Sunday, December 05, 2004

A Malpractice of Economists II

The Tag Comedy Team of Dean, Max, and Nouriele are mightily impressed with themselves:

Social Security Privatization as the Mother of All Con-Man Smoke-and-Mirrors Shell-Games

All it would take to make the above title accurate is to delete its third word.

Doing that, and removing every word of the text that followed, where every elementary error, in this ongoing debate, possible to make is repeated. Including that there is some unique transition cost to changing SS to a normal system of economic investment, that otherwise doesn't exist. And the inability to realize that when the same transaction creates both an equal asset and liability for the same economic entity--i.e. the Federal Government--they must be worth $ 0 (i.e. the SS Trust Fund).

The details of those howling errors being available on several very readable posts here, the Academy won't elaborate. Rather we'll post a short history of what actually is, The Mother of All Con-Man Smoke-and-Mirror Shell-Games;

1937 - Payroll taxes 2%.

1950 - Coverage expanded, benefit levels increased. Payroll taxes 3%.

1956 - Disability Insurance created. Payroll taxes 4%.

1961 - Early retirement at age 62 for men was permitted. Payroll taxes were 6%.

1972 - Automatic COLAs, introduced which overstated inflation thus creating windfalls. Payroll taxes 9.2%.

1977 - The error in the inflation rate is corrected. Payroll taxes 9.9%.

1983 - The National Commission on Social Security Reform (the Greenspan Commission) was created in response to the actuarial problems with the system, and:

1. Increased the self-employment tax

2) Partially taxed benefits (thus reducing them) of higher income retirees

3) Expanded coverage to include federal civilian employees

4) Increased the retirement age from 65 to 67 for those born after 1959. Payroll taxes 10.8%.

1985 - SS is moved "off-budget". Payroll taxes 11.4%.

1986 - COLAs increased. Payroll taxes 11.4%.

1993 - Amount of benefits subject to income taxation for high income people increased. Payroll taxes 12.4%.

1996 - The Social Security Trustees' Report called for Social Security's funds to be invested in the private sector, payroll taxes to be increased to 18% of payroll, or benefits would have to be slashed by 30%.

1997 - Social Security Advisory Panel agreed with the SS Trustee's 1996 recommendations.

1999 - The Social Security Trustees' Report stated the SS system's total long-term unfunded liability was than $19 trillion.

2000 - Al Gore campaigns for President by calling for the then surplus to be put into "a lockbox". George W. Bush mentions partial privatization with individual accounts.

2001 - President Bush appoints a commission to recommend reforms, which eventually admits things haven't been improving.

2004 - Honest economists offer their proposals. Not-so-honest economists emulate the ostrich, or delete entirely accurate, but unanswerable comments from their blogs.

To recap, the Social Security system has had to incease payroll taxes more than six fold since its inception. It's reformulated benefits, taxed back benefits, raised the age at which people can retire, and it still is a Ponzi Scheme. A Multi-Trillion-Dollar Ponzi Scheme.

And some are calling for even more good money to be thrown after the bad; while denigrating economists who are willing to propose economically literate solutions. Ain't life amazin'!

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