Ask not…

Someone once said:

Ask not what your country can do for you — ask what you can do for your country.

It sure seems like a heck of a lot of people are asking what their country can do for them.

How Social Security can continue to be paid out without raising the debt limit

Here’s the New York Times reporting on President Obama’s remarks today:

“Treasury would be left to fund the government solely with the cash we have on hand on any given day,” he said, forcing it to choose among creditors, federal contractors, veterans,Social Security and Medicare beneficiaries and the many other claimants to federal dollars.

An enterprising reporter or Republican politician might do well to understand and point out what David Henderson has written on this topic here, where Henderson points to the Huffington Post’s debunking of the Social Security claim:

The Social Security Administration owns bonds that the U.S. Treasury has issued. To make up for a shortfall each month, the SSA could sell some of these bonds to the Treasury. But where would the Treasury get the money to pay for these bonds? By issuing bonds to the public. How could the Treasury do that if the debt ceiling is not raised? The debt ceiling includes the SSA bonds. So for every $1 billion the Treasury pays when the SSA redeems bonds, the Treasury could issue $1 billion in new bonds without affecting the official debt at all.


Two for those who voted today

Question 1: Was your vote influenced by concern of losing some direct benefit that you are now receiving from the government?

Maybe you believe that your vote will help preserve your Social Security check or Medicare coverage. Or perhaps you’re a teacher who thinks the Federal government will help fund your paycheck. Or you work for a Federal contractor that you expect will get more government work under one administration than the other.

Question 2: At any time recently have you grumbled or thought about ‘how broken our political system’ is because of all the special interests, lobbyists and politicians who promise one thing and do others?

If you answered yes to both questions, have you considered that you are part of the reason  the ‘system is broken’?

Incentives matter

If I was one of Romney’s advisers I would have recommended that Romney not concede anything regarding his remarks.

I don’t think his “not as elegantly stated” concession did as much for him than if he would have simply stood behind his comments and challenged opponents to state their case and have a public debate about it.

I’ll give credit to ABC News last night for at least trying to present a fact-based case against his statement. They showed a pie chart of the recipients of government transfer payments.

Social Security was a slice. ‘People who have a job but make less than $50k’ was another big slice.

But, a pie chart does not make a compelling case.

The question is how many people in the pie chart  have come to depend on their government benefits to the point that it influences their vote out of concern about losing those benefits?

As I mentioned in my previous post, Democrats reveal that they agree with Romney as many of their campaigns do nothing more than tell the folks in the ABC News pie chart  that voting against them puts their government benefits in jeopardy.

I’d like to have citizens cast their votes based on who they think will uphold the Constitution, not based on who gives them the best benefits. In many other parts of society, this conflict of interest would be easily recognized as corruption.

Consider a city councilman who gets to vote on awarding a road construction contract and one of the bidding firms happens to be his own paving company. Nobody would trust the city councilman to represent the people’s best interests in that case, even if he was the most upstanding and fair person.

We would demand that this city councilman remove himself from this vote.

Simple changes for Social Security

Here are a couple of simple changes to SS.

First, make the tax compulsory only for those saving less than 7% (or whatever threshold you’d like to pick) of their income for retirement. For example, if you save 5% in a retirement account, then you pay a 2% SS tax. If you’re saving 7% or more, then you pay no SS tax.

Second, make it actual insurance that you buy, like life insurance. A life insurance company calculates your chances of dying based on your age, health and other factors when it sets its rate.

Perhaps a SS insurance company could calculate your chances of falling short of your nest egg based on your savings and retirement habits, then price a policy to make up the shortfall.

If your savings rate and investment choices are not good, you’d pay more for this insurance. It may even encourage you to figure out why you are paying so much and make changes to lower it.

If your savings rate and investment choices are more sound, your insurance rate would be minimal.

I learned something new today

I didn’t realize Australia had private social security accounts and it appears to work well for them. Thanks to Dan Mitchell for this excellent post.

I like this line (emphasis added):

This system, which was made universal by the Labor Party beginning in the 1980s, has turned every Australian worker into a capitalist and generated private wealth of nearly 100 percent of GDP.

That’s what I’d call properly aligned incentives. It seems like a good way to turn a Ponzi scheme into a wealth-producer.

Update:  Here’s the Wikipedia article that contains more information about Australia’s pension program.

We’ve cast our safety nets wide

Alex Tabarrok, of Marginal Revolution, pointed to a New York Times piece reporting that the poorest households no longer receive the majority of government benefits.  He quotes from the article:

The government safety net was created to keep Americans from abject poverty, but the poorest households no longer receive a majority of government benefits.

…Dozens of benefits programs provided an average of $6,583 for each man, woman and child in the county in 2009, a 69 percent increase from 2000 after adjusting for inflation.

Alan Blinder, in the Wall Street Journal column featured in a previous post, says that since some folks are set to roll off the 99-week unemployment benefits we have a “serious hole in the safety net.”

We seem to have ever enlarging ideas about what safety nets are, which in turn enlarge our Federal and state government spending budgets, governments’ desire to tax and government bureaucracies.

Most of the safety nets are not necessary.  They’re large transfers of payments, with a cut taken out by the bureaucracies that administer them.

Consider Social Security.  I bet that a large percentage of people who pay in and eventually receive Social Security benefits don’t need it because they’ve done a fine job of living below their means and saving for retirement.

If they had more control of the 12.4% of their wages that were forced into Social Security, they would have done even better.

Bastiat wrote in 1848:

Government is the great fiction through which everybody endeavors to live at the expense of everybody else.


Star Parker Says Consider Taking Social Security Private

Star Parker wrote an excellent piece on Social Security, Social Security Reform Cooking Again.  Here’s some telling statistics:

It seemed like such a bright idea 75 years ago, when there were more than 40 individuals working for every retiree, to provide a government retirement stipend financed with a payroll tax. But it doesn’t work quite as well when there are three, on the way to two, working and paying for each retiree — today’s reality.

Tax increases and benefit cuts, with the goal to make the existing Social Security system solvent, would only make a bad deal even worse for every working American.

Wealth doesn’t come from income. It comes from ownership. Investing in personal retirement accounts, rather than paying Social Security taxes, would be a boon for America’s black community. Median financial wealth of black households, excluding home ownership, is about a hundredth that of white households.

Not to mention, in private accounts, what is left over after someone passes could be something to pass onto the next next generations in the family – which could pay for things like education, better homes or a business investment.

Social Security, like many government programs, breeds dependence on politicians.  We should encourage independence.