Government In Wonderland, Part III: Social Security Ponzi Scheme

You may have heard the story of the first Social Security recipient, Ida Fuller: 

Ida May Fuller worked for three years under the Social Security program. The accumulated taxes on her salary during those three years was a total of $24.75. Her initial monthly check was $22.54. During her lifetime she collected a total of $22,888.92 in Social Security benefits.

No doubt the first reaction is amusement and maybe envy at her good fortune. But what this should tell us is that right from the beginning Social Security was a Ponzi scheme. A Ponzi Scheme is an investment scam where the early investors get a huge supposed return on their "investment."  In reality the high returns are taken from the capital of later investors.

Here is how a Ponzi Scheme works. 

The taxes that the taxpayer has paid into Social Security have become a worse and worse investment as time goes on. This is a common feature to all Ponzi Schemes. 

The unfunded Social Security liability is $8 trillion. If the Congress wanted to make Social Security solvent it would need to add that to the fund right now. There are other higher estimates based on the obvious fact that the 8 trillion will not be put into the system, and that means every year the unfunded liability goes up. Over the next 50 years Social Security will spend trillions more than it takes in. This cannot happen, the money is not there, the politicians have been spending it for 80 years. 

If nothing is done then Social Security recipients will face a cut of 22%. While this is some time away in 2036, it is a problem that should be addressed. 

While Obama's debt commission had a Social Security proposal as a part of its recommendations, there is no serious proposal to address Social Security’s problems. Both Republicans and Democrats are ostriches on this issue.

I suggest that both parties adopt a new mascot as a symbol to replace the elephant and donkey. I suggest an ostrich.

Government In Wonderland Part II: We Have A Plan. It's Called Medicare

One area where the Democrats have their head in the sand is Medicare. From the Daily Kos:

House Minority Leader Nancy Pelosi has the talking points every single Democrat should be using when talking about the Republican budget and protecting America's senior and disabled citizens: "We have a plan. It's called Medicare."

When will Medicare start to have more bills than it can pay? From the L.A. Times:

Highlighting the financial peril confronting Medicare, the federal government predicted Friday that the program's largest trust fund would run out of money in 2024, five years earlier than projected last year.

I have read various estimates of how much will have to be cut at that time. The general figure is about a 10% cut.

I blame Bush for a lot of the Medicare problem. Bush added a prescription drug component to Medicare without any taxes to pay for it.  It was estimated at the time that he added 7.5 to 12 trillion dollars to Medicare's unfunded liabilities.

While projecting out medical expenses for 50 years is an exercise in futility, the unfunded liabilities of Medicare are 74 trillion, give or take a few trillion.

These obligations will not be met because they cannot be met. It is really that simple. Because of interest received now on the Medicare surplus, a small cut now will prevent a bigger cut later. (Yes I know the surplus in mostly myth as it consists on non-negotiable IOUs.)

 Charles Smith at Of Two Minds:

The numbers are something like this: the average Medicare recipient pays in $10,000 and extracts $250,000 in benefits. This kind of system is only sustainable if there are 25 workers for every retiree. Right now, there are roughly 2.5 workers for every retiree in the U.S., and if you consider only private-sector workers, it's more like 2 to 1.

Just as most Republicans have their heads in the sand with regard to military spending, so most Democrats have their heads in the sand with regard to Medicare. But there is a proposal to save $600 billion for the next ten years and cut $10 trillion from Medicare's unfunded liabilities. The Lieberman/Coburn proposal is summarized by a Heritage blog this way:

* Create a catastrophic Medicare benefit and simplify Medicare cost-sharing.        

* Increase Part B premiums from 25 to 35 percent.        

* Expand income-related cost sharing and phase out Part B and D subsidies for the very wealthy.

* Raise Medicare’s age of eligibility to 67.        

* Make physician payment and other program changes.

Click on the Heritage link if you want more details. Click here for a critique of the plan.

Any plan is going to have bad consequences. The whole point is that a cut is a cut. Oddly enough, this critique favors decreasing the eligibility age to 55??? The Lieberman/Coburn proposal is in fact too mild, and it does nothing more than kick the can down the road. It is better than nothing. And something needs to be done quickly.

Nancy Pelosi’s response to Lieberman/Coburn?

Any changes to Medicare must strengthen the Medicare system and improve the health of our seniors.

It is unfair to ask seniors to get less in benefits and wait longer to get onto Medicare – all while Republicans back tax breaks for Big Oil and corporations that ship American jobs overseas.

Just like the Republican plan to end Medicare, this proposal is unacceptable, especially for struggling middle-class Americans. 

I will leave it to each of us to insert an appropriate expletive here.

Government in Wonderland, Part I

I think that eventually we will need a portion of the deficit reduction to come from increased taxes, hopefully as part of tax reform and a flat(ter) tax structure. But the chart above explains the Republicans’ reluctance to raise taxes. We have a spending problem more than a taxing problem. Note that these figures are in steady 2010 dollars. (The dollar is anything but steady—what I am trying to say is that the chart takes into account inflation.) 

Let me begin by criticizing Republicans.  I certainly want to be bipartisan! Returning our defense expenditures to 2001 levels, adjusting for inflation, would still leave us by far with the largest military in the world. It would be more than sufficient to defend us. We need to bring at least a portion of our troops home. Unless we want to keep 50,000 soldiers in Afghanistan permanently, we need to, as Nancy Reagan might put it, just say no.  I thought that was what Obama promised us. 

I was told that if I voted for McCain we would be stuck in Iraq and Afghanistan. Well, I held my nose and I voted for McCain. We are still stuck in these wars, so I guess they were right. (This is an update of the old Johnson/Goldwater joke about Vietnam.) 

But even the supposed (I use supposed because no one really knows who is proposing what) Obama proposal is $1 trillion reduction in proposed expenditures over 10 years. If you want each portion of the budget to receive proportionate cuts in order to balance the budget, the correct figure is double that. If you want to return to 2001 levels, then you need to almost triple this proposed cut. (All these numbers that I am using are over ten years.)  If we exempt any portion of the budget from cuts, then other areas have to be cut more. The needed Medicare and Social Security cuts are unpalatable enough without forcing them to be larger. 

Here is what the Reason article from which I took the chart concluded about many Republicans:

At the same time, GOP types need to face the fact that we can't keep spending $700 billion or more on defense while keeping Medicare going full steam ahead and never touching Social Security, which represents a sacred bond by which relatively wealthy old people fleece relatively poor young people. Something has got to give, because we're out of money.

I have to agree. These Republicans are the proverbial ostrich burying its head in the sand. Next time I will talk about their Democratic brother ostriches. 

Put On A Happy Face

Pam Dewey has written another Blog Post at BrightStarr. This time about the origin of the Happy Face. 

Church Politics

Doug Young has continued to post interesting sermons from years past from various speakers. His latest download is:

Ron Dart sermon from 1983, Church Politics.  Alternate download:  http://www.divshare.com/download/5885174-c15

Doug's Summary:  Where there are people, there will be politics. Dart shows how to reduce the impact of politics. How does hierarchical government impact politics? A look at Exodus 18 and Numbers 11 in this regard. People’s need to make an impact can be for the good, but it is bad if it stems from, or results in, a desire to control others. The Galatian church was split by such politics, not by doctrine. The desire to control others almost always brings division. Dart looks at church politics in the books of 3rd John and Jude