Calling a Spade a Spade

                                             Spin-proof snapshots of America                            Home

 

Social Security

The biggest lie is still a secret.

 

 

Imagine that your spouse has a $100 worth of SpadeSpade stock.

You buy it from your spouse, for $100 in cash.

 

Ten years from now, the stock is worth $500.

Have you gained money? Sure! The stock went up by $400!

 

Are you any richer because you bought the stock from your spouse?

 

No.

Not by a dime.

As a family, you have the exact same amount of money, whether your spouse kept the stock or sold it to you.

 

 

America can't gain money -- as a nation -- by swapping stock with Americans.

 

Though the initial purchase of stock will increase prices, that's not what anyone is discussing when they predict how much Social Security could gain by investing in stocks.

 

Fans of private accounts, of investing money from Social Security in the stock market, say it's a good idea because the stock market grows, on average, by 7 percent each year (according to the SSA. Their chief actuary uses a 6.5% figure elsewhere).

 

But they forget that the stock used to belong to someone else.

 

 

If the stock is bought from an American (and by far, most of our stock ownership is domestic), he or she no longer gains that seven percent a year.

 

As a nation, we simply don't gain any wealth this way... even if the stock market goes up.

 

Read that again, conservatives. Until now, the debate over private accounts has been about what to do if the stock market goes down. But we gain nothing - except bigger deficits from borrowing the money to make the purchases --even if the stock market goes up.

 

 

 

 

 

 

 

 

Wonk Section

An American selling stock to the government could then buy a different stock, but that new seller would be in the same boat. Eventually, one of them must buy a new financial instrument. Ultimately, that will be in the form of Treasuries, since that's how we finance our deficit spending.

     In other words: people who liked the risk and reward of stocks now get Treasuries, once we increase the price sufficiently. And the issuing of bonds goes to purchase riskier stock, into which we put our retirement money.

Fun facts about Social Security:

 

  • Social Security currently takes in more money (about $160 billion a year) then it spends.

  • In about 30 years, that will change as more people retire.

  • If we keep the same system, we will be short by between 0.5% to 1.5% GDP. How big is that? It's the same size as the portion of the Bush tax cuts that went to the wealthiest 1% of Americans.

  • It's also nearly the same size as the extra income we would get by removing the salary cap. If you earn more than $90,000 a year in wage income, the amount above that level isn't taxed at all for Social Security.

Dr. Spade strongly supports removal of the salary cap.

 

Fun fact: in the worst-case projections (the Social Security Administration uses three sets of projections), removal of the salary cap would not quite cover the entire 75 year gap. Close, but not quite.

 

Fun Fact #2: It would come far closer than any of the proposed private accounts, even by their own projections. It even comes closer than the current method of "progressive indexing," a way of reducing projected benefits. (See Businessweek's Summary)

 

Fun, Fun, Fun! Not as much fun as make-believe, but sometimes, it's just plain fun to be honest with numbers, to call a spade a spade.