"Consider Nobel Prize-winning economist Paul Samuelson?s smug optimism back in 1967: "The beauty of social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in....How is this possible? It stems from the fact that the national product is growing at compound interest....Always there are more youths than old folks in a growing population....A growing nation is the greatest Ponzi game ever contrived.""

""When population growth slows down, so that we no longer have the comfortable Ponzi rate of growth or we even begin to register a decline in total numbers," a chastened Paul Samuelson wrote in 1985, "then the thorns along the primrose path reveal themselves with a vengeance."

Lindsey is right on target:

http://www.reason.com/0203/fe.bl.social.shtml

The crisis is there, leftist crooks and liars. It's just stretched over many generations, it's "boiling the frog", sort of.

Samuelson himself has admitted that much. Economists are pretty much in consensus: the changing demographics can easily ruin PAYG "retirement" scam-schemes. It's not a gain, it's a Ponzi scheme - and such a fringe publications as The Economist has compared this to a Ponzi scheme indeed. Interesting data point - want to see Japanese bonds being rated in terms of probability of those being repaid like bonds of Egypt are being rated today (and yes, unviability of s.s., the "unfunded liabilities" are one of the reasons)? If it's all the rhetorics of a few Republican spinmeisters, how come the markets start to sweat over the issue.

There are countries in the world where s.s. tax (because it is essentially a tax, not "contribution) approaches half, e.g. in some postcommie countries it is 49.5% of gross (brutto) wage, and that is before taxes - communism acted as sort of accelerated aging in the economy of democratic country while the demographics has changed in similar ways.

The numbers you had published that s.s. scam are merely product of standard leftist tactics of self-deception: seek the best news possible, e.g. comparing productivity growth and payroll tax - and let's ignore the fact that such comparisons are based on highly imperfect definitions and numbers, hence there's GIGO problem with such day-dreaming - and rig the numbers in your own favor. Try watching s.s. systematically - whatever comes out of govt, is always inflated in its own favor, no matter who holds the office, because that is mandated by interest of particular bureaucracy, not this or that political party.

If s.s. schemes were solvent, they would not produce such steady stream of increases in s.s. taxes:

http://www2.economist.com/surveys/displayStory.cfm?Story_id=97568
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"Americans worry about a Social-Security contribution rate of 12.4% of pay, but Germans have to put up with 19.1%, and even that does not make German pensions self-financing: without a subsidy from general taxation, the contribution rate would have to be 25%. In Italy, the contribution rate is an astonishing 33% of eligible pay."

It's easy to deceive yourself with simplistic numbers like the left always loves to do. If you torture data long enough, they will tell whatever you want them to tell. Since the left doesn't want to know the truth, but only to have the progressivist sentiment confirmed, it gropes in the dark at all time. Socialism is just fine, Erich Honecker quipped a few weeks before collapse of GDR. And so you do, a few generations before collapse of s.s.

As fraction of wage that is taken by s.s. tax increases, so does unwillingness of businesses to hire people, the unemployment, the tax evasion, the corruption and the informal economy. It is estimated that a third of GDP is created in completely illegal, "underground" sector in Italy. There goes a good number of assumptions that your silly extrapolations rely on - people respect the law, but only if it doesn't cost them too much.
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The crisis isn't averted, it's still there, no different than before - it is merely stretched in time to such a slow motion that it allows you to pretend it's not there. It's still there all right!

One noble attempt of President Bush to at least get people to consider their future before getting hurt as usual, and no, your usual leftist mantras are anything but hard thinking about future, a cold realization by quite a number of people that something needs to be done about it - and you ruined it because you are too emotional and too focused on pleasant self-deception.

No matter, you don't want to learn the smart way, you'll learn the hard way. You didn't listent to Frederic Hayek, pissed on it, got burned, had to eat your words - you do the same thing today with critics of "principles" behind s.s, you'll get the same fate.

From article in The Economist:

"Americans worry about a Social-Security contribution rate of 12.4% of pay, but Germans have to put up with 19.1%, and even that does not make German pensions self-financing: without a subsidy from general taxation, the contribution rate would have to be 25%. In Italy, the contribution rate is an astonishing 33% of eligible pay."

This is not future, not prognostics - this is here and now. So yes, your numbers have to be rigged in this way or another, intentionally or unintentionally, because the practice proves that your pitiful extrapolations are rooted in wishful thinking wrong - since it is already not working in so many countries, it can hardly be counted on to work in USA. You're basically relying on miracle to happen. As my friend who happens to be a doctor says, miracles do happen, but I would not rely on them.

Unsurprisingly, high unemployment and tax and s.s. evasion are the norm, not the exception. Guess how much respected the rule of law becomes. Most people hold the half of their wage as more precious than the rule of law. And once the rule of law is not respected.


The old democracies are in for the same fate.

The crisis is there, it's persistent, pervasive, it didn't go away and it will not go away. All that was stopped was the talking about it, because the reform is no longer the subject of the day. That didn't make the crisis go away by any means.

As we move away from the beginning of the Ponzi scheme to the middle of it,  smugness and being happy for supposedly getting something for nothing start to transform into fear and panic, it's going to come back more and more frequently. The debate you've seen was just the first, weak tinge. s.s. will go the same way as "social market economy" of Germany or vague "third way" scenarios based on hollow wishful thinking or the "cradle to grave" welfare state. s.s. is today in terms of health where the welfare states were at the end of 1970s - not  long in historical terms before admitting defeat.  

Incidentally, the IOUs are worthless not in terms of reliability - likelihood of them being repaid - but of economic value: a dollar put in bank represents capital (wealth, not money) _saved_. A dollar in fictitious "trust fund" represents capital _spent_, used up. PAYG reduces capital accumulation in the economy. This alone costs society a good chunk of development and the standard of living in the long term.

And don't say that stealing my, worker's, money, is "social gain". It isn't. You call it "social gain" only bc most people are emotional and ignorant of underlying economics. But they are catching up to it. And when they do, I would not want to be in your shoes.

Give me back my money that you STOLE from me supposedly for my "retirement", thieves.

And last but not least, there comes the issue of morality - since you have no morality, you want people FORCED into the scheme. That is "civilized", because you seem to love this forced collectivism, even if it is less brutal than that of commie regimes. The program is so good that people have to be forced into it, which you cover merely by heaping on empty rhetorics, questioning opponent's character and other vile tricks, to conceal the fact that MOST PEOPLE WOULD NEVER AGREE TO RETIREMENT SYSTEM OF SUCH TERMS AND FEATURES COULD THEY GO FOR IT VOLUNTARILY. Talk to a leftist about individual rights, get forced into the scheme that, you see, is "good for you".

Well, it's none of your business if it's good or bad for me. If you need my money for your beloved programs, work it out yourselves, thieves, as opposed to stealing the money from those who don't support those programs.

Most workers would have shot you had they any interest in hard-headed, unromantic economics. Sooner or later the reality will catch up with them - don't want to learn smart, you'll learn the hard way - and then no person with self-preservation instinct will admit in public they have leftist views.

Posted at October 20, 2005 5:27 PM in response to Crisis Averted