbabwe arises from an unspoken assumption that money is something that has an objective reality external to the government that prints it. Therefore, you believe, when a government prints “extra money,” it is in effect counterfeiting, or printing phony money, and this phony money causes inflation.

This analysis is false. The reason it’s false is that there is no such thing as an objective reality to money. To you and me,the supply of money seems objectively fixed, because we don’t create it. But to the government, the supply of money is not fixed. The government creates money. It can create too little, which results in deflation (that’s where we are right now.) It can create just enough, which modern economists agree means moderate inflation (say, 2 percent). Or it can create much too much, which means hyper-inflation, like Zimbabwe or Weimer Germany.

The right amount of money in an economy is the amount that allows that economy to produce goods and services at near to full productive capacity – so that unemployment is under 5 percent. That’s not where we are and there’s no reason we shouldn’t be there, except for the false and savage gods that govern our national discourse, which demand that poor people and ordinary workers must suffer for the sins of bankers and brokers. Or less, melodramatically, from the false belief that there is some sort of “natural” amount of money that must exist, which is tampered with at our peril.

As for Social Security, it is simply impossible for it to “go broke” as long as it holds Treasury bonds. As long as there is a United States of America, the Treasury can pay treasury bonds. It can pay from tax revenues; it can borrow the money from investors; or it can “borrow” the money from the Fed, which is how the Government “prints money.” (The Fed lends money to the Treasury by buying Treasury bonds with money that doesn’t exist until the Fed makes the purchase. If you look at the dollar bill in your wallet, you will see that it is a “federal reserve note” – that is, it is an IOU from the Fed. Since money is nothing more than a promise from the Fed that it will give you a piece of paper with a picture on it in exchange for the piece of paper you already have, the Fed can create as many of these notes as it wants to.)

If the Government decides to pay future social security benefits by borrowing from the Fed, will that cause hyperinflation? Not if the economy continues to grow, it won’t. As long as the money that the Fed creates can be used to buy an increasing amount of real goods and services, there won’t be hyperinflation. Will the economy be growing sufficiently in 30 years to allow the absorption of that additional money? We’ll know in 30 years – but odds are that at least some and perhaps most of the Social Security benefits can be funded simply by increasing the money supply.

In any event, whatever happens, Social Security cannot “go broke.” It simply cannot, as a matter of fact. This is just as true as the fact that you cannot sail of the edge of the earth. Other bad things might happen to you – you might perish in a storm or starve in a flat calm – but you cannot sail off the edge. People who talk about Social Security “going broke” are making an error of the same order as people who think that the world is flat.

“Since the options are EXACTLY the same in both the “trust fund exists” and the “trust fund doesn’t exist” cases, it is purely an accounting fiction.”

While the available options may be the same, the difference is in what are the legal options. If the SSTF is public debt, then it is unconstitutional to default on it (in fact, it is unconstitutional to question where or not the USA would default on it as well). The general budget problems occur when the SSTF starts trying to cash in that debt. If is not public debt, no one will ever again agree to net positive balance for SS over anything but the shortest term and the general budget problems occur immediately.

“While the available options may be the same, the difference is in what are the legal options. If the SSTF is public debt, then it is unconstitutional to default on it (in fact, it is unconstitutional to question where or not the USA would default on it as well). ”

Default is just a sideshow distraction. Whatever happens the US can always print more money to avoid default. The Supreme Court has already ruled that benefit levels are not mandatory and that they are not Constitutionally secured. Again the options are more taxes, cut other programs, less benefits, print money or some combination. Those are unchanged by the SSTF’s existence or non-existence.

Why is this so hard? The SS “trust fund” consists of US bonds. Of course the government will redeem them. Where will it get the money? From its general revenues. The government’s general revenues constitute a burden on you and me. Talking about SS being solvent until 2037 or thereabouts suggests that SS can maintain itself for another 25 or 30 years WITHOUT it being a burden on us. This is not the case. Once FICA revenues fall short of SS payouts (and that moment is upon us), the shortfall has to be made up through bond redemption, and bond redempti0n means a burden on us. Period.

I would prefer to consider the trust fund as a psycho-political entity. Thats the only sort of reality it has, it grounds people expectations of what fairness means in the context of retirement/insurance. Nothing more, nothing less.

Now, I think a more serious issue is coming up. Social Security is another indexed defined benefits package. That means that some roughly fixed absolute amount of future productive capacity is pledged for a specific purpose. It is relatively easy to keep these promises so long as real GDP increases at a respectable rate. But, what if we can’t keep up exponential growth? Gee duh, exponential growth can only occur for a finite period of time, eventually that trend line will be broken to the downside.
Aside from invoking a supervolcano, isn’t the world already starting to experience the effects of approaching physical limits to growth. Oil production has plateau-ed, and we must share this roughly constant volume with more and more consumers. Agricultural production may also have peaked, the effects of anthropo-induced climate chaos, exhaustion of ground water supplies, soil, and mineral inputs all threaten to undo the “green” revolution. So there is a very real possibility that economic growth in the developed world has peaked, will soon peak, or at a minimum growth may continue, but at too slow a pace. In any case, the pie that future society has to slice may not be big enough to enable past “promises” to be kept. Then we have to deal with the acrimony and loss of trust that reneging in whole or part will entail.

John- my point is that increasing the amount of money does not necessarily cause inflation. It does in Zimbabwe because the economy is shrinking. It does not when the economy is expanding. Thus increasing the amount of money is not the same as causing inflation, and it won’t cause inflation when the economy is running at less than full capacity.

Of course I understand that the currency in Zimbabwe is not counterfeit. I am saying that the problem of Zimbabwean hyperinflation has nothing at all to do with any problem that the US faces or ever likely to face and a comparison to Zimbabwe is not merely unhelpful – it arises from a confusion over the nature of money. Many people seem to believe that there is a “true” amount of money and that anything more than this is not “real” money. Often you hear this expressed in terms of “fiat money “from people who want to bring back the gold standard. But all money is “fiat money” – even under the gold standard money was printed in a multiple of the amount of gold that the government held.

And of the government can’t “inflate” its way out of the Social Security obligation. What it can do is to pay the obligation with funds that it obtains by selling bonds to the Fed. This transaction would be inflationary if the country were running at full capacity. But if the country is running at full capacity and the economy has been growing healthily, then the Treasury won’t need to sell bonds to the Fed, because it will not be hard for the Treasury to sell bonds into the marketplace or for the government to raise taxes. But if the economy is in a slump, then the Fed can buy Treasury bonds and the Treasury can use the money to pay the Social Security trust fund, and the transaction will not be inflationary.

I would like to think that people take this stuff for granted. But no one in Congress or the media appear to understand it, so it’s not necessarily the case that everyone who comments here does.

*getting at.

The point I think Sebastian is making, and which no one has addressed directly, is that there is no practical (as opposed to legal or accounting) difference to the country between the US Government issuing bonds (to, say, finance shiny new fighter planes), and the SSA paying SS benefits from the trust fund. When the SSA redeems bonds from the trust fund what is happening is the same as when the government issues bonds. In both cases, the government is selling bonds to the public. The SSA redeeming bonds from the trust fund is the same as the government running a deficit.

Bruce Baugh: ” No, it’s the idea that the government will honor its obligation to bond purchasers.”. The government can honour its obligations to bond purchasers consistent with any level of social security benefits. Cutting benefits 50% would mean the bonds in the trust fund last a very long time; it need involve no default.

The trust fund is no real protection, over and above the political promises it represents. It’s not a source of assets and it’s not a legal constraint on benefits. But buying into the trust fund means buying into the idea that social security can go “bankrupt” or “run out of money” while the US government is still solvent. Back when that was the evil conservative position, it did real harm.

I would note that, as distant as we are from a “Zimbabwe style hyperinflation”, the most efficient way to arrive at one is to proceed on the assumption that it’s impossible for it to happen. All this talk about how the government can ‘never go broke’ is laying out the route to get there.

… But where a positive balance in the trust fund does represent a time-shift, as after the 80s “fix” we should honour both halves of the deal. That’s the sense in which it does make sense to think of the trust fund as representing promises. But it’s the promises that are important, not the trust fund. Sorry for two-parter: early here.

“And the policy difference between having a “trust fund” and not is what again?

You have to raise taxes to cover it in 1983? Really? It is almost like the trust fund is some sort of accounting fiction or something.”

If an insurance company sees that the premiums it’s getting don’t allow it to cover the insurance payouts that the insured incur, it’ll raise premiums. How’s that an accounting fiction?? The tax raised was the insurance premium. What is so hard to understand about the government running a large pension insurance scheme?

You seem to take the fact that the government felt free to borrow from the premiums as somehow proof that the premiums didn’t exist, didn’t get paid and aren’t supposed to cover the insurance benefits.

To bxg: maybe you care to explain all those misunderstandings many of us have about SS. It seems the people writing the trust fund report themselves suffer from similar confusion though…

It’s not a very important question in any case, since the whole “shall not be questioned” business would never be reached. As I point out, the SSA is not independent from the government that would have to redeem the bonds. If the government doesn’t want to redeem the bonds, it doesn’t have to default, it just directs the SSA to not ask it to redeem them. “Default” avoided, bonds reduced to irrelevancy. Or rather, recognized as the irrelevancy they’ve been all along.

Brett@66:I would note that, as distant as we are from a “Zimbabwe style hyperinflation”, the most efficient way to arrive at one is to proceed on the assumption that it’s impossible for it to happen.

Actually I think the most efficient way is to let your economy go entirely into the tank. Maybe some kind of unimaginable scenario where one party is willing to stifle all government action in a desperate bid to win back power whilst being fronted by demagogues and funded by narrow-minded business oligarchs who expect to win on the margin.

What Henry said.

It is amazing to me to see people supposedly of good will attempt to persuade themselves and others that they can’t even begin to understand how, say, a public utility works! A 100% state owned government enterprise is still *not* the general government.
If
— the enterprise is the bus system
— the money from the monthly or yearly tickets of the last 10 years, stuffed in a mattress, are enough to fund operations of the buses for the next 30 years
— the government-appointed CEO diverts the funds elsewhere
— and then declares the bus company cannot run the routes even for the people that have already bought the yearly tickets

I think we can all agree that this is very problematic governance. Right? It’s not even an issue of whether this is legally fraudulent. It’s a matter of breaching the public trust in the worst way: taking money from a set of people and giving it to another set of people and then giving them the finger and yelling “Suckeeeers!”.

If a private insurance company had done what Sebastian and Brett and others are suggesting, we would all be screaming bloody murder. Why is it ok for the government to do it exactly?

Of course, in the context of trying to discredit the government, trying to disillusion people and persuade them that “government is the problem”, having the government renege on a generational promise would be awesome. So, in addition to shifting the financial burden, as Henry points out, we have the beautiful side benefit of turning people against government.

If the question is “is it worth paying taxes to fund SS benefits” the answer should be

… Here, let this historian show you how old people lived before SS existed. Horrifying enough? There’s more pictures in this filing cabinet…

The alternative to funding SS is not funding, and therefore not having, SS. We’ve been there. It sucked. We shouldn’t go back.

(Although, admittedly, that’s not an argument for any particular level of benefits above “subsistence and a roof over their heads”, let alone against means-testing or eliminating the cap on taxes paid into SS, etc.)

Brett at 66 – we have 10 percent unemployment and an economy that is operating well under full capacity. This is a real problem now. People who worry that failing to fix the deficit might conceivably, possibly, maybe, bring on hyperinflation are making the same mistake as the Fed made in 1929. In order to prevent a future problem that probably won’t happen, we can choose have a 10 or 20-year depression – which is, in fact, what we’re choosing to do. Or we can deal with the problems that we have and not worry right now about a fantasy problem that might or might not arise years in the future.

And the people who actually put their money where their mouths are – the bond traders – are not concerned about inflation – long-term interest rates are low and not budging – so people who claim that we should be placing inflation fears over unemployment concerns are saying that the market is stupid and they are smarter. These are supposedly free-marketers, but they believe that the market is efficient only when it confirms their pre-conceived ideas.

In any event, the deficit is not caused by Social Security. It’s caused by health care costs, which are ridiculously out of line with every other industrialized country in the world, by the Bush tax cuts for the very rich by two unfunded wars, and by the recession, which reduces tax receipts and increases transfer payments. Social Security doesn’t contribute to the rising deficit.

Anyone who talks about the deficit should be required to review these graphs:

http://motherjones.com/kevin-drum/2010/11/deficit-commission-serious

http://voices.washingtonpost.com/ezra-klein/2010/11/the_bush_tax_cuts_effect_on_th.html

http://www.businessinsider.com/chart-of-the-day-bush-policies-deficits-2010-6

“The only way to get hyperinflation is if the velocity of money skyrockets -say people decide they had better spend it now while it is still worth something. “

And since that decision is generated by the inflation printing money causes, we can clearly see that inflation is a nonlinear function of printing money, right? Probably displays quite a bit of hysteresis, too, when you stop printing the money so fast.

Which would suggest we really don’t want to test how much money printing the government can get away with.

Brett @80.
If some inflation caused the velocity of money to accellerate due to a panic, that has secondary effects, which should be selflimiting. First the people would have spent their wad within a short period of time. Secondarily it is stimulative, government revenues would go up, and public welfare spending down, so the need for the government to spend beyond its means would diminish. We have invstment vehicles such as TIPs which are indexed to inflation (and real assets are in effect indexed), so the erosion of wealth by inflation is illusory.

Following your logic means millions suffer, because of the angst of a few opinion makers.

Government spending is balanced by a combination of taxes, borrowing, and printing of money supply. The first and last of these forms are somewhat equivalent in that their extraction of resources from the economy is distributed.

@83:

(I haven’t read all the comments on this thread, since the matter strikes me as clear-cut, without room for much reasonable dispute, let alone anxious contention, so sorry if the following obvious points have already been made).

“In a capitalist society the private-investment model isn’t by any means a silly way of expressing that commitment. Nobody denies that those who pay hard-earned cash for financial assets are entitled to receive cash in the future.”

Umm…financial assets bear risks and there is no guarantee that “hard-earned cash” will pay out “entitled” returns, as should be obvious to anyone paying attention to such markets recently. But Social Security is not a matter of investment for retirement income. It’s a *social insurance* program. I.e. it’s a universal annuitization scheme. The plain fact of the matter is that there is no private market for annuities that would remotely achieve universal coverage, let alone with anything like the efficiency, i.e. low transaction cost and relatively high return, let alone progressivity, that Social Security accomplishes.

The other basic point is that all retirement income/consumption is paid out or extracted from current production. There really is no such thing as hoarding current consumption for a generation to finance future retirements. Hence what really matters is the future state of the economy and its output. In that sense, any dispute about the “trust fund” is merely a matter of accounting fictions for reasons of political optics, not really a matter of economics. Or, otherwise put, if Social Security were to fail or become unsustainably onerous, that would be a general failure of the economy, and thus so would any other scheme of social provision for retirement likewise fail.

Likely opposition to Social Security and scare-mongering over it derives from sheer ideological animus. Since if government can provide for such a basic social provision with such efficiency in ways that “private” markets can not, what further evils of government provision, regulation, or economic management might ensue?

“And unless there is a radical decline in productivity or the workforce / population ratio, there is no reason to believe that real resource constraints will jeopardise the SSTF obligations.”

If I were inclined towards dark humor, I’d laugh my head off at THAT remark, given the projected age demographics.

Did you really write “unless there is a radical decline in productivity or the workforce population ratio without realizing that of course there is going to be a radical decline in the workforce/population ratio? I know that the so-called “modern monetary theory” disciples studiously ignore real resource constraints in favor of printing money no matter what the circumstances, but really….

“Since the trust fund represents future taxes and since the US government has been spending the surplus in whole every year”

And in what way does this make them different from any other holder of goverment bonds?

Sebastian
‘ “modern monetary theory” disciples studiously ignore real resource constraints in favor of printing money no matter what the circumstances’

Care to name one? MMTers dislike inflation as much as you do, but for policy prescriptions they focus on the size of the output gap, rather than spurious threshold levels of debt/GDP or bogeymen such as Zimbabwe.

Of course the dependency rate will rise, but as Halasz points out, current trends look rather less stark than that freshwater piece proclaimed. But if the dependency rate does fall more sharply, it’s just a political fight over the allocation of purchasing power (a la France, whose dependency ratio is >20% lower than the US). Nothing to do with bogus concepts of govt solvency.

A couple of my comments are stuck in moderation…and even though the discussion seems to have petered off, they seem to be of a piece with Kevin Donoghue’s post.

Name one? I’ll name two. Bill Mitchell (the guru), and L. Randall Wray both dramatically underplay real world constraints, fluctuations of money utility based on scarcity of actual resources like time or raw materials, and the ability of governments to print their way out of trouble despite rather noticeable counterexamples. They essentially treat all currencies as if they were reserve currencies, and analyze from there as if they were gold standard economies that could print gold. Which isn’t to say that they have no useful insights. Just that they overplay all of them.

Again, solvency is a red herring, mostly raised in this thread to tar people, not actually by the people pointing out the situation with the trust fund. You can see that as early as my #30 where I say “So the government has the following options to pay for this: it can cut programs, raise taxes, print money, default, lower SS benefits, or some combination of the above. (Default isn’t really going to happen so long as the government can print money but I include it for completeness).”

So far as I can tell, no one has really disputed those options, not have they disputed that those options are unchanged by the existence or non-existence of the trust fund. You should note that the options I outline do not rely on default as a scare tactic or questions of the ‘solvency’ of the US government.

“But if the dependency rate does fall more sharply, it’s just a political fight over the allocation of purchasing power”

You hide a lot of unexamined assumptions behind that ‘just’.

@92 So far as I can tell, no one has really disputed those options

I disputed, but you wouldn’t acknowledge or respond to my objection.

The objection is this: since the program has accumulated $2 trillion in the trust fund, specifically for the purpose of financing the current level of SS benefits with the current level of the payroll tax, lowering SS benefits or raising the payroll tax are not justifiable options.

solvency is a red herring

Since ‘inevitable and unavoidable insolvency’ is the only justification for downward modification of already meager Social Security benefits that is not morally repugnant, you may wish to revise or retract this claim. Granted, the various claims of insolvency that surface from time to time seem to be specious, at best. Your acknowledgment that a feasible modification of SS contribution rates (taxes) would suffice to ensure the indefinite-time-horizon viability of Social Security is appreciated. Why you bother to list a bunch of other “possible” outcomes, which range from morally repugnant to implausible, is unclear to me. Sure, all sorts of horrible things are possible alternatives to implementing more reasonable taxation. What, precisely, does this acknowledgment/concession of mine gain you?

It’s metaphors all the way down. I SOKAL THE THREAD!

@ Henry Vieuxtemps #36:

The Trust Fund had not run out of money in 1983, although it paid out more than it took in, and had been doing so for a few years. At the end of the year it had $19.672 billion. :)

It has been increasing every year since then, including the past couple of years, and at the end of last year had $2.337 trillion. In those 26 years that is an average increase of 20% per year. Since 1983 was a low year, that level of increase is not representative. Last year was a bad year, of course: the fund only increased 6%. Since the end of 1999 until the end of 2009, the fund increased an average of 11.3% per year. ( http://www.ssa.gov/OACT/STATS/table4a1.html )

Sort of makes you wonder what people are screaming about, doesn’t it? Well, they are screaming about future projections, aren’t they? And how good are those projections? Not very good, to judge from recent economic projections, eh? GIGO.

Sebastian #44: “And when I say ‘propaganda’, it may be too loaded of a word.”

“Propaganda” is right on. All of these scare tactics about social security are propaganda. The idea that the richest, most productive nation on earth cannot afford to fulfill its obligations to its seniors is absurd.

Sebastian: “But your whole comment at 78 (or so, who knows what number it will become but I’ll link here) seems to have transposed into an argument about the wisdom of Keynesian economic policy during a Depression/Deep Recession, which so far as I can tell has very little/nothing to do with the general wisdom of believing anything in particular about what the SSTF is good for and how wise it would be to consider printing money a major component of paying for bonds issued to it over a span of thirty years.”

I am not sure who you are quoting. And you are right that the question of economic policy during a recession or depression is logically different from the question of social security. However, psychologically and politically, the two are related. The current hullabaloo about social security is a political product of the recession. People tend to have a pro-cyclical psychology, like steering away from a skid, instead of into one. The social security propaganda takes our eye off of the ball, as far as doing what needs to be done to get people back to work and getting the economy going again. In addition, by stirring up fears about economic security, it serves to paralyze the national will. Furthermore, the proposed solutions to the supposed social security problem would be likely to make our current economy problems worse.

I often listen to podcasts from a financial site (financialsense.com) for discussions of markets and investing. The proprietor of this is a Tea Party enthusiast and he likes to compare Social Security to running a retirement program for his company. He says that if he collected funds for his employees’ retirement and then just spent them (as Congress has done!!) he’d be in jail.

Of course, he likes to claim that all the Social Security funds have just been spent and the money is gone. He does not want to acknowledge that there is a trust fund and that wealthy investors like himself might be called on to repay that debt.

A good response to this particular metaphor is what if he took his employees’ funds and invested them in US bonds? Would he expect the US Government to refuse to repay this debt because it’s just going to pay off some old people for their investments???

@98: Wholly-owned subsidiaries ARE an accounting fiction. Their chief purpose is to firewall liability by going bankrupt separately.

However, if the subsidiary *does* go bankrupt, then it is taken over by a receiver or trustee, who is no longer answerable to the parent corporation and therefore can’t just be told not to call in the parent company’s debt, so in that respect it is different from the “two different parts of the US Govt.” example.

libertarian @114: When I save for my kids future, I get 5%-10% return

How nice for you and your kids. But suppose someone else can’t or won’t save, or suppose they invest and lose. Does that mean their kids should go without education or health care? Some libertarians seem to think so, which is all we non-libertarians need to know about libertarianism.

My children are guaranteed -1% from their social security contributions.

Wait, I thought they were guaranteed -100%, short of death or debilitation or whatever other early triggers are on the list. They’re paying money in that is getting paid out to the elderly, yes? Which means that some money that they earned^*^ is being redistributed to the elderly, under a system which (assuming we keep it going) will allow your kids to enjoy some of the fruits of younger folks’ labors when they’re old enough to retire.

^*^Actually I dispute the idea that one ever “earned” the money that goes toward FICA; it functions as if an employer is paying in a percentage of each employee’s income. The money isn’t earned and then taken away later; it’s basically a compensation-dependent fee on the employer for hiring that employee. I don’t think of the FICA payments on my check as money that was ever mine in the first place, and if Social Security were abolished it would be completely reasonable of my employer to “reduce” my salary/wage/compensation accordingly so that my take-home pay remains constant, and use the differential to buy stuff or hire someone else or whatever.

I’m curious how you arrived at the 1% number. Social Security is a tax-exempt (up to $32K for two people) standard-of-living-indexed annuity, with additional provisions for disability and surviving dependents benefits. Is there a reliable (i.e. guaranteed not to go bankrupt) private entity you can buy this sort of contract from, and how much is it going to cost you?

Thanks.

MMT, in Galt’s Gulch such ROIs are very normal, but you are not allowed to invest there, because of being a collectivist etc.

> Is there a reliable (i.e. guaranteed not to go bankrupt) private entity you can buy this sort of contract from

Have you read your SS statement lately Henri? Uncle Sam ain’t guaranteeing it. 1% is my expected return given current life expectancy for someone my age and my contribution rate, assuming I get what I am promised (which as I pointed out already, I won’t).

> you expect 5-10% return over the next 20 years? Where on earth are you invested?

Until a few weeks ago, commodities. Now back in high growth equities: technology, emerging markets. 5% – 10% is conservative. If the next 20 years are like the last 20 I will get 12%. But I don’t think the next 20 are going to be as good as the last 20.

James Kroeger – good points, and I wish I knew why economists don’t refer to this.

If you subscribe to MMT, as I am minded to do (albeit that I think the approach seriously lacks decent critical engagement), you maintain that mainstream economists are stuck in a Bretton Woods mentality and that a form of cognitive dissonance keeps them treating the US and UK govts as currency users like a household, rather than sovereign issuers.

Regarding Kroeger’s point, I think for some it’s reflexive mentality (a la Keynes’ comment about the tyranny of dead thinkers), but for others, it does ideological work. Many economists are ideologically opposed to the idea that the government should use its powers to enhance the welfare of the majority, so they use the specter of Weimar and Zimbabwe as a rhetorical club:
http://realignmentproject.wordpress.com/2009/10/14/job-insurance-part-9-what-is-nairu/

NAIRU is a fiction, always has been, because it persists in treating inflation as sui generis when in reality as Kroeger points out, it’s quite practical for the government to shape inflation rates at any level of employment. (see War, World, II)

MMT Proselyte: “the tax is a levy on my firm for employing me. I see no reason to believe, if taxes were halved tomorrow, that employers wouldn’t try wherever they could to cut gross incomes to converge on the same net income for their employees.”

In the U. S., don’t we see this with companies that are allowed to “retain” sales taxes? (This is done sub rosa, OC.) They “collect” the “taxes”, but do not send them to the gov’t. How much of these monies do they pass on to their customers? To their employees?

Well, it’s just that if you buy this sort of annuity from a private entity, I imagine your expected return will always have to be negative; otherwise the company would be losing money. 1% sounds like a great deal.

More zero-sum “thinking” from the left. The private entity invests your money, Henri. Worst-case it should earn at least the global growth rate, but in general will do considerably better.

Then make it so. Use it to put a floor under retirement income, not as a tax on the poorer young to pay for the leisurely retirement of the wealthier elderly.
More bullshit. Or, well, you know what it is. It’s what Social Security is and the program has had the effect of reducing poverty among the elderly,
Applying this estimate to the change in Social Security benefits between 1967 and 2000 suggests that the increase in benefits can explain all of the 17 percentage point decline in poverty that occurred during this period. The authors also find that higher benefits lead some elderly to live independently rather than with family members, and conclude that the effect of Social Security on poverty would have been even more dramatic in the absence of these changes in living arrangements.(Emphasis mine)

Auch: For 40.6 percent of senior beneficiaries, Social Security contributed more than 90 percent of their income in 2008, and for 26 percent of all senior beneficiaries, it was their only source of income. (Emphasis mine, too)

Tom M, people are living longer, simple as that. The current generation of boomer retirees did not pay for their retirement. But they voted themselves a nice comfy early retirement (retire at 50 in the public sector) with a guaranteed income paid by their children and grandchildren. They richly deserve their “most selfish generation ever” moniker. Well, fuck ’em. I am not paying.

lib: people are living longer, simple as that

No, it’s not, as I’m sure others will soon jump in to point out. The average longevity increases apply only to the upper reaches of the income distribution, who need Social Security least. Those who need it most have had nearly stationary life expectancy. Krugman has blogged about this several times.

fuck ‘em

Ah, now we get to the heart of the libertarian philosophy.

> Krugman has blogged about this several times.

Heh. Krugman blogs about a lot of things. He is almost always wrong.

Social Security is … a transfer from the poorer … to the wealthier

So that’s what you object to. You really do have a heart of gold after all. Well, I’m sure we can fix matters and arrange for the transfer to flow the other way, if you’ll just get your fellow libertarian friends of the poor to pitch in.

“Heh. Krugman blogs about a lot of things. He is almost always wrong.”

Right, and you are probably most often right… Appeal to authority may be a weak argument, but the opposite, appeal to un-authority, is certainly very Tea-Party like.

-1% is the notional investment return, Salient.

No, it’s -100%. Srsly it is, dood. The money you “pay into” Social Security is not yours. It is not an “investment.” You do not get anything back for it. If the country were to end its redistribution tomorrow, it would not “owe” you anything for your past contributions to FICA. I’m pretty sure you have coyly made a similar point yourself at various times in this thread, e.g. in response to Henri.

That FICA contribution is not even “yours” in the transient sense that you earned it only to have it taken away. It’s a tax on your income, which is determined by your employer. Your actual income is 6.2% less than your employer suggests it will be; that 6.2% is a quantity your employer pays to the FICA tax. You never see that money. It transfers from your employer’s hands to the government’s coffers. It’s never really “your” money to be spent or saved for tax obligations or invested or etc.

If you don’t want to contribute, well: tough luck, buck. Them’s the terms of gainful employment and productivity in the United States. You’re already being required to contribute less than is philosophically fair; you’re sponging off the productive work of the generations before you in order to make your profits today. You didn’t build that infrastructure all around you with your bare hands, and that infrastructure facilitates your gainful employment.

Some portion of the income earned from productive activity is redistributed away from the income-earners to the elderly. This is based on the basic notion that we^1^ feel the elderly are entitled to some comfort in their living, even if they’re not working. Ideally, we don’t expect anybody to work until their death, but we want people to enjoy some of the fruits of labor even after they quit working. Practically, Social Security payout often is too meager, and often begins arriving too late in life, to achieve that ideal.

Note that this is entirely independent of the problem of working-age poverty. I don’t think a business owner who did fairly well in working life should have to work until death, any more than anyone else. The elderly should be given enough of a share in the fruits of production to ensure they can get by reasonably comfortably. This has been a basic notion in civil society for much much longer than the existence of annuities or even banking.

Thank you for agreeing that the SS payout age is much too high to suit the purpose of the fund, by the way, and therefore disproportionately favors more privileged individuals who tend to live longer! That’s why it’s important to reduce, not raise, the SS payout age.

Also, the fact that FICA caps out at income of ~ $109,000 is absurd and philosophically unjustifiable. Even if SS was indefinitely solvent as-is and was running a surplus, there’s zero reason that cap makes any sense at all. It’s an arbitrary sop to richer folks.

^1^Here and throughout, “we” is intended to mean “most civil and reasonable people, but not you” — after all, in your own words, you’d sooner fuck ’em than fund ’em.

There are basically two ways of providing for the elderly: the clan system, and the social security system. There is no other way, no such a thing as a capitalistic retirement system based on individual investment in market instruments. Such a system will always leave a large fraction, probably the majority, of retirees uncovered and they will still need either public assistance or their own children to provide for them. The latter is the worst case because in such a society, people are pushed into having more children, and that is not good for anybody contrary to those wingnuts stuck in the 18th century conviction that more bodies are better.

Libertarian lives in a fantasy world in which money can be made to double every 10 years or so (5-10% annual increase) all by itself. The recent series of financial crises, starting with the Enron crash that robbed thousands of employees of their retirement savings, should have convinced any numerate person that middle class savers cannot rely on private savings to last for a lifetime. The phony debate about SS solvency is another depressing proof of how uninformed and innumerate the American public is. It is very difficult to counter the right-wing nonsense that people like libertarian believe because it is rooted in the voodoo economics that Americans have been brainwashed with for the past 30 years or so. I predict it will go away after another couple years of economic stagnation.

It is often argued that workers could get a better rate of return than social security by investing in the market.

That argument is insane, because it proposes workers will be able to bilk an ever-increasing portion of the fruits of labor. (Doubling one’s money is irrelevant if prices have all doubled, so we have to consider inflation-adjusted rates of return.) If true, this would choke off the portion of the fruits of labor that go to workers, leaving less and less for non-retirees.

[Yes, this is flirting with “labor theory of value” nonsense, but sensible nonsense is a perfectly good response to insensible nonsense, thank you.]

If we say “approximately 6% of each year’s production will be distributed to the retired/elderly, with a little extra held back for anticyclical increases in disbursements to cover leaner years” then we’re holding fixed the proportion of goods to be redistributed. If we propose that individuals ought to be able to do increasingly better than that [even post-inflation-adjustment], then we’re suggesting they should be able to acquire an increasing chunk of the pie per year.

So fine. Set the % to be redistributed higher, if you prefer; increase the FICA tax rate accordingly. Whether it’s through that or through any other investment mechanism whatsoever, the net effect is to draw more resources away from workers and distribute them to retirees/elderly. OK with me, but… not really the thing I think CT’s resident libertarian troll wants to see happen.

[aeiou]

In addition to building up one’s own entitlements, social security has a redistributive benefit formula. And of course, most of the money going into social security is used to pay current retirees.

There are two kinds of redistribution going on at present with SS: inter-generation and intra-generation. The latter is actually relatively minor: yes higher-income workers end up subsidizing the retirement of the lower-income members of their own generation, but not a whole lot. However because of the aging population, inter-generational redistribution is large and growing rapidly. The current crop of retirees are the first to have paid too little (in aggregate) for their generation’s retirement.

The inter-generational redistribution is largely from younger workers with few assets to older retirees regardless of their asset status (SS is not means tested after all). Hence SS is now a massively regressive system whereby the elderly are screwing their own children and grandchildren.

“older people have a lot more money than young people”

No they don’t. They are, after all, out of work. And there are a lot of hard working people living hand to mouth. Grow up.

“older people have a lot more money than young people”

Sure and those Wal-Mart greeters are doing it for the fun.

“The inter-generational redistribution is largely from younger workers with few assets to older retirees regardless of their asset status (SS is not means tested after all).”

What is unfair is capital income taxed at lower rates than labor income. Those retirees rich in assets – a minority – do in fact benefit from a redistribution from poor to rich but not because of SS.

“The current crop of retirees are the first to have paid too little (in aggregate) for their generation’s retirement.”

That is typical libertarianesque nonsense. Those currently 60-65 years old have paid into the system all their lives. To accuse them of free-riding is quite outlandish. But also notice how that claim contradicts libertarian’s other “argument”, that SS pays back too little. So which is it?

the elderly are screwing their own children and grandchildren.

Boy, this guy must hate his parents. Whatever they have done to upset you, they have provided for their children AND their parents while they were economically active. Now they are retired and in need to be provided for, they ask the currently active generation to fulfill its part of the inter-generational contract.

In a different sense however, you do have a point. Today’s retirees are the Tea Party base. While relying on Social Security and Medicare for themselves, they vote Republican to make sure that the next generation won’t get the same benefits. It’s called dialectics I guess.