Social Security Is Not Insurance

Social Security is touted as an "insurance" program, but it is nothing of the sort.

Insurance, in and of itself, is risk management. You pay a premium, derived from the level of risk you are willing to assume, it's potential costs, and its statistical likelihood, so that if the "bad" thing happens, you have some or all of those expenses paid.

It doesn't matter who runs the program, whether profit or non profit, whether commercial or a mutual aid society, which is where almost all insurance programs started, such as the Amish continue to do now.

However there are two, very important, differences between insurance and SS.

First is that SS has no actual assets to draw against for paying out "claims." Every penny collected in SS taxes is immediately spent. For most of its existence, the surplus was immediately mingled with all other general funds, with nothing but a set of almost hidden bookkeeping entries made. It's not even counted as part of the government debt. There is no fund set aside to pay claims. Even mutual aid societies have, and have always had, those.

Second is that you have no legal right to any payout, even if you meet all the conditions under which you, mistakenly, thought "entitles" you to them. The government uses the word "entitlements," but, as far as government goes, there's no such animal. It's nothing but political shorthand to make it sound better. It stands for a class of benefits that is on "autopilot" as far as budgeting is concerned. Congress passes "rules," the administration implements the "rules," and they aren't affected by passing budgets ... except when Congress changes the "rules," which they are legally free to do at any time.

SS is a Ponzi scheme and always has been. Money paid out today is taken from monies collected today by an ever increasing number of "investors," with government grabbing everything "extra," just as Charles Ponzi himself did. Or at least it was until demographics started running up against the hard limit of available new people to fleece. For most of its existence, there were far more people paying in than those collecting. The retirees up until the last 20 or 30 years, reaped a huge bonanza over what they actually paid in.

These days, you don't even get out what you put in.

Government was able to spend far more money than they took in in regular taxes. When that "extra" money started drying up is when the budget deficits and the total debt started exploding. Politicians, as politicians are wont to do, just kept kicking that can down the road, initially knowing, and recently hoping, that they would be ready to retire before the time finally came to pay that piper.

That time is here.

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Posted in Economics, Politics, Social Security.


  1. “It’s not even counted as part of the government debt.”

    Great article but I would differ with the one comment made above. If we agree with what makes up government debt than it is included.
    The National Debt which is computed each year. To get to the National Debt/Credit each year the amount of debt or credit is added for the fiscal year.
    The SS and all trust funds are part of what is called the Intragovernmental Holdings. This Intragovernmental Holdings added to Debt Held by the Public to come up with the total government debt for the fiscal year and then this is added to the National Debt (if it is a debt or credited if a credit).

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  2. What is publicly described as the “national debt,” that $20 trillion plus, does *not* include Social Security or a number of other commitments the government has made such as retirement for railroad workers, miners, or even federal government retirees. Those obligations add up to much more than the “official” federal debt. They are unfunded liabilities, not “regular” debt.

    The Treasury bonds in the so-called trust fund are “special.” They’re not included in all the rest of the calculations. Since, on paper, they’re nothing but moving numbers from box A to box B, they are not considered “debt,” even though there is nothing backing them but the power of the government to tax future workers.

    Tomorrow’s young workers will be forced to bail out promises made to today’s workers just as today’s workers are paying for promises made to yesterday’s workers. But instead of the 40 to 1 ratio at the start it’s now down to three to one and there’s no longer more coming in than going out.

    There’s nothing left in the cookie jar but the IOUs from the government to itself. Nothing to raid to lower the apparent deficits. For the first time since it’s inception, Social Security is a net outflow of money. That fact is a good part of why deficits have soared in the last few years.

    Even for the workers themselves, many are now getting *less* than they put in.

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  3. Public Debt is calculated by taking the previous year’s public debt and adding the total unified budget deficit (or subtracting the surplus), and then adding any “other means of financing.”

    Intragovernmental Debt is calculated by taking any trust fund surpluses and adding it to the previous year’s intragovernmental debt.

    Total National Debt is calculated by adding the public debt to the intragovernmental debt. As a result, the national debt can increase even when the public debt decreases if the intragovernmental debt increases by a larger amount.

    Why? When a trust fund (such as social security) takes in more money than it pays out in benefits, it takes the extra money and “invests” it in government bonds. Essentially social security says “We received $100 billion in social security contributions but only paid out $80 billion in benefits, so we take the extra $20 billion and buy U.S. government bonds.” Social security doesn’t keep the extra cash but rather loans it to the U.S. government and, in return, it gets a U.S. government bond. That means the U.S. government can immediately spend that $20 billion on normal government operations but owes that $20 billion to Social Security. Hence one part of the government (the U.S. Federal Government general fund) owes $20 billion to another part of the government (Social Security). That is intragovernmental debt.

    Whenever a trust fund has a surplus intragovernmental debt will increase because the surplus money is automatically loaned to the federal government’s general fund. That money is then used by the federal government for its normal operations. The fact that a trust fund has a surplus simply means the federal government doesn’t need to borrow as much money directly from the public since it’s receiving extra money from the trust funds. It’s still borrowing money–just from a trust fund rather than the public.

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