Consummate dilettantism!

Friday, January 2, 2009

Social Security Sucks. Bailouts Too. Teachers Unions Too.

Social Security has often been compared to a Ponzi scheme. It is not a Ponzi scheme. It does have "Ponzi-like" qualities -- new investors are expected to pay off old ones, and without new investors, the system would either collapse or run into serious problems. But the difference is that the Social Security Administration invests some of your money in U.S. Treasury bonds; a Ponzi scheme is not typically characterized by real investments. (Whether Social Security is a "mixed" Ponzi scheme is certainly debatable, as is the question of whether it would collapse without new investors.) But this discussion misses the point: Social Security actually generates a negative rate of return.

Yeah, that's right. CoyoteBlog runs the numbers and comes to a startling conclusion:

A few weeks ago I got my annual "Your Social Security Statement" from the government.  This is a statement carefully crafted to look like it’s telling you a lot while at the same time covering up Social Security’s dirty little secret.  But with a spreadsheet and 5 minutes of work, one can figure out what is really going on.

The statement shows the total of my social security taxes paid into the system, including the employer share.  It also shows my taxed earnings per year, and my "benefits."  The main benefit is the monthly annuity payment Social Security will make to me after I retire.  My statement shows that $140,139 total taxes have been paid into the system on my behalf over the last 25 years.  Based on these taxes and (this is important) the assumption I and my employer will continue to pay in at least $7440 per year until I retire, I can expect an annuity at retirement age of 67 (under current law, which the statement makes clear can be changed at any time) of $1,985 per month.


In fact, this all opens up the obvious question, what actual rate of return is Social Security paying out on your "premiums?"  Well, in fact we can calculate this with the same spreadsheet.  I plugged in 2% for the interest rate.  No go — resulting annuity is to high.  Then I plugged in 1%.  Still too high.  Could the government be paying you 0% on your money?  I plugged that in.  Still too high.  In fact, the implied rate of return on my money in the Social Security system is -0.8% a year.  In other words, not only is the government not paying me any interest, they are charging me to hold my money.

Some people, of course, will reap a lot more from Social Security than they put in. Who are these people? Welfare recepients. Retirement plan my ass.
Fine, let’s call it a retirement program. Well, as a retirement program, it is a really, really big RIPOFF. Ever worker in this country is being raped by this retirement plan. In fact, it is the worst retirement program in the whole country:

* As we see above, it pays a negative rate of return
* It is not optional - you go to prison if you choose not to participate
* Unlike a private annuity contract, the government can rewrite your benefits level any time, and you have to take it. In fact, my statement says "Your estimated benefits are based on current law. Congress has made changes to the law in the past and can do so at any time. The law governing benefit amounts may change because, by 2040, the payroll taxes collected will be enough to pay only about 74 percent of scheduled benefits."
* There are no assets backing this annuity!! [This point is actually incorrect -- see above.] An insurance company that wrote annuities without any invested assets backing them would be thrown in jail faster than Jeff Skilling. The government has been doing it for decades.
(CoyoteBlog is one of my favorites. You should check it out.)

Laziness, incompetence, greed, complacency; these are the traits that characterize the new America. What is a bailout? The sustaining of a bubble of stupidity. When you reward failure, you reinforce it. I know a substitute teacher in New York State who brags about going to retire with a veritable mountain of cash, footed, of course, by the taxpayer. The amount of money he's guaranteed to get while not working is unconscionable, and far from uncommon. Has he ever done an honest day's work in his life as a substitute? Probably not. Sitting and watching children isn't really that hard. But our good educators, our police; so woefully underpaid! Underpaid? That's a union line designed to mask how much money they're actually making for how little work they're actually doing. Swine drinking from the public trough describes these people:
Stories abound of police racking up overtime in their final years of employment to punch up their pensions. So do reports of double dippers — those who collect a public pension while continuing to work on another public payroll.

For example, there are sex offenders and other criminals who have been forced out of their jobs but who continue to collect their public pensions.

And some retired elected officials draw paychecks as well as pensions in two different public arenas.

At the forefront of the statewide debate on pensions are the public schools, where contract language and state laws permit high-level administrators and teachers to retire relatively young — 55 — with pensions that are, in some cases, bigger than their salaries.


Six-figure pensions are not unheard of among educators.

Statewide, 696 former teachers and administrators have pensions of more than $100,000, according to the New York State Teachers’ Retirement System. The largest annual pension, $316,245, goes to James H. Hunderfund, a former Long Island superintendent.


Buffalo teachers and administrators can cash in 220 unused sick days. Administrators can cash in five weeks of unused vacation days as well. The district also offers “early retirement incentives” to many veteran teachers and administrators — up to about $26,000 for teachers and $50,000 for administrators.

In just two recent years, the combined payout was $14.5 million to 522 people.


It all makes for a comfortable retirement for many former school employees — but, some argue, at too high a high cost to those footing the bill.

“The pension fund is essentially the taxpayers of New York State,” McMahon said.
Early retirement incentives? This makes me sick. I cannot tell you how infuriated I get reading this. (Read what teachers unions don't want you to read. Please.) People who work for a living, who struggle to make money, who run small businesses, people like the author of CoyoteBlog, like my dad, who either do good work or fail, don't make this kind of money, and yet do infinitely more real work in a week than these people do in years. You want to know what mentality the bailouts are going to support? Read no further than this.

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