Are We All “Trust Fund” Babies?

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D.A. Ridgely

D.A. Ridgely holds degrees in philosophy and law. (He doesn't really hold them, they just hang there on the wall or peek out as initials after his name. (Actually, that isn't true, either. Those are mere symbols giving evidence of his possession of those degrees. (“Possession,” strictly speaking, being a metaphor of sorts.))) (He is overly fond of parenthetical expressions.)

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42 Responses

  1. Avatar greginak says:

    That is a lot of energy to spend on an analogy. I have to admit the using a household as an analogy for how the gov should be run has always struck we as dumb as a bag full of hammers. However i have heard that sad sack of an argument used more by conservatives. Whatever.

    It sure as hell seems like SS gives people more independence to live through their later years then not having it. SS wasn’t forced on the people who were living large as a way to make them subservient. SS hasn’t survived, and been popular, because of it crushes freedom.Report

    • Avatar D.A. Ridgely in reply to greginak says:

      Oh, sure. Ignoring the fact that such independence derives from government provided benefits far in excess of those individuals’ contributions, I agree with your second paragraph entirely. It remains an open question, however, whether there might be better ways to achieve the same result.Report

      • Avatar Francis in reply to D.A. Ridgely says:

        There aren’t. Well, no one has thought of a better way yet.Report

        • Avatar Murali in reply to Francis says:

          Trust an american to not know of any other program other than american style social security. An alternative is mandatory retirement accounts with top ups from the government. Take for example the CPF scheme in Singapore. Sure there are better ways of doing things. You don’t seriously buy all the crap about the american way being the only, if not the best way of doing things do you (at least the best way that has already been put into practice)?Report

          • Avatar greginak in reply to Murali says:

            Actually many of us have been talking about all the good health care systems in other countries as potential models for our own HCR. That went real well. Other countries can be fine models. You do know the CPF is a type of mandatory retirement account?Report

            • Avatar Murali in reply to greginak says:

              Look greginak, I took francis to be asking about alternatives to american style social security rather than alternatives to the concept of social security in the first place. Perhaps I was mistaken in interpreting him that way, in which case my comment kind of becomes irrelevant.

              Also, I know that CPF is a mandatory retirement account. I’m just saying that if we cannot avoid some sort of paternalism or coercion, that provided by the CPF is not too onerous and seems to come along with a good number of upshots.

              Also, at least as a self employed person, CPF is not mandatory for me.Report

              • Avatar Boonton in reply to Murali says:

                Well if we are really strict about it then even 401k’s are a type of paternalism and coercion. Suppose I honestly don’t think I’ll live to see 60 since I like to party hard. I pay a higher tax rate than someone who makes exactly the same as I do but who maxs out his 401K because he thinks he’ll live to see 120. This is coercion on my part and paternalism for him…..after all why can’t he fund his own retirement after tax just like I fund my drinking binges with after tax money? Why does the gov’t have to say his choice is more ‘worthy’ than mine?Report

              • Avatar gregiank in reply to Boonton says:

                But if we say absolutely no “coercion and paternalism” ( as an aside i don’t buy those as really applying here, but i’ll go with it) then what is the result. Some people will not be able to retire or go without eating cat food. Simply many people don’t have much money for many reasons. Why should some people go hungry because some people don’t agree with a highly popular program.

                Or to be more explicit, a great critique of liberal ideas is that they don’t account for the drag of regulation, unintended consequences and perverse incentives. However all those same critiques apply to libertarian ideas. So no SS ( or something similar) and people starve. That starvation is not a choice but an inevitability. For many of us SS, or something like it, is not only a moral imperative but the only solution. There is a cost to that in that some people are opposed to those programs. But make no mistake there is no answer that is perfect for everybody. Thats life and that democracy.Report

              • Avatar Boonton in reply to gregiank says:

                I agree with you. SS does have some perverse incentives, unintended consquences and some unjust outcomes (should Dick Cheney really be collecting a social security check while a 45 yr old single mother doesn’t get an extension on her unemployment benefits?). But critics of SSI often present their alternative schemes as though they resolve the issues of paternalism and coercion by giving pepole choice (see, for example, they overblown rhetoric from before the thankful failure of Bush’s proposed ‘reform’). But let’s lay out the cards, a true libertarian program would not be ‘individual accounts’ or ‘choices’ or even the 401Ks we have today. A real libertarian program would be basically nothing.

                If you’re not advocating exactly that, then to some degree you’re accepting some level of paternalism. But it’s not enough to simply say your scheme is less paternalistic. If decreasing paternalism was the only value then skip right to the libertarian nothing plan. Clearly there’s some marginal relationship here where at some point the cost of added paternalism exceeds the benefits of a more uniform retirement program. It’s not obvious to me why the current system is over the line but some type of ‘topped off’ mandatory 401Ks is on the other side.Report

              • Avatar Murali in reply to Boonton says:

                It’s not obvious to me why the current system is over the line but some type of ‘topped off’ mandatory 401Ks is on the other side.

                The reason why we should prefer retirement accounts to American Social Security (ASS) is because retirement accounts are more efficient, more sustainable, provide more real choices to reitrees in terms of what they may do with their money and provide incentives to work and accumulate money before they retire. In simple Rawlsian terms, RA does way better by the difference principle than ASS.

                In the end, if either way you had some kind of payroll tax (or deduction), a retirement account would be a far more efficient use of the money.

                Clearly, if the extent and severity of poverty in Singapore is less than in the US, we must be doing sommething right that the US would do well to emulate either on a state or federal level.Report

              • Avatar Boonton in reply to Boonton says:

                Clearly, if the extent and severity of poverty in Singapore is less than in the US, we must be doing sommething right that the US would do well to emulate either on a state or federal level.

                Hmmm, well here’s the first sentence from wikipedia’s article on the Economy of Singapore:

                “Singapore has a highly developed state capitalist mixed economy; the state controls and owns firms that comprise at least 60% of the GDP through government entities ….”

                As tempting as it would be to watch Glen Beck react to Obama taking a 60% ownership stake in Fox’s Newscorp., it’s not going to happen.

                But that may be a bit of a cheap shot but it raises a valid point. Singapore is a very different place than the US so it’s unlikely that any particular policy can account for the differences. I doubt their retirement system accounts for their better position on poverty just as I would say the US gov’t owning 60% of the S&P 500 wouldn’t solve poverty in the US.

                The reason why we should prefer retirement accounts to American Social Security (ASS) is because retirement accounts are more efficient, more sustainable, provide more real choices to reitrees in terms of what they may do with their money and provide incentives to work and accumulate money before they retire.

                See here’s the beef I have. What’s good about Social Security is that it addresses two problems that most 401K’s leave unanswered, what happens if you live a very long time. Social Security provides you with a predictable, stable stream of income. Yes in theory you could use your 401K and buy an annuity but the annuity markets are marked by very high fees and not great returns.

                Now choices are great but with choices come great differences in outcomes. I put forth the hypothetical ‘401K world’ where you have two guys who both worked the same types of jobs but one retires with millions while the other has only a few tens of thousands of dollars because his 401K got wiped out. I’m fine with this but Social Security is not an optional program. With it not being optional I don’t think this outcome is politically stable. The Enron 401K retiree is going to demand the guy who scored millions in his 401K trading bail him out and the gov’t will do it. Now you have a moral hazard issue. Why be safe with your 401K if the gov’t will bail everyone out?

                But there’s a solution to this. Have social security for the annuity part of retirement and have 401K’s as an optional choice for everyone else to use as much or as little as they please.

                In terms of sustainability, the same issue remains. A smaller economy can save in real terms but not a huge economy like the US. Whether you have a ‘401K world’ or a ‘social security world’ an aging population puts the exact same strains on the retirement system. If fewer people work then either those that do have to contribute more of their income to them or those not working have to make due with less or some combination of both.Report

              • Avatar D.A. Ridgely in reply to gregiank says:

                It’s unclear to me why the tyranny of the majority is considered any less tyrannical than the tyranny of a single dictator.

                It’s also unclear to me when arguments about starving people are raised why it should matter to me more that someone in, say, Maine is starving than whether someone in Kenya is starving.

                Also, anyone laboring under the assumption that I am a fan of democracy would be sadly mistaken.Report

              • Avatar gregiank in reply to D.A. Ridgely says:

                I would suggest that minorities have rights majorities can’t override but democracy is still a majority based institution. “Tyranny of the majority” is a bit overwrought if minorities have the right to vote and constitutional protections.Report

              • Avatar Boonton in reply to D.A. Ridgely says:

                It isn’t, but tyranny is not defined as simply “somewhere somebody doesn’t like the policy”.Report

              • Avatar Boonton in reply to D.A. Ridgely says:

                According to dictionary.com the most relevant definition of tyranny is:

                “oppressive or unjustly severe government on the part of any ruler”

                So no I don’t think tyranny by the majority is better than tyranny by a dictator. But if I was visiting some country ruled by a dictator and saw a sign in the men’s room that said “employees must wash hands before returning to work” I wouldn’t sigh and feel bad for the poor people suffering under that tyrannical dictator. Likewise I’m not buying the idea that a policy is the ‘tyranny of the majority’ simply because there will be a minority that may disagree with it. Part of the ‘contract’ of living in a society is that you will not always get your way.Report

        • Avatar James K in reply to Francis says:

          Negative income taxing. Then you don’t even need a separate retirement system. Plus, what Murali said about Singapore’s system.Report

          • Avatar Francis in reply to James K says:

            Negative income tax is a great poverty reducer. SS is a retirement plan. And the difference between mandatory retirement accounts and SS is a tiny little problem known as legacy debt. The first people getting SS didn’t pay in (they survived the Depression instead). But that means all subsequent generations need to cover that legacy debt gap. (Discussions about the build-up in SS Trust funds and the simultaneous reduction in income taxes for high earners need to be save for tomorrow when I’m a little more awake.)Report

            • Avatar James K in reply to Francis says:

              Yes but what is the point of forced retirement savings? To ensure people can subsist in their old age. Instead of fooling around with savings schemes, why not cut out the middleman? Negative income taxes lack the perverse incentives of Social Security, and are far more demographically stable.Report

              • Avatar Boonton in reply to James K says:

                Actually wouldn’t negative income taxes carry their own incentive to simply not work and be carried by the negative income tax? I assume the negative aspect wouldn’t be limited to just older people.

                The reason for forced retirement savings is because people will consistently overestimate their ability to work and earn a living in their older years and since we only get one lifetime (apologies to believers in reincarnation), there’s no opportunity to learn from experience. In terms of political stability I’m not feeling it. We live in a country where Republicans try to cut unemployment short in the middle of the worst recession since the Depression while demanding tax cuts for the rich on the grounds that the economy is weak. What would it be like when the negative rates include not just grandma but the slacker kid down the street and the drug addict on the other street?Report

              • Avatar greginak in reply to Boonton says:

                The reason for forced savings and/or SS is that most people can’t live without that help or work. Most people cannot amass enough money in 401k’s or houses to last their lives. Without us banding together as a people to provide a retirement poor, working class and many middle class people would retire into destitution, work until they dropped or have to forgo any life other then preparing for retirement.Report

              • Avatar Boonton in reply to greginak says:

                You could have a private system where you’re forced to contribute to a 401K type account. I think equality becomes a big problem with that. You’ll have some people who will get lucky and strike it rich, others will get wiped out in stock market crashes or from personal investment decisions (see all those Enron people who had their 401K’s wiped out ’cause they were heavy in Enron stock).

                The counter would be to require people to have a balance portfolio invested in general bond and stock indexes. I suspect this would be politically tricky. I can just see Sean Hannity types carping that gov’t won’t let you play the market with ‘your money’ inside your mandatory 401K plan.

                The problem IMO comes in when what happens in the first paragraph comes to be. Imagine two people retiring who both worked the same jobs and made the same money. One guy has several million in his 401K because he brought shares of Amazon, Google and Apple at just the right time. The other guy has only $25,000 because he trusted AIG, Bank of America, Wells Fargo and so on. The political pressure to ‘bail him out’ will be huge. At the same time if you are going to get bailed out of bad investment choices in your 401K the moral hazzard issue grows dramatically. If the gov’t will save you, why invest conservatively? Bet the farm and strike it rich.Report

              • Avatar Simon K in reply to Boonton says:

                The UK lets people opt out of SERPS, the earnings-related part of the pension scheme, and invest the money in 401(k) equivalent accounts, but the account provider has to guarantee that part of the capital, so it can’t be invested in anything very risky.Report

              • Avatar James K in reply to Boonton says:

                There are disincentives, with Negative Income Taxing, but they’re less severe. And by ‘demographically stable” I mean “less likely to collapse under the weight of an ageing population”.Report

              • Avatar Boonton in reply to James K says:

                It would seem to me you have the same issue with an aging population. If fewer people are working there’s a smaller base to pay for the ‘negative’ income bracket. On one hand you have an incentive for able bodied seniors to keep working but you also have an incentive for able bodied young people to slack off and collect the negative tax. It still seems problematic.Report

  2. Avatar Boonton says:

    I think what is being missed here is that normal analysis gets a bit strange when you scale up to something as large as social security. For example, just say that the trust fund did buy marketable bonds. OK the Federal deficit would have been higher over the last twenty years but interest rates would have remained the same since the trust fund would be buying up the additional bonds the Treasury issued. Today the fund would start selling the bonds or letting them mature. There you go, same problem presents itself. How to pay off those bonds? Tax, cut benefits, borrow etc. Same set of choices confronts us.

    OK say the Trust fund acted likea 401K and brought stocks. OK the deficits of the past would have been higher, since the fund wasn’t buying bonds interest rates would have been higher. BUT companies would find it easier to sell stocks given the Trust was buying them. Higher stock prices would have meant stock returns would have been lower so our actual 401Ks would probably have more bonds in them than they did over the last decade or so. But today the same issue presents itself. Who will buy the stocks that the Trust will soon start selling? Do we force people to buy stocks? If not what happens if the Trust Fund ‘disappears’ as stock prices fall?

    This leads to a larger question, how does something as large as the gov’t actually save? It’s easy for a person, company or state to save if they expect to have a big expense in future years. They can put money in a bank, for example. But when you start talking about amounts that are actual percentage points of GDP you start getting into an odd zone. Saving in any real sense becomes very tricky. I would say it’s basically impossible.

    When you understand what GDP is, you start to see why. The GDP of 1990 is gone. Unless, if you mean by saving, we took some of the goods made in 1990, buried them in a time capsel to be dug up and used by retirees in 2020 nothing from 1990 is saved. The only thing that matters is did we do anything in 1990 to make the economy of 2010 better. In that we did. I was going to school back then, companies were doing R&D, investing in capital and so on. Some of that hopefully makes 2010 a better place and 2020 even more so.

    I suspect then that the trust fund probably did its job by keeping Federal borrowing down in 1990 which freed up more money for investment in the capital markets. That means the economy of 2010 is bigger than what it otherwise would have been which means that benefits today can be paid either out of taxes, spending cuts elsewhere or borrowing.Report

    • Avatar Francis in reply to Boonton says:

      Precisely. A bond is simply a promise to pay in the future. There are all sorts of reasons why IBM may not be able to repay a 20-year bond; there are fewer reasons to believe that the US cannot.

      Conceptually, S.S. is an intergenerational promise. Young and middle aged workers are living up to their promise to care for their elders. In return, they expect the next generation to provide for them. Instead of doing this on a family-by-family basis, we’ve decided to federalize the whole idea.

      But a long-term bond is, in essence, an intergenerational promise. Only a few, very young, people working at, say, IBM today is likely to still be there in 30 years when the long-term debt IBM is issuing now comes due. Instead, what will be there is the business.

      The idea is the same for S.S. There’s no particular reason to issue bonds. They are just an analogy to corporate debt, to give average Americans some greater assurance that the promises of their generation will be kept by the next.Report

      • Avatar D.A. Ridgely in reply to Francis says:

        A bond is not “simply a promise to pay in the future,” it is a legal obligation to pay in the future. You can’t be legally obligated to pay yourself by issuing yourself bonds and neither can the federal government. Furthermore, a real bond holder would have a priority right to collect in the case of your insolvency or bankruptcy. There are no such legal rights in the Trust Fund, it’s just smoke and mirrors.

        I knew it would only be a matter of time before someone trotted out the intergenerational promise rhetoric. Refresh my memory, exactly when did I promise to care for your parents? Or mine, for that matter?

        Perhaps there are good and sufficient reasons why a society should provide a minimum level of financial support to its elderly, I’m not arguing that that is not the case. But there is no real promise involved even as there are no real bonds involved.Report

        • Avatar Boonton in reply to D.A. Ridgely says:

          “You can’t be legally obligated to pay yourself by issuing yourself bonds and neither can the federal government. ”

          This isn’t entirely true. You’re assuming the Fed. gov’t is a single entity. But it’s quite common for large entities to be split…..for example AIG’s implosion in writing default swaps on exotic bonds didn’t impact the people who had AIG life or auto insurance because those policies were written by a seperate AIG.

          “Furthermore, a real bond holder would have a priority right to collect in the case of your insolvency or bankruptcy. There are no such legal rights in the Trust Fund, it’s just smoke and mirrors.”

          There’s no such rights when holding sovereign debt. Tell me if California’s gov’t defaults on its bonds what do I get? A steel beam from the Golden Gate Bridge? Soverign gov’ts have defaulted on bonds for centuries and bondholders do not have the legal rights they do when companies default on their bonds. On the flip side, though, governments can raise taxes to pay their bonds off. If, say, Amazon can’t pay its bonds it can’t force people to buy more books. This is all part of the pros and cons of bonds.

          “Perhaps there are good and sufficient reasons why a society should provide a minimum level of financial support to its elderly, I’m not arguing that that is not the case. But there is no real promise involved even as there are no real bonds involved.”

          The bonds are an accounting device for a real promise. You can assert that accounting is ‘smoke and mirrors’ and in some sense it is but oddly it is also quite real and necessary. The bonds decreased the deficits during the boomers peak earning years and will likely increase the deficit during their peak retirement years. This would have been true if the bonds were ‘real’ or in personal accounts or even if back in 1985 they forced boomers to set up mandatory 401K style accounts and let them choose their investments.Report

          • Avatar D.A. Ridgely in reply to Boonton says:

            As was noted in a recent U.S. Court of Appeals for the D.C. Circuit case:

            The Constitution vests the “executive Power” in one President. And the Constitution assigns the President the responsibility to “take Care that the Laws be faithfully executed.” Because Article II provides that a single President controls the Executive Branch, legal or policy disputes between two Executive Branch agencies are typically resolved by the President or his designee – without judicial intervention. Moreover, because agencies involved in intra-Executive Branch disputes are not adverse to one another (rather, they are both subordinate parts of a single organization headed by one CEO), such disputes do not appear to constitute a case or controversy for purposes of Article III. In short, judicial resolution of intra-Executive disputes is questionable under both Article II and Article III.

            Short version, there must be two adverse parties for a legal case or controversy but the Executive Branch is legally one entity. No party with standing to sue the Treasury Department exists, thus whatever putative obligations the bonds create are at most political and not legal.

            Sovereign immunity is a factor, as you point out, as well. However, there are clearly defined rights accruing to holders of marketable government bonds which are enforceable within the limits of sovereign immunity in court. Not so with these bonds precisely because the bond issuer and the bond holder is one and the same entity.Report

            • Avatar Boonton in reply to D.A. Ridgely says:

              Ever hear of Treasury Stock (http://en.wikipedia.org/wiki/Treasury_stock)? That’s when a company buys its own shares but doesn’t destroy them, it simply holds them inside itself where they can opt to resell them at a later date either for a profit or loss.

              The same legal standing issue arises with Treasury stock. If Apple Inc. does something to screw its shareholders, I can sue if I own shares. But Apple can’t sue itself on behalf of the shares it owns as Treasury Stock. So Treasury Stock isn’t real…..yet it is because a company that owns a lot of such stock can cause the price to fall if they suddenly decided to sell it on the market.

              Just imagine Apple plans to build a massive new facility in 2015 that will cost billions. It decides to fund this plan by buying up stock today with extra profits it has. This is very similiar to the Trust Fund concept. Just as in the Trust Fund, a critic can say that Apple’s fund isn’t real since no one knows what its stock price will be in 2015 so who knows if its Treasury Shares will sell for the billions it requires. On the other hand does this mean that Apple isn’t being prudent by putting the money away? Would they be better off just giving everyone bigger bonuses and running bigger Christmas parties until 2015?

              The Trust Fund bonds not being ‘marketable’ is nothing more than a bit of legal boiler plate. Tomorrow those bonds can be taken by Treasury and put up for auction as standard Treasury bonds of various duration.

              “Sovereign immunity is a factor, as you point out, as well. However, there are clearly defined rights accruing to holders of marketable government bonds which are enforceable within the limits of sovereign immunity in court. ”

              What rights are you talking about? In terms of a sovereign default there are no such rights. If the gov’t decides to default on its bonds bondholders are screwed and that’s it. Ask those who owned Russian bonds about 15 yrs ago or numerous bond issues from S. American countries over the last two hundred years.Report

              • Avatar D.A. Ridgely in reply to Boonton says:

                Apples and oranges. (Sorry, couldn’t help it.) Not only are equity shares in a publicly traded corporation entirely different from corporate bonds, but marketable securities are different from non-marketable securities and, in any case,you’ve already acknowledged the primary point which is that there is no legally enforceable obligation. Regarding sovereign immunity, let’s forget Russia and remember that in the United States both the federal government and the states can waive sovereign immunity creating real, enforceable rights.Report

        • Avatar Francis in reply to D.A. Ridgely says:

          Ouch, there’s a lot here that’s wrong.

          To begin with, I used shorthand when I wrote “A bond is simply a promise to pay in the future”. To be more accurate, a bond is evidence of a promise to make a future stream of payments. Promises, which if they meet certain legal criteria are “legal obligations”, exist independent of the paper they’re written on.

          Just because a promise is labeled a “legal obligation” does not give it special powers. All you have is the right to seek relief in court. That may or may not result in you being better off. The remedies available to a bond holder on default of the debtor are established by contract and also by state law and by federal law. It’s kind of odd to believe, on the one hand, in the importance of the bankruptcy code — which is determined by the federal government — and on the other reject the validity of SS Treasury bonds. You have as many assurances about existing priorities in the bankruptcy code as you do in the payment of SS — none but what you can extract from your elected officials.

          Remedies are also determined by the ability of the debtor/bankruptcy estate to pay; plenty of nominally valid debt in this world has ended up as being worthless. No one can ever know for sure what is valid debt and what is smoke-and-mirrors. What we can do as a society is create political and legal structures that make it more difficult for debtors, public and private, to default.

          So, no, corporate bonds are not a perfect analogy to SS Treasury bonds. I didn’t say they were. I said that they are a useful analogy to reassure the millions of Americans who are planning to rely on SS that the money will be there when they need it.

          And I knew someone would inevitably trot out the old libertarian complaint about their lack of consent to the SS scheme. 1. Your parents gave your consent on your behalf when you were born here. 2. You continue to give your consent by your presence in this country. 3. You got an opportunity to vote to repeal SS just three weeks ago — the fact that there was not a majority of candidates explicitly running on the repeal of SS is not my problem.

          If you want to run your country on the principle that all laws are repealed every single election, have at it. You can even try to persuade American voters of that idea. But the notion that certain laws are unjust because they were adopted before you could vote is just silly under a constitutional system. We are bound by the acts of our ancestors because that’s the government they set up and no one has managed to form a majority to overturn it.Report

          • Avatar D.A. Ridgely in reply to Francis says:

            Ah, well, the old libertarian complaint arose in direct response to the the old false if not outright absurd fiction that an actual promise is involved. Now, we can talk social contract theory until the cows come home and you can assert moral claims all you like about what my parents did and how you think that gives rise to an obligation on my part or what might count as tacit acceptance of the status quo by not leaving. But saying it is so doesn’t make it so.

            And if you can’t see the difference between a legal obligation for which actual remedies exist and promises for which you don’t have any remedies, I can’t imagine what I could say to make the distinction more clear. Similarly, if you can’t see the difference between something that becomes worthless and something that is worthless ab initio, I have some bonds you might be interested in buying.Report

  3. Avatar Boonton says:

    “let’s forget Russia and remember that in the United States both the federal government and the states can waive sovereign immunity creating real, enforceable rights.”

    What would be the point of the US defaulting on its bonds but then waiving sovereign immunity? The reality is that if either a state or the Fed. gov’t decides to default there’s no legally enforceble rights. When you say ‘waive immunity’ you’re not talking about bonds because that would be pointless. Even if it wasn’t waived all that could be won is a ‘judgement’ in favor of the bondholder. But that’s meaningless since such judgements can’t be enforced against an unwilling gov’t. Ask the black farmers who years ago won a large class action lawsuit against the Dept. of Agriculture for discrimination and still are waiting for Republicans to agree to fund the payouts.

    The ‘legally enforceable obligation’ acts as a plus in terms of corporate bonds but the con with corporate bonds is that you only have legal right to the actual assets of the corporation. If you owned, say, Enron bonds once they auctioned off the last of Enron’s office furniture you only had legal claim to pennies on the dollar. Government bonds differ in that you’re not buying a legal claim to gov’t assets. You’re buying into the underlying economy which the gov’t has the ability to tax.Report

    • Avatar D.A. Ridgely in reply to Boonton says:

      *shrug* I think we’re talking at cross purposes at this point. I’ve explained why I consider the notion of Trust Fund bonds illusory or, at the very least, misleading. The U.S. isn’t going to default on its marketable securities. Social Security bonds are not the same sort of securities, if securities at all. Corporations buying back some of their outstanding stock isn’t relevant. Sovereign immunity is only tangentially relevant, but it was your point in the first place.

      If you don’t see the difference between legally enforceable rights and promises one party makes to itself, I probably can’t explain it any better. If you do see the difference but think it doesn’t lead to the conclusions I draw from it, fair enough. As I said in the original post, I’m not especially interested in the question, notwithstanding that I do come down on one side and not the other.Report

      • Avatar Boonton in reply to D.A. Ridgely says:

        I suppose what I’m not really seeing is why this is important. Consider this alternative case:

        Suppose boomer benefits were set really high but the trust fund was packed full of ‘marketable securities’ purchased from the secondary bond market. So what? Now it comes time to start paying benefits and let’s say politically there’s a lot less will to do it. So Congress cuts benefits. There, the ‘marketable securities’ don’t really mean anything. From a legal perspective Treasury will go through the motions of ‘paying’ off the bonds but then the Trust fund will ‘refund’ to the Treasury the ‘surplus’ that has been caused by the fact that less money is needed to pay the benefits.

        “If you don’t see the difference between legally enforceable rights and promises one party makes to itself, I probably can’t explain it any better. ”

        I think what you should try to address is the question of how does a gov’t go about saving? I’m not talking about a small gov’t such as a state or county or even a small nation but a huge gov’t that is a large part of the global economy. When you think about it even “legally enforceable rights” get kind of murky. Consider….

        401K world where every American was required to fund a 401K starting in 1980. In this world the ‘demographic bubble’ still presents a problem. Stocks went up as boomers were forced to fund their 401K’s, but now boomers want to retire and are legally able to start cashing out. But who buys the stocks? With fewer workers the new 401K’s aren’t enough to cash out the boomers at what they ‘expected’. Maybe gov’t requires younger workers to save more in their 401Ks. Maybe gov’t requires boomers to wait a bit before cashing out. Or maybe gov’t makes those who did really well in their 401K’s to loose some of the tax advantages…… In other words you got the functionally the same thing as a tax increase, a benefits cut, or means testing benefits.Report

  4. greginak writes:

    I would suggest that minorities have rights majorities can’t override but democracy is still a majority based institution. “Tyranny of the majority” is a bit overwrought if minorities have the right to vote and constitutional protections.

    Minorities have all the rights and protections the majority sees fit to grant them. Color me unimpressed.Report

    • Avatar gregiank in reply to D.A. Ridgely says:

      Nothing is perfect. A constitution is a good thing. Yes there are no guarantees but all we can do is endeavor to make the best world we can. For all our failings we do better then most countries have or ever have done. I’m more then happy to join the Federation but that isn’t quite any option yet.

      Or , of course, hide in our well armed bunkers in constant fear. Meh.Report

  5. Avatar James Hanley says:

    “Tyranny of the majority” is a bit overwrought if minorities have (a) the right to vote and (b) constitutional protections. (identification of points added)

    Well, James Madison, for one, would disagree with (a). From Federalist 10.

    a pure democracy…can admit of no cure for the mischiefs of faction. A common passion or interest will, in almost every case, be felt by a majority of the whole…and there is nothing to check the inducements to sacrifice the weaker party or an obnoxious individual.

    Voting rights won’t help much if there’s a permanent majority voting against your interests. And one of the first things they’re likely to vote for is an end to the minority’s voting rights.

    (b) has some real relevance, assuming those constitutional protections can’t be repealed with a simple majority vote (as they can in many states,including the one in which I live). Which is why, contra some liberal political science professors, I’m just fine and dandy with how hard it is to amend the U.S. Constitution.Report

    • Avatar gregiank in reply to James Hanley says:

      Like i said, there is no perfect form of government or constitution that can ever guarantee there will never be tyranny. There are always, in a democracy, trade offs between majorities and minorities rights and abilities. Just like somebody will always been unhappy with what a majority votes for there will always be people unhappy with the trade offs. . For me, i think i try to separate normal and expected static from gross violations. That is the crux of the difference between the wonder and frustration of democracy and tyranny.

      PS: The libertarian paradise seems like it leads to a tyranny of the minorityReport

  6. Avatar Murali says:

    Like i said, there is no perfect form of government or constitution that can ever guarantee there will never be tyranny

    We are not arguing that democracy is not perfect. Its just not clear that democracy is the best form of government. Churchill’s reply was just a facile soundbite that doesnt really constitute an argukment for democracy. Maybe some kind of constitutional technocracy would be better. i.e. it is surely possible to design governance procedures that are better at preventing injustice than constitutional democracies. Whether or not we can get there from here is an entirely different issue, but may not necessarily be intractable.Report

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