Nevin's Data "Points"

   Every few years, somebody declares that Social Security is a Ponzi scheme. Indeed, I’ve been known to draw that inelegant comparison myself. The “scheme” that gave rise to the label was crafted by Charles Ponzi in the 1920s. He promised investors outsized returns — famously, doubling their money in 90 days. There actually was an arbitrage opportunity behind the pitch, [i] but demand quickly overwhelmed it. So Ponzi wound up using money from new investors to produce the “returns” promised to earlier ones. Social Security operates somewhat similarly: current payroll tax contributions are largely used to pay current beneficiaries. For decades, revenues exceeded benefit payments, with the surplus accumulating in the Social Security trust funds. But demographics, benefits and eligibility have changed — and the cushion between what comes in and what goes out has steadily eroded. Under current projections, within the next decade there won’t be enough incoming revenue and accumula...

Last week, a trio of academics rolled out a plan to “save” Social Security—by undermining the 401(k). Their “ plan ” is diabolically simple, though not unique. They’d just take away the tax preferences that support and encourage employment-based retirement plans—and “give” that money to Social Security.  It was admittedly an odd combination—Alicia Munnell, director and founder of the Center for Retirement Research at Boston College (which often has pretty negative things to say about the private retirement system [i] ), and Andrew Biggs, a senior fellow at the American Enterprise Institute, who has traditionally been a voice of reason on such matters—pointing to actual tax filing data to refute claims of a retirement crisis. Then again, Biggs, a former principal deputy commissioner of the Social Security Administration, and now a Senior Fellow at the American Enterprise Institute, has recently been nominated by President Biden to serve on the Social Security Adviso...

In recent days—notably at the State of the Union address—Social Security is back in the headlines. Granted, its invocation seems largely intended as a political dividing rod, but it seems today that the vast majority (and despite the veiled insinuations, perhaps the entirety) of Congress and the President are committed to that system’s preservation, or at least rebutting its diminution. It appears that touching Social Security remains the “third rail” of American politics. That said, it’s going to take more than bold podium pontifications to fulfill that commitment. It’s been called a Ponzi scheme by its critics—and, while not technically correct, there is a familiar element at work—the notion that money being deposited to the system now is basically going to be paid out to other beneficiaries. Indeed, in most Ponzi structures the scheme “runner” generally pays off longer-term participants with money invested by newer investors. Sooner or later, there are not enough new...

Last week the Treasury Department’s Social Security Board of Trustees released its annual report in a classic case of good news, bad news. The  good news , of a sort, was that the date through which Social Security will be able to pay scheduled benefits was projected to be 2034—and while that’s not very far away, it was a year later than the prior year’s report had indicated. The  bad news , of course, is that without some kind of adjustment the program won’t be able to pay those scheduled benefits beyond 2034. [i] Now, that’s not the same as “going broke” or running out of money—but, as things stand now—assuming no adjustment is made—a possible outcome would be that the scheduled benefits paid would only be about three-fourths of “scheduled.” [ii] What’s weird is that it’s hard to find anybody who seems to think the problem  won’t  get fixed at some point—though the definitions of “fixed” vary—and  nobody  is willing to hazard a guess on who’s...