Now, I suppose I should start off by pointing out that I am opposed to Social Security for a number of reasons. (See "Social Security is Not Insurance", "Selling Yourself Cheap", "A True Conservative Platform" and "How Not To Argue About Social Security".) First, and foremost, because it forces a given amount of saving on individuals regardless of their own desires or financial situation. That is why I have opposed not just Social Security, but also plans to "privatize", as that amounts to still forcing savings, though it is a bit better in that it allows individuals to choose their investments, but it is still a needless imposition. Just think, when you first were starting out, how much benefit you would have gained from a 15% raise, compared to the relatively small return on Social Security. Of course, you would forego some benefits, but that should have been your choice, not a government regulation. However, all of that is not important for this post, so I will simply direct readers to the posts cited earlier for a more thorough discussion.
Instead, let us look at the essay above and ask if it is truly accurate, and, more important given the topic, if it gives the whole picture.
Well, let us start with some logical problems. First, the essay here somehow manages to overlook the considerable amount of inflation that has taken place in the last several decades. Just to make one simple point, I recall when The Price Is Right had to add a fifth digit to the showcase bids. prior to that, they could include trips to Europe and Hawaii, boats and luxury cars and still bid in four digits. For that matter, I recall when $25,000 a year was comfortable salary, when cigarettes were under a dollar, when a dollar or two fed you very well in a fast food place and so on. Just to put a number on it, between 1973 and 1983, relative to gold -- so as to avoid the distortions in CPI deflators due to high energy prices -- prices rose almost 600%. As a result, the idea that someone contributed the same amount in the 70's as they do now is absurd.
A second problem with Social Security, and this argument, is that most people earn very little early in their lives, when the money earns the most interest, and the most when they are about to retire, and thus when it earns the most. However, their final benefit is based largely on the last few years of earnings, thus inflating the payout, while the amount paid in is much less.
I recall reading a few years ago that, considering the return based on what Social Security is nominally invested in -- treasury bills -- the average recipient ends up using up their contributions in something like four years, while they tend to collect for over ten years. And that does not even consider the Medicare portion of things.
However, I do not really need to argue that the numbers are wrong because fo one overwhelming fact. Social Security is going bankrupt, and payments today are being paid out of fund taken in today. Yes, the government uses Social Security funds to pay for current spending, but it also reimburses with interest. So, if Social Security really was funded as the post above suggests, it would be running surplus and a growing one. However, the only time Social Security shows a surplus is when the economy is good. That is, when the current economy increases income. Thus, it should be clear, Social Security is in no way the insurance it claims, or this post suggests. I do not want to say those collecting are immoral, they truly do think they are just taking out what they put in, but in truth, whether they like to hear it or not, they are receiving welfare, as they are getting more than they put in, at least if they live to an average life span.
Some will argue that the deficit is not because of the reasons I suggest, but rather due to the other recipients, the disabled and others who start receiving benefits at a much younger age. And that is part of it, I agree. However, once again, that is a small part. By and large, the far larger group of recipients are those who receive money after retirement, and they are also the reason it is bankrupt.
Let us look at the numbers above. According to the census, the mean income for all households in 1980 was a little over $21,000, while in 2011 it was almost $70,000. Just looking at that, is it likely the contributions were flat the way the post above suggests? Assuming that all income is taxed for Social Security -- which is not realistic as many categories often escape detection, such as tips, and those which are not taxed are often those earned earliest in life -- assuming you started in 1980 earning the mean income, you would have paid $3150, while in 2011 you would have paid $10500. On the other hand, it is unlikely you started out earning anything close to the mean. So if you were paying $105000 in 2011, odds are good in 1980 you paid in $2000 or less. As you can see, these are far from the numbers suggested in the post above. The fact is, the early earnings are both lower in absolute terms, as early in life you have fewer skills, and in terms of dollars, as inflation -- and inflation has been continual and relatively high ever since 1971 -- continues to erode the value of the dollar, increasing dollar salaries and costs, as well as Social Security payout, while earlier pay-in is much lower in dollar terms.
So let us be honest, whether or not you support Social Security -- and I do not -- it is no more "insurance" than Medicare and Medicaid or unemployment "insurance" are. (See "Redefining Insurance... To Actually BE Insurance", "The Insurance Sham", "My Health Care Plan", ""Medical Reform, An Overview", "High Cost of Medical Care", "Bad Economics Part 10", "The GOP Health Care Plan", "Semantic Games", "Bad Economics Part 14", "Democrats Envy the French", "Hurrah for Jindall!" and "Minimal Reforms") Perhaps the original concept was intended to be self-financing, but even as it was begun, the base of recipient extended, and the Federal Reserve expanded the money supply, resulting in damaging inflation, so I doubt it ever was self-financing. Instead, it is yet another for of welfare disguised as insurance so that the recipients and others think of it as something just, that is their due, and does not represent a wealth transfer, though in truth that is precisely what it is.
Of course, even were it self financing, I would oppose the idea of forcing individuals to save for retirement against their will, so my opposition does not rest on whether it is welfare or insurance. However, in discussing Social Security I think we must be honest and, though it will offend many who think they are just collecting what they paid in, we must recognize that Social Security is welfare.
In my post, I state between 1973 and 1983 there was a 600% rise in prices, relative to gold. Thinking about this number, I have to admit it may somewhat overstate inflation, as gold tends to appreciate during inflationary periods. On the other hand, thanks to oil prices raising the CPI early in the 1970's, the inflation is understated at 170% +/- using CPI deflators. Salaries show a rise somewhere between 200 and 300%, which is probably fairly close to the actual experience of consumers.
Of course, all of these are just estimates. In fact, there is no single "rate of inflation", as part of the harm of inflation is that it strikes without uniformity, harming some more than others, and even bringing benefit to some. Thus, it is kind of pointless to speak of a single rate of inflation. On the other hand, we do need some approximation of inflation's effect when making certain arguments, so, as in this case, so long as the measure used is provided, I have no objection to using one of these approximations. Of course, we might argue over which is better or worse, but so long as the measure is defined, at least we know what we are comparing. See "Inflation and Uncertainty", "Bad Economics Part 7", "Bad Economics Part 8", "What Is Money? ", "What Is A Dollar?", "The Gold Question, Not "Why?" But "When?"", "Bad Economics Part 19","Fiscal Discipline", "Putting the Bull in Bull Market" and "The Rubber Yardstick".)
While looking for articles to use as citations in this post, I found an article that is especially amusing given my recent critic's accusations of me being a Keynesian. Just check out "WSJ Misses the Mark AGAIN" (as well as "Derivatives and Other Investments") and tell me how fond I am of Keynes and his theories and those of his disciples.