Saturday, August 14, 2010

Social Security and saving

I really don't understand the push to "reform" Social Security.

Social Security and Medicare must do precisely the same thing: reallocate today's consumption of today's production from today's working people to today's retired, disabled and sick people today. That's all we can ever do. We have two choices: reallocate some of today's consumption from working people to retired people, or let retired people starve. If we are unwilling to do the latter, the only "choice" we have is what kind of accounting fictions we'll use.

The idea of "saving" in any sense for any reason is — unless you're actually stockpiling cans of food in the basement — nothing but an accounting fiction. When an individual, business or government saves money, they are not saving anything physical. They are merely creating the social permission to wait until tomorrow to allocate tomorrow's consumption from one use to another. Saving money is essentially saying: I will let you consume today more of today's production in return for the promise that I can consume tomorrow more of tomorrow's production.

How much we consume today of today's production has no effect whatsoever on tomorrow's production. If you do not eat the chicken today, it will, metaphorically speaking, just spoil by tomorrow. More literally accurate, if you work one fewer hour today, there will not be a magical extra hour added to the day tomorrow that you can work.

Saving is different from investment. Saving is just not consuming for any reason; investment uses today's production to make production tomorrow more efficient. When we use up 5,000 labor hours to build a car, we make moving from one place to another more efficient for someone for the next 10 years.

During the past 40-50 years, we have been collecting more in Social Security taxes than we have paying to beneficiaries: we have been reducing workers' consumption more than we have been increasing retirees' consumption. We have not been "saving" the difference; it is physically impossible to save the difference. All that workers have produced over the last 40-50 years was used up one way or the other when it was produced: either consumed, invested or wasted.

By redirecting excess Social Security taxes into the Social Security Trust Fund (which AFAIK consists entirely of Treasury securities, i.e. loans to the regular government) we have been (hopefully) investing the production those taxes represent. We've been (hopefully) building schools, roads, hospitals, etc. — things that make our economy more efficient overall. Had we not invested this surplus, our per-capita productivity today would have been considerably smaller. Yesterday's workers consumed less yesterday so we could invest more yesterday to be able to produce more today.

When someone tells you they want to reform Social Security and Medicare, they're telling you only one thing: they want to take this increased productivity and consume it themselves while allowing the workers — who sacrificed their own short-term consumption to increase productivity — to starve and die when they can no longer work.

The capitalist ruling class really is literally trying to kill us. When will people realize that violent revolution is a matter not of ideology or preference, but of pure self defense?

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