Social Security Lies

As an extension to my post on the history and structure of Social Security, Walter Williams is out with an excellent article about how the scare tactics being used in the debt ceiling debate actually expose the massive budgetary problems with Social Security.

Let’s expose presidential prevarication. Earlier this year, President Barack Obama warned that Social Security checks will be delayed if Congress fails to increase the government’s borrowing authority by raising the debt ceiling. However, there’s an issue with this warning. According to the 2012 Social Security trustees report, assets in Social Security’s trust funds totaled $2.7 trillion, and Social Security expenditures totaled $773 billion. Therefore, regardless of what Congress does about the debt limit, Social Security recipients are guaranteed their checks. Just take the money from the $2.7 trillion assets held in trust.


Which is the lie, Social Security checks must be delayed if the debt ceiling is not raised or there’s $2.7 trillion in the Social Security trust funds? The fact of the matter is that they are both lies. The Social Security trust funds contain nothing more than IOUs, bonds that have absolutely no market value. In other words, they are worthless bookkeeping entries. Social Security is a pay-as-you-go system, meaning that the taxes paid by today’s workers are immediately sent out as payment to today’s retirees. Social Security is just another federal program funded out of general revenues.

Williams is absolutely correct to point out the inconsistencies at the heart of this claim.  Since current Social Security payments are paid directly from the taxes of current employees (and because it was explicitly argued by the government that there is no inherent link between the benefits and taxes of Social Security) there is, in fact, no meaningful trust fund or “lockbox” (remember this 2000 SNL gem?).

Williams continues:

In 2012, monthly federal tax revenue was about $200 billion. Monthly Social Security expenditures were about $65 billion per month, and the monthly interest payment on our $16 trillion national debt was about $30 billion. The House could simply enact a bill prioritizing how federal tax revenues will be spent. It could mandate that Social Security recipients and interest payments on the national debt be the first priorities and then send the measure to the Senate and the president for concurrence. It might not be a matter of brains as to why the Republican House wouldn’t enact such a measure; it likes spending just as the Democrats.

That the government continues to ignore the issue of prioritizing spending is an important one as media pundits continue to scream of default and cutting granny’s Social Security check.  It indicates that the government has already set its priorities, and that our lenders and our elderly will be the first ones to lose out if the government cannot go deeper in to debt.


The Social Security Conundrum

There is a common misconception among Americans that Social Security is a retirement program into which they have paid their ‘dues’, and thus are entitled to receive its benefits. And there is good reason for people to have this understanding of the system: they have consistently been lied to by politicians ever since the programs inception.

The entire system, however, was deliberately in a way so as to separate the taxes paid into the “system” from the benefits paid out. When arguing the constitutionality of Social Security before the Supreme Court, the government explicitly stated that there was no inherent connection between the program’s levied taxes and its benefits: “Taxes are not earmarked for any special purpose… They are true taxes, their purpose being simply to raise revenue . . . available for the general support of Government.” And thus, the retirement benefits “are gratuities” (not based on any contract with the recipient, but instead based on Congressional decisions that are subject to amendment or repeal). The reason behind the government’s decision to argue that the tax and the benefit were separate is simple: It was a necessity for the program to be seen as a valid exercising of its taxing power. Without the separation of tax and benefit the program was nothing more than a redistribution of wealth program along generational lines, and thus considered unconstitutional.

Regardless of how the government portrays the system, it was never set up with the idea that you were paying into your own private retirement account when S.S. taxes were taken out of your paycheck. The Social Security “system” was and always has been two distinct legal operations: 1.) a tax on workers income and 2.) a separate entitlement payment to retirees.

The rulings in two Supreme Court cases have solidified the government’s argument that there is, in fact, no direct entitlement to the benefits people have long “paid in to”:

  1. Helvering v. Davis (1937): In this case the Court made it very clear that Social Security was not a pre-paid retirement program.

    “The proceeds of both the employee and employer taxes are to be paid into the Treasury like any other internal revenue generally, and are not earmarked in any way.”

  2. Fleming v. Nester (1960): In this case the Court said that since the taxing and spending portions of Social Security are, in fact, two separate things that the Congress has the right to either raise or lower the tax on workers or the entitlement payout to retirees.

“To engraft upon the Social Security system a concept of ‘accrued property rights’ would deprive it of the flexibility and boldness in adjustment to ever changing conditions which it demands.”

The importance of this much ignored fact looms over the conservative Republican movement. At the time of its creation, old conservatives opposed the Social Security system because they saw it truly for what it was, a wealth transfer entitlement program whose constitutionality was accepted only because of a finagling of the language between tax and benefit. However, as time went on and the voting public began to rely on the welfare program and see it as an entitlement, such opposition to the program became politically impossible. This is the same course of events that happened with the passage, initial resistance, and eventual acceptance/reliance of conservatives in regard to Medicare. I fear and predict the same trend for conservative action will follow in the aftermath of Obamacare.

The conundrum is clear: If conservatives continue to wholeheartedly support the legitimacy of social welfare program like Social Security and Medicare it has no logically consistent grounds to oppose the recent changes in healthcare. In an electoral beauty contest between one side that professes governmental welfare at its core in theory and in practice, and another that denounces it in theory but supports it in practice, the former will prove to be victorious in the long term….until it all falls apart.

Battlefield: Chicago

The widespread violence in the city with one of the country’s most strict gun control laws has been well reported for the past few years.  Despite (or perhaps, because of) the efforts of the Daley and Emanuel administrations efforts to curb violence by limiting the legal opportunities to own or carry firearms in the city, murders have been increasing year after year.

Far from making the city safer, these gun controls have actually transformed the city into a battlefield, or worse.  WND is reporting that over the past decade in Chicago more people have been murdered than have been killed during the entire Operation Enduring Freedom (ie. the war in Afghanistan).  In fact, the murder count in Chicago more than DOUBLES those killed in Afghanistan over an even longer period of time.


As the city with the toughest control laws located in the state with the toughest gun control laws in the nation, the importance of these staggering statistics cannot be overlooked in terms of the current gun control debate.

As lawmakers make an emotionally-charged grab at “assault” rifles and “semi-automatic” weapons, an examination of the Chicago Police Department data shows that such calls miss the mark:  “Of the 4,251 people murdered, 3,371 died from being shot, with 98 percent of the murder weapons being a handgun. Thirty-seven people were killed with a rifle (caliber of bullet not specified), and 40 were killed with a shotgun.”  Further, the calls for more thorough background checks and other hindrances to legally purchasing a firearms would do little, if anything, to slow the violence in Chicago as even Police Superintendent Gary McCarthy admits “the weapon used is generally a handgun, and rarely is it purchased through legal channels.”

Don’t Mess with the Government: Egan-Jones Downgrade Edition

I have blogged before on the credit agency Egan-Jones’ recent downgrading of the credit quality of U.S. treasuries.  It appears now that the SEC has gone after the credit rating agency and has recently banned Egan-Jones from rating any government-backed bonds or securities for the next 18 months.  That is, the one credit agency that has begun to appropriately recognize the risk of the U.S. treasury has now been banned from rating the U.S. Treasury.


Let’s take a moment to step back and examine how the credit rating world work:

  • Effectively, the government runs a cartel of credit rating agencies, requiring an agency to acquire a permit of certification before it is allowed to legally issue credit ratings on various bonds or securities.  As required from the SEC in 1975, any company that wishes to rate debt must belong to the Nationally Recognized Statistical Rating Organization (NRSRO).  This is an exclusive club and has contained anywhere from only five to seven member organizations, and therefore the ability to rate credit has become a monopoly power granted to only a few (and as we will see, willingly complicit) companies.
  • In the aftermath of the creation of the NRSRO, most credit rating agencies transitioned away from being paid by the consumers/users of the credit score toward the practice of being paid by the issuers of the debt.  Let me explain: previously those who were interested in being debt buyers would essentially purchase from the rating agency their opinion of the creditworthiness of a particular bond, and use that information in determining the risk of default.  In this way, a credit agency’s ability to correctly assess the risks associated with a particular bond directly affected its reputation.  There was a obvious incentive for each credit agency to rate debt honesly because those with good track records attracted more clients.  The new method works in quite the opposite way. Instead of being paid by the consumers of the information, most credit agencies are now paid by the ISSUERS of the debt.  This allows issuers to “shop-around” various rating agencies to find which one will rate it most favorably.  The change in the incentive structure should be obvious:  instead of ensuring that consumers were getting the most accurate information regarding the creditworthiness of a bond, credit agencies could now afford to sacrifice the accuracy of their rating in order to procure a better price from the issuer.


Now, back to Egan-Jones.  While a small and relatively unknown rating agency (especially compared to the “big three”: S&P, Moody’s, and Fitch) Egan-Jones is one of the select few members of the government credit rating cartel.  However, unlike its larger competitors, it never transitioned to the issuer-paid method of rating debt.  In maintaining its independence from the issuers money, it has maintained its ability to issue honest and unbiased opinions on the debt it rates.  It is because of this practice that Egan-Jones has been able to downgrade U.S. Treasuries multiple times over the past few years to its current level of AA –  .  

It seems, however, that the government has finally taken enough from this small scale rating agency, and has now alleged that the firm filed inaccurate documents with regulators in 2008 to “mislead” customers.  In neither admitting or denying the accusations, Egan-Jones reached a settlement with the SEC banning it from rating bonds issued by countries, U.S. states and local governments, or securities backed by assets such as mortgages for at least the next 18 months.  

What should be of interest is that the government has not gone after any of the other rating agencies that rated as AAA mortgage-backed securities that eventually went to zero back in the depths of the financial crisis.  Certainly there was nothing “misleading” about these ratings of securities issued by the federal government.  I am sure that is a pure coincidence that the only credit agency targeted by the SEC is the one that has continuously downgraded U.S. debt.

The bottom line is this:  don’t mess with the reputation of the solvency of the federal government, and if you do, expect to face the strong arm of the SEC and the government’s cartel. 

America’s Foreign Policy: Why Should You Care?

Justin Raimondo of is out with a great article laying out of the case for continued opposition to America’s foreign policy.  The fact that most Americans remain unaware of the countless entanglements the military is engaged in has allowed the for a seemingly unquestioned expansion of power in both the foreign and domestic spheres, not to mention the loss of literally countless lives of human beings all around the world.  As libertarians, it is important not to overburden ourselves with seemingly pedantic (albeit nevertheless economically important) arguments issues like price ceilings when there are much more pressing moral battles to be fought.  While the fight for our economic freedoms must continue, history has proven that an expansionary foreign policy has provided the most fertile grounds for the erosion of personal liberty at home.

America’s Foreign Policy: Why Should You Care?                                                                                         By: Justin Raimondo

Every once in a while it’s worth it to recall just why we’re doing this: that is, why we here at spend our days reporting on events in obscure countries no normal person has ever heard of, tracking the pronouncements of politicians and foreign policy wonks, and exposing the War Party’s latest schemes.

It is, frankly, a thankless and exhausting task, and the problem is that one often loses sight of the forest for the trees. Our days are spent asking and trying to answer questions such as: How long will the French linger in Mali? Will Chuck Hagel be confirmed? Is the CIA secretly supporting rebels in Syria? Will the Magnitsky Act lead to a new cold war with Russia? What often gets lost is the answer to the question: Why should we care?

Americans, being a naturally “isolationist” lot, tend to ignore events overseas unless there is some immediate and tangible impact on their everyday lives – and not even wars in which we are involved necessarily qualify. It took years of occupying Iraqbefore the American people noticed we had been lied into that costly war, and over a decade before anybody began asking what we thought we were doing in Afghanistan.

This means that our political class, left to their own devices, has pretty much of a freerein when it comes to meddling in the affairs of other countries – not because Americans approve of such activities, but because they generally are unaware it’s even happening. Once they do become aware it’s usually too late to do much about it, because the very fact that’s it’s come up on their radar means it’s already backfired., then, is a kind of early warning system for the ordinary American who wants to keep tabs on what his or her government is up to overseas. Yet that raises the question: why is this information important?

At the core of our credo is the moral questionHundreds of thousands of human beings were killed, and many more maimed and their lives destroyed, by the US invasion of Iraq – all in the name of finding “weapons of mass destruction” that never existed in the first placeThousands have been killed in Afghanistan, Afghans and Americans alike, and for what? And now a coalition of foreign lobbyists and war-crazed “conservatives” is agitating for yet another war in the Middle East, this time targeting Iran – and the drumbeat coming from Washington is getting louder by the day.

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The Tale of the Slave

The late philosopher Robert Nozick’s book Anarchy, State, and Utopia contains a passage entitled “The Tale of the Slave”.  Read the short passage to better understand the point of this post.

 The story is simple enough:  there is a slave who is at the complete mercy of his master, and who over time is granted more and more marginal freedoms.  By the end of the story, the political situation in which the slave finds himself closely resembles a democracy, and the question is posed: at what point did this no longer become the tale of a slave, but rather the tale of a free man?  

I have shared this story with many people, challenging them to answer the author’s question.  Yet a response is seldom given.  The difficulty in answering this question arises because it is apparent that the fundamental lack of self-ownership that existed at the beginning is still present by the story’s end.  Thus while supporting democracy as the pinnacle of society’s accomplishments has now become the only socially acceptable stance, that this tale sheds light on the inherent lack of freedom in this system makes many readers feel uncomfortable.  

If rights are, in fact, “inherent”, “natural”, “God-given”, or “inalienable” as many profess them to be, then this debate is an important one to have.  For if rights only exist in areas and at times that are convenient for us, then they cease to be rights at all and evolve into mere societal preferences.  

Reflections on Obama’s Second Inaugural Address

As Obama’s second inaugural address is now behind us, let us hope that it remains but a footnote in history.  Sadly, however, the only promises that politicians ever seen keen on keeping are those in which they pledge to expand their power; and this inaugural address promised lots of that.

At every turn, Obama took the opportunity to espouse endless collectivist governmental solutions to every issue that plagues this country while simultaneously masking these steps as the epitome of freedom and personal liberty.

Robert Wenzel has written an insightful dissection of the speech that I think is an important read:

I have now read President Obama’s second inaugural speech for the third time. The speech haunts me. In very clever language the speech lays out a plan for a more centralized government, for more interference by the government in the affairs of individuals. The speech is about government as the solution to society’s ills.The President does this, though, while early on in his speech hailing the Constitution, which attempted to put a limit on government. He then quotes from the Declaration of Independence:

“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable rights, that among these are Life, Liberty, and the pursuit of Happiness.”

He then proceeds in the remainder of his speech to rip apart the Declaration’s call for Liberty.

But even before his mention of the Constitution and the quoting from the Declaration, in the very first paragraph, after greetings to the “Vice President Biden, Mr. Chief Justice, Members of the United States Congress, distinguished guests, and fellow citizens,” the speech is haunting. In the first paragraph that begins the President’s message, he speaks of that arrogant notion American exceptionalism:

 What makes us exceptional, what makes us American, is our allegiance to an idea, articulated in a declaration made more than two centuries ago[…]

Few realize it, but the concept of American exceptionalism came about as a result of a battle between two communist factions. Wikipedia explains the history well:

 In June 1927 Jay Lovestone, a leader of the Communist Party in America and soon to be named General Secretary, described America’s economic and social uniqueness. He noted the increasing strength of American capitalism, and the country’s “tremendous reserve power”; a strength and power which he said prevented Communist revolution. In 1929, the Soviet leader Joseph Stalin, disagreeing that America was so resistant to revolution, called Lovestone’s ideas “the heresy of American exceptionalism”—the first time that the specific term “American exceptionalism” was used.

The term has been advanced most recently by the neocons, not surprising since their roots can be traced back to the Trotskyite movement.

Thus, at the very start of Obama’s speech, one has to wonder if Obama understands the communist roots of his chosen notion of an “exceptional” America. If he does, then, indeed, he is sending us a very chilling message.

In paragraph 4 of his speech, he said to the nation:

Today we continue a never-ending journey, to bridge the meaning of those words with the realities of our time.

This is a very clever sentence. “A never-ending journey,” he says to “bridge” the words of the Declaration to “reality.” But is it really “a never-ending journey”? He attempts to answer this by saying:

 Through blood drawn by lash and blood drawn by sword, we learned that no union founded on the principles of liberty and equality could survive half-slave and half-free.

This is true. Half-slave and half-free is not liberty for all. But, if there are no slaves anymore, what could Obama possibly mean when he talks of a “never-ending journey”? Wouldn’t the words in the Declaration meet reality when all men are free? The President apparently thinks not. In a twisted view of the Declaration, he sees less free, more government interference, as part of his “never-ending journey.”

He went on to say:

 Together, we determined that a modern economy requires railroads and highways to speed travel and commerce; schools and colleges to train our workers.

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