This is a strange article in that probably 5% of the sentences therein are actually dedicated to the meat of the headline and the rest dedicated to promoting his company which helps with the stated problem. I wish I could actually see the article debate his points instead of trying to sell me something.
"When a friend on the brink of retirement was planning to take Social Security before drawing money from his 401(k) plan, Kotlikoff persuaded him to reverse his plan. "
Advising someone to defer withdrawals so that they have a bigger benefit (unfunded and unable to be paid by a bankrupt government), means maybe he's not so convinced the US is bankrupt.
Social Security is expected to go bankrupt by 2034. If you've got less than 16 years to live, betting on it is a good idea. More than that, it's a bad idea.
Isn't that the definition of bankruptcy though? A person, company, or government is unable to meet their current obligations, so they notify all their creditors and go to court to find an equitable solution.
But changing it would take an act of Congress. Congress currently can't legislate its way out of a paper bag, let alone a crisis. And passing legislation that reduces money going to people who have been promised it... that's going to take courage to take the hit from voters, and that has been conspicuously lacking in Congress for a while.
On the other hand, bankrupting SS would be worse. That might concentrate minds.
Things get tricky with governments where it's kind of trivial to raise more money by a) raising taxes, b) simply redefining your obligations (in the case of programs like SS or Medicare/Medicaid) or c) just making more money ex nihilo.
No, it's the definition of insolvency, which may or may not least to bankruptcy. But, in any case, the Social Security Trust Funds can't be insolvent because they aren't real distinct entities, just accounting structures within the US government, which is not even remotely suspected of being unable to pay it's current obligations out of current revenues any time soon (nor is it anticipated to have much trouble continuing to secure financing for lavish discretionary spending on top of actual obligations.)
> No, it's the definition of insolvency, which may or may not least to bankruptcy.
It seems that the only difference between insolvency and bakruptcy is that bakruptcy involves a court order stating how the insolvent debtor will meet its obligations, which is largely irrelevant in this discussion as it's largely semantics.
Worst case for social security is that no funding changes are made and payouts stabilize to around 70% of what was promised. Very bad for a lot of people but far from the disaster that is many state's pension systems.
The problem is that a large number of unfunded obligations will probably come due at roughly the same time. We all know that our infrastructure is starting to crumble, but the problem is that every single bridge that needs to be rebuilt either represents a future debt to fund the construction, or a willingness to abandon the economic activity that the infrastructure (hopefully) enables.
The worst case scenarios is that Social Security, Medicare, some state pensions, and our infrastructure will all hit the breaking point at once. At that point we will need to make some deeply unpopular changes, and it's unclear if our political system has the will or the coherence to pull it off.
If we're lucky, these systems will begin failing sequentially within the next few years, rather than all failing together.
I genuinely doubt we have the political will to do it. There are a large cohort of people who know they’ll be dead before these issues come to a head, and they have reverted to a “protect what’s mine” mode.
Does the US have the same old vs. young divide in politics as seen in Western Europe?
A policy change asking the young to pay even more for the older generations who arguable had it better/easier would not be an easy thing to pass in France, Germany or the UK.
That's not the right answer at all. It has been tried several times, and it usually (always?) ends in disaster.
The problem is that printing money and handing it to the government causes inflation. This is essentially the same as devaluation, as you said, except for one difference: devaluation is a one-time event, whereas inflation tends to not be. In particular, next year the government is also going to need money to keep Social Security running. But it's going to need more, because of this year's inflation. And there's going to be all the people further in poverty because of this year's inflation, so other government expenses go up. So the Fed has to print more money next year. So next year's inflation is worse than this year's. So the year after that, the Fed has to print even more money...
> Worst case for social security is that no funding changes are made and payouts stabilize to around 70% of what was promised.
No, worst case is that dishonest political propaganda convinces people that the no action scenario has worse results than this, leading to action being taken which itself has worse results, such as dismantling social security in favor of mandatory investment in private defined-contribution retirement products.
Debt is about trust.
Japan has the highest debt to gdp ratio, but that’s not a problem because we trust it. With enough trust you can go pretty far. There are a lot of trust factors for the US, like its military or the petrodollar.
Trust, in an economic sense, is how much material is being dedicated towards a corporation's future existence... A corporation can be an individual, or a company of individuals...
Trust in this context means "If I loan you money, how skeptical am I that you'll pay it back?" I can be skeptical for a number of reasons, from the simple notion that I think you are just a crook and have no intention of paying back, to more directly economic ones like the fact that I know you've got no real prospects to make back enough money going forward to stroke the interest on my loan. There are shades in-between, like if I know you intend to pay back the loan and can technically afford it right now, but your credit is bad all over town and you're one bad break from being totally and irreparably insolvent. If you're family or a close friend, I might loan you money without seriously expecting to get it back (though in these circumstances I personally just recommend just making it a gift).
By "how much material is being dedicated toward...[it's]...future existence" you presumably mean how much the firm or individual is investing in relation to their income or some similar measure. That can be part of it, but definitely isn't all of it. All market transactions are, contrary to the technocratic worldview of mainstream political economists, human transactions. The actual underlying human relationships matter, and the balance sheets only matter inasmuch as they facilitate communications between actual people.
I'm 34 now. I have absolutely no expectation that there will be a social security system to speak of in 2049. Quite frankly it seems insane to me to expect that it would still be around.
If Social security´s COLA actually works, devaluing the dollar won’t help much —- the liabilities will stay the same in real terms. If it doesn’t, inflation is really just a blunt tool to cut benefits without politicians needing to make a recorded vote on the issue.
Social security only has a post-retirement COLA, benefits calculation from point of qualified earnings to retirement is wage indexed. While in normal conditions this is more favorable, in a runaway inflation scenario where wages lag, the wage index will be less than a COLA would be, so rapid devaluation actually works write well to reduce SS real obligations, though it had other adverse consequences.
What is your theory, that huge portions of the population will go destitute and starving but do nothing about it?
No, at some point people won't take it anymore. At that point you get political change. It has happened many times before in the U.S. Where do you think Social Security came from in the first place?
It's a reassuring thought "at some point people won't take it anymore". But the front page of hacker news today is filled with articles about cheap food, the financial crisis, student loans and absurd housing costs.
It feels like an arms race between two groups - one trying to sound alarms about the direction we're headed (Bernie) and another that thinks Brave New World is a pretty good model to shoot for. I don't think the latter is an organized conspiracy, just that there are structural tendencies that make producing and marketing soma (literally with food and drugs, figuratively with social media) more lucrative than, say, teaching high school or nursing.
It might be better if there were an Illuminati in charge of things - they presumably would be trying to steer between the extremes of another French revolution and a descent into a 1984 world (which seems depressing even for those in charge).
You've been gaslit. Remember you live in an extraordinarily wealthy country. The population is not that large considering the resources and wealth within it. The wealthy are not as mobile as you think and will not bail to Singapore if you try to tax them more. There is no reason why a tiny pension can't be paid to those who've paid into it for decades.
When I was 34, I felt the same. I assumed that I would get exactly $0 from Social Security. I'm 56 now, and it's looking possible that I might collect something.
So long as the rest of the world keeps buying US debt they will keep trucking on. The US is too big to fail: nobody can afford that house of cards to implode.
Exactly! What is the alternative "safe haven? The only alternative to US debt are hard tangibles like food, water, and weaponry (shelter was once included in the list of hard tangibles but property rights are also a fiat).
We basically have no alternative to the system of fiat currency and debt.
> An economist thinks US is bankrupt: What it means [...]
What it means is “the economist doesn't know what ‘bankrupt’ means or understand how public finance works for an sovereign entity whose debt is primarily denominated in its own currency and probably shouldn't be taken seriously on anything related to it.”
Or, more likely, “the economist knows all this quite well and is engaging in political/commercial propaganda that relies on public ignorance.”
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[ 10.5 ms ] story [ 82.0 ms ] threadAdvising someone to defer withdrawals so that they have a bigger benefit (unfunded and unable to be paid by a bankrupt government), means maybe he's not so convinced the US is bankrupt.
But changing it would take an act of Congress. Congress currently can't legislate its way out of a paper bag, let alone a crisis. And passing legislation that reduces money going to people who have been promised it... that's going to take courage to take the hit from voters, and that has been conspicuously lacking in Congress for a while.
On the other hand, bankrupting SS would be worse. That might concentrate minds.
Being forced to move the goalpost and defraud creditors is hardly a sign that the US's insolvency is a non-issue.
Things get tricky with governments where it's kind of trivial to raise more money by a) raising taxes, b) simply redefining your obligations (in the case of programs like SS or Medicare/Medicaid) or c) just making more money ex nihilo.
No, it's the definition of insolvency, which may or may not least to bankruptcy. But, in any case, the Social Security Trust Funds can't be insolvent because they aren't real distinct entities, just accounting structures within the US government, which is not even remotely suspected of being unable to pay it's current obligations out of current revenues any time soon (nor is it anticipated to have much trouble continuing to secure financing for lavish discretionary spending on top of actual obligations.)
It seems that the only difference between insolvency and bakruptcy is that bakruptcy involves a court order stating how the insolvent debtor will meet its obligations, which is largely irrelevant in this discussion as it's largely semantics.
Medicare on the other hand...
The worst case scenarios is that Social Security, Medicare, some state pensions, and our infrastructure will all hit the breaking point at once. At that point we will need to make some deeply unpopular changes, and it's unclear if our political system has the will or the coherence to pull it off.
If we're lucky, these systems will begin failing sequentially within the next few years, rather than all failing together.
Our expensive wars come to mind.
Does the US have the same old vs. young divide in politics as seen in Western Europe?
A policy change asking the young to pay even more for the older generations who arguable had it better/easier would not be an easy thing to pass in France, Germany or the UK.
Devaluation seems the only right answer to me
The problem is that printing money and handing it to the government causes inflation. This is essentially the same as devaluation, as you said, except for one difference: devaluation is a one-time event, whereas inflation tends to not be. In particular, next year the government is also going to need money to keep Social Security running. But it's going to need more, because of this year's inflation. And there's going to be all the people further in poverty because of this year's inflation, so other government expenses go up. So the Fed has to print more money next year. So next year's inflation is worse than this year's. So the year after that, the Fed has to print even more money...
No, worst case is that dishonest political propaganda convinces people that the no action scenario has worse results than this, leading to action being taken which itself has worse results, such as dismantling social security in favor of mandatory investment in private defined-contribution retirement products.
By "how much material is being dedicated toward...[it's]...future existence" you presumably mean how much the firm or individual is investing in relation to their income or some similar measure. That can be part of it, but definitely isn't all of it. All market transactions are, contrary to the technocratic worldview of mainstream political economists, human transactions. The actual underlying human relationships matter, and the balance sheets only matter inasmuch as they facilitate communications between actual people.
Why can't the US tax more to fund its liabilities? Or, why can't they have the Fed print more money and devalue the dollar?
Social security only has a post-retirement COLA, benefits calculation from point of qualified earnings to retirement is wage indexed. While in normal conditions this is more favorable, in a runaway inflation scenario where wages lag, the wage index will be less than a COLA would be, so rapid devaluation actually works write well to reduce SS real obligations, though it had other adverse consequences.
The Elite class, who have captured the regulatory bodies?
Or, well, everyone else, are, frankly, fuckin' broke, and in student debt on top of that?
No, at some point people won't take it anymore. At that point you get political change. It has happened many times before in the U.S. Where do you think Social Security came from in the first place?
It feels like an arms race between two groups - one trying to sound alarms about the direction we're headed (Bernie) and another that thinks Brave New World is a pretty good model to shoot for. I don't think the latter is an organized conspiracy, just that there are structural tendencies that make producing and marketing soma (literally with food and drugs, figuratively with social media) more lucrative than, say, teaching high school or nursing.
It might be better if there were an Illuminati in charge of things - they presumably would be trying to steer between the extremes of another French revolution and a descent into a 1984 world (which seems depressing even for those in charge).
You may, too. Don't plan on it, but you may.
We basically have no alternative to the system of fiat currency and debt.
What it means is “the economist doesn't know what ‘bankrupt’ means or understand how public finance works for an sovereign entity whose debt is primarily denominated in its own currency and probably shouldn't be taken seriously on anything related to it.”
Or, more likely, “the economist knows all this quite well and is engaging in political/commercial propaganda that relies on public ignorance.”