My dear step sister writes on Facebook, regarding FICA:
I can’t call it entitlement when each of us (and our
employers) pay into it.
This is followed by an exhortation to join with the AARP in
urging the ‘supercommittee’ to say no to harmful cuts.
My, what a maelstrom of thoughts this induced in my poor
little head. Where to start?
Well, let me start by quoting what I blurted onto Facebook:
If that was strictly true It (FICA) would not be in
financial trouble. It’s partly entitlement, partly Ponzi scheme.
But you know, I should have taken the chance to express
partial agreement. First, cuts are indeed harmful to people who get cut. That’s
pretty basic and hard to argue. Second, as long as I am receiving back the
money I paid into it, or the money my employers paid into it, or the financial
gains that money made, it is not an entitlement. I agree, as far as that goes.
The thing is, all of us can reasonably expect to get out a
lot more – a WHOLE lot more—than we paid in. The system is built to do that. To
that extent, it IS an entitlement. My understanding of the word, in this
context, is that an entitlement is a program where you are entitled to other
people’s money. That is exactly what happens in FICA for almost everyone. So
how is that not an entitlement?
It gets worse, though. I’m starting to think my initial response was very accurate (more accurate than my initial responses tend to be…). Let’s talk about the case where I haven’t (yet) received as much as I paid in—the case where I am still getting my own money back, so to speak. What I want to say is: that isn’t really the case. The money I paid in was disbursed long ago, to my elders. The money *I* get is extracted in real time from people younger than I am, who are paying in. So, let’s summarize: Each of us pays in money, with the expectation of getting back more than we paid in, and the money we will get is actually paid in by people who come after us, who have the same expectation of the people after THEM. The people who came before us are doing the same thing to us. There is a phrase for that, and we all know it: Ponzi scheme. Textbook Ponzi scheme. Bernie Madoff to a T.
Oh, dear. It gets worse. How about the financial gains from
the carefully invested funds? Shouldn’t we each get back more than we paid in
because of the growth of the investment? Besides, at present the system is
taking in more than it is paying out. A fair mind would want to receive a fair
gain on all that cabbage. Regrettably, it is exclusively invested in a really
lousy, low yield vehicle- Treasury bonds for the financing of the government’s
general deficit. If you have any kind of retirement or investment fund, you get
yakked at all the time about diversification. But the people who have all of
our FICA money are not doing that. They aren’t diversifying at all. They are
parking all the money in a single vehicle that has no principal growth and the
lowest rate of return on the planet. They are doing this for their own purposes
and not our good. I’m on my company’s 401(k) committee, and if we did that we’d
either go to jail, or lose a very expensive lawsuit. Probably both. In sum, our
FICA money is being managed so poorly that it is criminal.
Still, there should be SOME gain, right? Bonds do have
yields, you know. Yeah—about that: We all uneasily realize something we don’t
really want to face up to: the Federal Government cannot redeem those bonds. We
won’t get the gains, and we won’t get the principal. The government cannot
repay that debt. It can’t live without that money, much less pay it back. When
the system reverses from net inflow to net outflow and the Social Security
Administration wants its money back, that won’t be happening. The money’s all
gone, and it ain’t coming back. The government can only borrow it or print it.
Impossible and disastrous, respectively. Your monthly check will buy a ham
sandwich. At first.
So, we can all write the AARP and write our senators and
stuff to preserve Social Security, but we might just as well ask them to pass a
law against winter. Social Security, in its present form, will not be there for
you, and it will not be there for me. This is just hard, bald, unavoidable
arithmetic. It’s a Ponzi scheme that fell onto the wrong side of a demographic
trend, and was looted to boot. What a disaster. It won’t be there.
This fact plays a surprisingly minor role in the discussion,
for reasons that, in my opinion, do not reflect well on human nature or
American character in the 21st century. What do I mean? This is what
I mean: yes, it harms people to have their checks reduced. But can’t you see
the harm from not stopping this train wreck? It’s saying that I want things as
good as possible for me, and as bad as possible for the people who come after
me. I know it’s scary to face the future. It’s scary for me and it’s scarier
for a lot of people, my step-sister included. It’s hard not to grab. But for
all the talk about fairness, it’s getting pretty short shrift here.
Granted, we’re in a mess—the aftermath of a Ponzi scheme is
always a mess. Because so much money has been Ponzied away, there will be a
point after which people will get less than they paid in—a LOT less. Why are we
saying we are more entitled to their money than they are? Why won’t we face
that if we take less, they will be cheated less, and why don’t we act accordingly?
Isn’t that fair? No one I know of is proposing actually treating the people who
come after us fairly. Some people are timidly suggesting that we screw them
less, and are getting savaged for it.
This really does not reflect well on us. If I am on the
winning side of this scheme, it is ignoble to resist change. If I am on the
losing side, it’s not real bright. And I am most to be pitied if I think I am
on the winning side, but end up on the losing side when this comes down sooner
than I thought, partly due to my own efforts.