Category Archives: Social Security

Too Much Money

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US_productivity_and_real_wagesI’m afraid our country has too much money – or, at least, too much money in the wrong places.

America had a wonderful run after World War II when the middle class blossomed, but over the past thirty years or so there has been a gradual redistribution of wealth upwards.

Over the decades, the wealthy and powerful have tweaked the tax code and financial regulations to make it easier for them to make and keep money. When rising workforce productivity does not lead to rising wages, something seems unfair.

This trend has been documented in many places, for example:

“Unequal wealth distribution is hardly a new or uniquely American problem. In fact, it’s been prevalent throughout society since humans first built civilizations: A small minority of aristocrats has always wielded the most power throughout history.

“The [top] 1 percent [executives, doctors, lawyers and politicians, among other professions] are worth about 70 times the worth of the lower classes.

“It’s historically common for a powerful minority to control a majority of finances, but Americans haven’t seen a disparity this wide since before the Great Depression — and it keeps growing.” forbes.com

Ideally, the wealth at the top would be used to capitalize increased production and an expanding economy, but America today doesn’t need more production. Wealthy people, quite reasonably, want to invest money in a safe place that earns a decent return, which fueled the 2008 recession debacle – the financial industry decided to meet the demand through fraud.

Are we in the same place again?

I fear we will see increases in corporate corruption and more frequent bubbles. If more of this wealth (and the income that precedes it) belonged to the middle and lower classes, they would spend it on products and services which would grow the economy. That would be good for everyone, but I doubt many wealthy Americans (despite Warren Buffet) see their own enlightened self-interest here.

By the way – it may not be just the wealthy driving the problem. If Wall Street can count on a certain amount of money flowing into the stock market through 401k’s every month, but that money is not needed to increase production, will it just feed corruption and bubbles? More money to Wall Street could have negative consequences. This leads me to deep skepticism about, for example, privatizing Social Security Insurance.

The obvious solution many liberals jump to is to tax the wealthy and use that money for services to the rest of the country – to build roads and bridges perhaps, or provide direct subsidies. It would be better, in my opinion, to reverse the many tweaks to our economy that have lead to this imbalance, but that would involve a huge amount of work. With such polarization in our legislatures today, the problem is overwhelming. But returning the middle and lowers classes’ wealth seems imperative to our future.

Social Security Private Accounts

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There was a commentary posted February 1, 2012 about George W. Bush’s proposal to allow young people to voluntarily invest a third of their Social Security “contributions” into private accounts. That was successfully vilified as a proposal to “privatize Social Security.” The attacks were based on the lie that the proposal would reduce monthly payments to people already receiving benefits. Older people are dependable voters, and politicians scrapped an idea that would have been wonderful for younger workers.

I wrote in the earlier commentary what would have happened if the proposal had been passed by Congress. Workers could have put the proposed one third or their Social Security “contributions” into a private account invested in an S&P 500 index fund beginning in 2005. There is no doubt 2008 was a scary year for investors. Workers earning $50,000/year would have invested about $8300 into their private account from when the change was proposed. That investment would have dropped in value to about $5700 at the low point of the financial crisis. That would scare anyone! However, what would have happened if the hypothetical investor had the guts to continue to invest two percent of their $50,000 earnings as the market dropped and beyond? The monthly “dollar averaging” investments would have bought more shares in the S&P 500 index fund, and that would have had a powerful effect on the current value of the account.   Continue reading →

Social Security Debt Collection

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There was a recent media dust-up over the Social Security Administration seizing tax refunds to recoup over-payments that happened more than a decade ago. However, Stephen Ohlemacher of the Associated Press explained that the program would be halted at least temporarily in his article titled “Social Security halts effort to collect old over-payments.” A 2008 law allows use of a “…Treasury program to seize federal payments to recoup debts that are more than 10 years old. Previously, there was a 10-year limit on using the program.”  “The Social Security Administration says it has identified about 400,000 people with old debts. They owe a total of $714 million.” Some of the disputed benefits were paid to surviving parents or guardians of children eligible for survivor benefits or the benefits paid to a disabled child. The agency says it has already collected $55 million, and at least some of it was collected from children and grandchildren of those who were overpaid. Continue reading →

The Predictable Surprise

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book cvr_ predictable surpriseThe subtitle of this book by Sylvester J. Schieber is “The Unraveling of the U.S. Retirement System.” The book is neither a fun nor easy book to read (unless you are a compulsive accountant). However, you should consider the book if you want to know about the history and current status of Social Security and other retirement plans. Sadly, I must say the book does not have easy answers for how we can get our politicians to address some daunting problems. The dust cover explains, “Social Security is projected to deplete its funds in the 2030s. Pensions from previous generations have either disappeared or been completely reengineered…Americans are faced with the conundrum of how to pay for a growing retired population with dwindling financial resources.” The author believes privatizing part of Social Security would be a good first step, but has given up on that idea because politicians have made it a toxic idea.

I consider the most important part of the book to be a series of quotes made by Barack Obama at a roundtable discussion with the editorial board of the Washington Post four days before his first inauguration. “As soon as the economic recovery takes place, then we’ve got to bend the curve and figure out how we get federal spending on a more sustainable path…We are going also to have a discussion about entitlements and how we get a grasp on those…As bad as these deficits that have already been run up have been, the real problem is with our long-term deficits, actually, have to do with our entitlement obligations…So we’re going to have to shape a bargain. This, by the way is where…some very difficult issues of sacrifice, responsibility, and duty are going to come in because what we have done is kick this can down the road and we are now at the end of that road. We are not in a position to kick it any further…I have told my folks, to some consternation on their part, that we have to signal seriousness in this by making sure that some hard decisions are made under my watch and not under somebody else’s because the usual game is to say, ‘well, here’s what is going to happen but, by the way, it just happens to start in the ninth year from now.’ What we have to signal is that we are willing to make hard decisions now.”  (This passage is on pages 373-374 of the hard cover book I read. I’m providing a link to the full recorded statement.) Continue reading →

AARP Opposition to Changes in Social Security

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The AARP organization is asking for people to sign a petition addressed to President Obama and their representatives in Congress to not change the way the cost-of-living adjustments (COLAs) are made for Social Security. President Obama has said he would be willing to accept using what is called the “chained” consumer price index to calculate the COLAs in the future.

cpi-basketI’ve read a few descriptions of why the COLAs should be changed. One is that retired people don’t have some of the expenses involved in standard inflation calculation. For example, retired people typically aren’t looking for a new home, so an increase in the price of housing doesn’t need to be used to calculate their new benefit. Another reason is that people can shop around and buy a less expensive substitute. An AARP explanation of chained CPI gives the example that if beef prices go up people can buy more chicken.   Continue reading →

The 2% Solution

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2pct_solutionI nearly did not read this book by Matthew Miller after reading the introduction. I reacted that the author was saying the problems of the country would be solved if we just spent more on government. The subtitle “Fixing American’s Problems in Ways Liberals and Conservatives Can Love” made me decide to give it a try. The start of the book made me wonder whether I had made a bad decision. The book was published in 2003, and the first issue taken on was health care. That outdated chapter wasn’t encouraging, but I tried to plow ahead. I eventually ran into thoughtful discussions of the problems about failure to educate our children and the huge problems created by refusing to do something about the unfunded obligations for Social Security and Medicare. There are also interesting discussions of the failure of politicians to address problems because of unyielding ideologies that continue to get them reelected and the failure of the press to provide news that might actually educate readers about the problems. Continue reading →