Wednesday, September 29, 2010

Can Social Security go bankrupt?

That's a question often asked by right-wing liars. The answer is a single word: No.

Social Security is a dollar-denominated sovereign fund. Because it is denominated in dollars, which can be raised by taxing the general public and/or by printing dollars (that invention the printing press again!), it can go "bankrupt" only if the general public refuses to pay taxes or print dollars to pay the Social Security debt. But this isn't "bankruptcy" in any traditional sense of the word. Bankruptcy implies something involuntary -- the person involved wants to pay his debts but just doesn't have the money. But voluntary refusal to pay your debts (which is what refusing to raise taxes or print money to pay the Social Security debt would be) isn't bankruptcy -- it's just plain being a deadbeat, no different from the millionaire who refuses to pay the carpenter who fixed his porch because "paying debts are for the little people."

In short, Social Security can't "go bankrupt" because "bankrupt" implies involuntary. The only way Social Security goes "bankrupt" is if the general public decides to be a bunch of deadbeats and willfully refuses to pay their debt to the Social Security fund-- a willful refusal, given the fact that the U.S. government possesses that wonderful new invention the PRINTING PRESS (invented *only* 650 years ago!) and thus has no inherent incapacity to pay dollar-denominated debts.

-- Badtux the Non-deadbeat Penguin


  1. Yeah, well, remember, pretty soon the only ones with incomes will be the filthy-rich. The rest of us will survive (?) through the barter system, foraging through through dumpsters, and cannibalism. And since paying taxes is for the little guys, not the filthy-rich, taxes won't get paid, and the cat food commission will have realized the fondest wet-dream of the far Reich... the unwashed masses starving to death, dying of colds, and just generally ceasing to exist.

  2. But that is a case of deadbeat-ism, people willfully refusing to pay (the wealthy, that is, unwilling to pay), not a case of bankruptcy, where the country itself (which is comprised of the entire population and all their resources and assets) is simply unable to pay. My basic point remains.

    -- Badtux the Willful Penguin

  3. Simple demographics shows that there will be way fewer workers supporting more retirees. Thus the current benenfit levels are unsustainable. Whether or not you want to be technical about a word like brankruptcy, it shares the same concept with soc. sec: unsustainable. I find the "bankrupt" analogy fitting if not a technically accurate description.

    When we abolished slavery in the 1860's we said it wasn't okay to consume the labor of somebody else without their consent. But with Soc. Security, promises are being made to current workers that have to be met by people who haven't even been born yet!

    If we actually had a real fund that was saved somewhere and set aside for your retirement, the direct lingkage between your contributions and your benefits would eliminate the involuntary servitude of a future generation.

    BadTux, in this case the "fund manager" is the U.S. government. If they want to inflate currency to meet the future obligations, that is a tax on everyone. Goods and services don't spring out of thin air by printing dollars. So taxes (hidden or otherwise) are the only way to pay the debt, and it the debt is being paid by people who did't incur it.....much different than your carpenter example. More apt would be a son who doesn't pay the carpenter that did work for his father after his father died and had no estate to pay his debts.

  4. Yes, I've previously made the connection between printing money and taxation, both are mechanisms for shifting the percentage of GDP that is used for services provided by the U.S. government. Regarding the number of retirees vs. the number of workers, much of the U.S. economy is actually overseas now, so we have eliminated that as a real problem -- we are leveraging the labors of 5 billion people to support less than 80 million retirees (at the peak of the Baby Boom retirement).

    In short, the only real problems here are ones of will, rather than ones of ability. If we don't meet our obligations as a society to Social Security retirees who paid their Social Security tax every month in expectation that when it came their turn, Social Security would be there, it's because we're a nation of deadbeats, not because we're incapable of doing so.

    Finally, regarding your whole "taxation is theft" nonsense, I've already posted plenty about how that's just bullshit, so I'm not going to go into it anymore. Taxation is the only solution we've ever devised to the "deadbeat problem" -- do a Blogger search on my blog for more info on the "deadbeat problem". Those who claim taxation is theft are in reality claiming that they have a fundamental human right to be a deadbeat -- i.e., to receive the benefits of civil society without having to pay for it. I'm sorry, I simply have no sympathy for deadbeats. There is no free lunch. If you want to live in a modern society rather than Somalia, you have to pay for it. That's reality, regardless of how much fairy dust unicorn bullshit the Libertopians want to fling about like so much flying monkey poo.

    - Badtux the Non-deadbeat Penguin

  5. Social Security has no funding problem. All that needs to be done is to remove the cap. There will be plenty of money and actually the contribution rate could be reduced for everyone.

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  7. Tux,
    so is relying on 5 billion other people for your retirement any more sustainable than relying on the next generation?

    I'm sure you don't care for Bastiat, but to bad. What he said is true. Wealth is generated by producers. The more that is produced, the more wealth there is. If you want to rely on chinese producers, your children, or slaves, either way you cut it, it is unsustainable for large numbers of people to consume more than they themselves produce.

    For sustainability soc. sec. needs to provide about the same benefits that your put into it. Any other system is a type of theft.

    Your tirade about taxes is unncessary. I never said taxes are always theft. I have blogged about fair principles of taxation and the short of it is this: taxes should not be burdensom, should not be intentionally wide-scale redistributive, and benefits should be general in nature. Dealing with societies worst deadbeats through taxation is okay. If our safety nets weren't so high as to guarntee a living that is better that 95% of everyone on earth, the dead beat problem would be easily solved with modest taxation.

    As to raising the cap on Sec sec. contributions. There you go. It becomes a redistribution program plain and simlple because the pretense of saving for your own retirement is abandoned. It's redistributive socialism and I know you all favor it because you've said so. But that is not how Soc. Sec. was sold when it was enacted and it should (wouldn't because we've tossed the constitution already) require and amendment.

    BTW, I'll stop following your blog if you'd like. Every time I stop here I only see preaching to the choir (I don't stop by every day so I realize I could be wrong about this), so I thought my presense would be appreciated from a divirsity point of view. If you don't see it that way, I'll happily leave. I started my own blog not to find ditto heads but to seek out dissent. I believe in Covey's principle of "seek first to understand"

  8. Hi Nathan, sorry that I couldn't get back to you sooner, but I was very, very busy working on a Friday deadline. First, as you mention yourself, money is only worth the assets that back it, and in this case there is no shortage of sufficient national assets to keep our elderly alive and in a reasonable state. We have no shortage of food. We have no shortage of housing. We have no shortage of clothing. We have no shortage, in other words, of the fundamentals of keeping people alive in retirement, indeed we have surpluses of most of those things. So my point that the only reason to deprive the elderly of these things is a willful refusal to pay our debts to our elders, the people who built the society that we live in, remain.

    Secondly, you make a bunch of blanket statements that make assumptions that you haven't thought through. For example:

    "redistribution is wrong".

    Congratulations, you just said that the free market economy is wrong. In any free market economy there are winners and there are losers, and wealth is redistributed from the losers to the winners. That is because perfect markets exist only in the fertile imaginations of Chicago economists. In the real world, individual players in the market have access to more information, more resources, or both, giving them more power in the market and more ability to make deals that will result in the transfer of wealth to them. The fact that a Fortune 500 CEO receives a $1M+ society despite MAKING NOTHING (most of the leaders of Fortune 500 computer companies, for example, would be utterly lost if you handed them a box of parts and a Windows 7 disk and told them to build a computer, all they do is sit behind a desk making phone calls and moving papers around all day), is not because he adds value to society equal to his multi-million-dollar salary. It is because he has more market power due to his college and social and professional connections to the members of the board of directors. It is redistribution from producers to non-producers -- which you just said is wrong. Congratulations, comrade socialist! (

    So in a democracy, the majority can choose to RE-redistribute these transfers of wealth from the workers to the non-workers back towards workers (or in the case of retirees, the parents of workers). As long as the majority of members of society are workers rather than non-workers, there is no real downside to this process. Markets are the best way we've devised thus far of matching supply and demand, but they're not perfect, and using democratic processes to deal with those imperfections is a virtue, not a sin.

    "Taxes should not be redistributive." Congratulations, you just stated that you hate democracy. In any functional democracy the majority (who are workers) will vote to redistribute from non-workers who've enriched themselves due to market imperfections to themselves (or to their elders, in the case of Social Security).

    So anyhow, enough for now, it's time for lunch. My point that Social Security can't go bankrupt and that people who refuse to pay their debt to their elders who created the economy they're profiting in are deadbeats remains. G'day!

    - Badtux the Market-based Penguin

  9. Tux, why do you put words in my mouth. I said I disagree with "wide-scale redistribution", not "redistribution". The modifier "wide-scale" is an important distinction.

    I think you'll see that I have thought through the concept of redistribution.

    Please see my post on fair taxation

    You just spent a post attacking a straw man. Except maybe the CEO pay thing... we have some common ground on that, but I simply don't want to get into that right now. Bottom line, freedom can be applied to that problem too.

  10. Back to bankruptcy though. Bottom line:

    We have gone from 16 workers per retiree to 3. Yes, increased productivity has softened this demographic blow somewhat. But we are slated to get down to only 2 workers per retiree in the near future at a time when we are increasingly in debt. So not only are we saddling our children with a bigger workload demographically, we are simultaneously saddling them with huge amounts of debt to foreign countries.

    Sure, we can play with the monetary system to steal from the Chinese and even from our ourselves by making our SS worth less. But absent those games, the next generation will have to be the first one that suffers a set back to its standard of living in order not to be "dead beats". Up until know all the promises have been kept but with increasing reliance on deficit spending. (Why isn't inflating currency a type of deadbeatism?!)

    How fair is this: Payroll tax in 1930: 2%, 1960: 6%, today: 12%, 2050: 18%?

    It is easy to talk about dead beats when you aren't the one paying the pied piper. Somebody will.

    Nevertheless less, wouldn't you agree that raising the retirement age make sense as a reform? Given that we are lucky enough to live longer? These are the kinds of reforms I hear about, not out right cutting people off as you suggest. What if a miracle drug made people suddenly live twice as long and by 2050 we had 2 retirees per worker, would you use the word "bankrupt" then? Something would have to change, and you know it. The trend is not good, and we can blame demographics perhaps more than SS. But the big picture is that we really ought to be entertaining alternatives that balance the needs of everyone.


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