I’m fine with agreeing to disagree. We’ve been talking past each other for a while.

MikeCA,

Yeah, you’re probably right about whole-health. It might be workable with some sort of lifetime cap on benefits, but there’s still huge amounts of uncertainty as to where in the range you’ll fall. It seemed cool when I thought of it, but…

With health insurance, no one knows what health care will cost 30 or 40 years from now. No one knows what kind of medical technology will even be available. There is no way an insurance company can price a "whole life health insurance" plan. They simply will not sell a product like this.

The question is what do we do in 2017 when the government starts needing to pay itself back with money that doesn’t exist.

Isn’t that a question for people who say:

I agree that at current levels, where debt as a percentage of GDP is relativley flat, the deficit is mostly harmless.

In the scenario for 2017 and beyond, where the TF redeems its bonds, the debt doesn’t increase one iota due to that.  It is already included in the debt.  Now you are talking like it isn’t so harmless.  I can understand folks who hold either opinion, but not both at once.  The issue of the Baby boom demographics has motivated some debt hawks for 3 decades.  We knew this was coming  SS took appropriate measures, the general budget didn’t.

I think most people will understand that SS isn’t to blame.

The trust fund exists on paper, but in reality we have already spent it.

Are you just now discovering that such is the nature of bonds, public and private?  The money is turned over to another party to spend in exchange for a piece of paper called a bond.  That’s how it works.  When Bush tried a similiar statement during his last ditch effort to save his plan, bondholders around the world were not amused.  If I was a foreigner and a bondholder, I’d get a little nervous about statements like that.

If the trust fund were invested externally to the federal government, in stocks, private bonds, and foreign government bonds, that would be a different story.

Putting aside the horror of people like Greenspan, who basically supported the Bush Tax Cuts because he feared the country would run out of federal debt that SS could invest in, and the 99-0 vote against in the Senate in response to Clinton’s proposal to put a small portion of the SSTF into private securities, in the end it would make no practical difference.  The added $2 trillion (or whatever) in private markets would be offset by $2 Trillion from the private markets absorbing the govt debt.  Makes no difference in the macro picture.

The problem with your "borrowing from oneself" example is that isn’t what’s happening.  These issues are a matter of law, and binding upon all parties till changed.  Could problems result in 2017 and beyond?  certainly, but the blame clearly would belong to the buy now pay later general budget process, not SS, which is paying now to buy later.

It’s no secret how people dig themselves into debt.  And it isn’t by planning ahead and paying now to buy later.  It’s the instant gratification crowd.  And you seem to want to comsierate with them and blame those who plan ahead.

I think there’s an Aesop’s Fable that deals with that. 

 

I could say with equal justice that the problem is that I overspent in my personal budget while I was supposed to be saving for tuition, or that I’ve promised more in tuition assistance than I can afford. But since I can’t go back in time and unspend what I’ve already spent, the only reasonable course of action is to sit my kid down and explain that I can’t afford to help out with his college expenses as much as I’d hoped (price-based indexing). The sooner, the better. I should also look into fixing the shortfall in my personal budget (cutting discretionary spending) and putting the money I’m saving between now and when my kid starts college in a real bank account in his name (carve-out personal accounts).

If the trust fund were invested externally to the federal government, in stocks, private bonds, and foreign government bonds, that would be a different story. Without the ability to lend the SSTF to itself to cover deficits, the federal government would have needed to exercise more fiscal discipline in non-SS programs between 1982 and 2017, and the federal government would have real assets that it could sell to pay social security benefits. But that’s not what happened.

Consider an analogy. Suppose I take on a second job or work overtime to raise money to save for my contribution to my child’s college education. But apart from that revenue, my household budget is in the red. I take out a second mortgage or run up credit card bills, but I also "borrow" money from the college savings account. I don’t feel too bad about that, since I carefully keep track of how much I borrowed and promise to pay myself back.

When my child graduates from high school, I am heavily in debt, it’s still getting worse, and the college savings account consists of nothing but IOUs from myself to myself. But not to worry — there’s plenty of IOUs to cover the cost of my child’s education.

SS costs are projected to go way up over the next several years, forcing external borrowing to rise unless we raise taxes or cut spending somewhere

So?  We knew that back in the early 80′s, which is why we increased FICA taxes beyond the immediate needs to build up the SSTF for just such times.  In general, the workers who pay the increased FICA taxes are the ones who will benefit from the SS increased spending.  External borrowing, raising taxes or cutting spending are the options we have for unfunded spending.   And since it is non-SS spending at issue, the non-SS budget should pay for it.  That seems perfectly   reasonable to me, and not something that is the fault of SS.

This isn’t a bug or unforseen event, this was exactly what was planned for.  You are free to view it as a Black Box where money shuffles around freely.  But that isn’t what the law says, nor what happens.  The FICA money must be accounted for, and the SS portion can only be used to pay SS benefits.   They can’t even discuss changing that in Congress without numerous super majority votes, unanimous consents and suspensions of the rules.  Doesn’t sound like it was designed for money to shuffle around freely.  Indeed, just the opposite. 

You complain that this has masked overspending on the general-fund budget, and I don’t disagree with you, but I also don’t think that means that it’s not a problem that SS costs are projected to go way up over the next several years, forcing external borrowing to rise unless we raise taxes or cut spending somewhere.

Yes, and if you think that is a bad thing, you need to blame non-SS spending.  If SS never existed, the same would apply.  The amount of private money in govt bonds would be the same. 

That’s the point you fail to grasp.  It was non-SS spending that incurred that debt.  SS was never intended to fix that reality.  It’s mechanism only temporarily masked the effect.
 

There’s a huge difference between owing money to yourself and owing money to other people. When the government loaned the SS surplus to itself, no additional money left the private sector. But when the government starts spending down the SSTF, the bonds will need to be sold to investors. Every dollar that investors spend to buy those bonds will be a dollar not available for the private sector.

Since everyone knows that their health will deteriorate as they get older, they could save up for the higher premiums or sign up for "whole health" plans (analagous to currently available whole life insurance plans) where they pay higher premiums when young and healthy in order to lock in premiums and coverage for when they’re older and sicker. That doesn’t happen now because of the regulatory environment and because people expect Medicare to cover them. If we were to phase out Medicare over a period of 30-40 years and remove regulatory barriers to whole-health and other long-term insurance contracts, then I think we would see people able to provide for their own health care during their golden years.
The reason we have Medicare now is because post-WW2, there’s been an expectation of employer-provided health care (an artifact of the tax code; wages were taxed at up to 90% marginal rates, but full-service health insurance was tax-free). Medicare was introduced to cover people who lost their employer-provided health insurance when they retired. We’re seeing now how bad an idea employer-provided health-insurance is — it bids up prices, decreases accountability, and holds your family’s health care hostage to your job. The question now is whether to shift it to individuals or to the government.

If someone has TB and does not get it treated because they cannot afford to treatment, they can spread it to many other people. That is another reason free market solution to health care don’t work very well.

I absolutely agree that the government has a role in controlling and preventing epidemics, but that’s a pretty small slice of the total health care sector.