I wasn't expecting, though, the idea that the solution to Social Security's long-term, fixable problems lies in Singapore,
Singapore makes no promises but instead requires all citizens to save up to 36 percent of their income for their own retirement and health care. The government invests the savings in stocks and bonds; the money is not used for current expenditures.The "solution" requires removing the cap from FICA taxes, increasing the FICA tax to about 36%, and... having the government invest that money? Yeah, no chance of any problem with that plan. Let's see, tax about $13 trillion in total personal income at 36%, use that $4 trillion plus to buy marketable securities... hey - in roughly four years Uncle Sam can own all the stock of all U.S. companies.
It should have been pretty obvious up front that you could not take something that works in a small, authoritarian city state and implement it on the U.S. economy without asking yourself, "Will this scale". Or that, even controlling for the problems with having a government-owned fund buy private securities, that it would not scale. And what does the author think would happen to the U.S. economy if consumers had even 5% less money to spend, let alone 15 - 30% less.
Believe it or not, the editorial gets worse from there,
Now, compare Singapore’s system to our own. When Medicare was debated and enacted, Paul Samuelson was America’s most influential economist. He was an adviser to presidents Kennedy and Johnson, author of the nation’s best-selling economics textbook and a soon-to-be Nobel laureate. In 1967, Samuelson wrote in Newsweek about the funding mechanism for Medicare and Social Security: “The beauty about 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. . . . Always there are more youths than old folks in a growing population. More important, with real incomes growing at some 3 per cent per year, the taxable base upon which benefits rest in any period are much greater than the taxes paid historically by the generation now retired. . . . A growing nation is the greatest Ponzi game ever contrived.”In other words, the author of the editorial is quoting right-wing references to Samuelson, not Samuelson himself, because Samuelson was in fact defending Social Security and was not actually comparing it to a Ponzi Scheme. Paul Krugman has attempted to explain that, but you really need only look at Samuelson's actual words:
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. And exceed his payments by more than ten times (or five times counting employer payments)!Nobody who has read Samuelson's words could argue with a straight face that he was indicting Social Security as a "Ponzi scheme". Frankly, the author's abridged quote (which even includes the Samuelson's italicization of "actuarially") is a sufficient hint at Samuelson's actual meaning that you have to wonder about the author's sincerity.
How is it possible? It stems from the fact that the national product is growing at a compound interest rate and can be expected to do so for as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population. More important, with real income going up at 3% per year, the taxable base on which benefits rest is always much greater than the taxes paid historically by the generation now retired…
Social Security is squarely based on what has been called the eight wonder of the world — compound interest. A growing nation is the greatest Ponzi game ever contrived. And that is a fact, not a paradox.
The author then trots out the usual whinges about U.S. debt - there's too much of it, foreign investors will eventually stop buying it, invisible bond vigilantes are everywhere.... And you know what? I can agree with much of that (not the invisible bond vigilantes, though). I'm at heart a fiscal conservative. I deplore the manner in which the Bush Administration squandered a budget surplus, engaged in ruinous fiscal policies and reckless expenditure, ignored the growing housing bubble, and left us in economic catastrophe. Had the Bush Administration been fiscally responsible we would have far less debt, we would not have needed to debate how much stimulus spending we could afford, China would own far less U.S. debt, and we might not even have to keep hearing about invisible bond vigilantes. Oh well.
But you know what else that history tells us? That with modestly higher taxes, we can have significantly lower deficits. Astonishing as that may sound, when you increase government revenues the government need not borrow as much money to fund its operations. While I don't favor raising taxes in a manner harmful to the economy - nobody of consequence does - as the economy improves there's no reason why tax increases couldn't or shouldn't be part of the solution.
The author asks, with apparent sincerity, "What do the Chinese think of our system?" Because any good Republican, forming fiscal policy for the U.S., should use "What does an authoritarian, oppressive communist dictatorship think of our budget" as a starting point?
The author closes with a worthy question, posed rhetorically, but easily answered:
Will our leaders give us an honest accounting and discussion of our choices, or will we have to wait for a debt crisis to force the issue?That second thing? Yep. That's what it will take.