Misquoting Henry Aaron

["Steven H. Johnson" <info@sscommonsense.org>]

The dialogue is starting to stray from civility.
We can disagree quite vigorously without being ad hominem about it.

I've heard Aaron speak about Social Security.
There is a point in his argument in which he refers to returns
being 100% negative.
But it doesn't have to do with an employee's ultimate return
on the money he puts into Social Security.
It has to do with another point altogether.

It comes up in the context of total privatization.
Benefits are still owed to current retirees.
Young employees are being shifted over to full privatization.
In other words, all their future benefits will depend solely
on the returns on their own savings.
But the young employees also have to pay money into the present
system in order to finance the benefits going to current retirees.
That's the money that has a 100% negative return.
Young employees get nothing back for that at all.

If anyone wants to figure out their own rate of return, they
can download a program from Social Security that helps you
calculate, for any time period and salary history you like, 
exactly what your retirement benefits will be, once you
reach retirement age.  The real rate of return is indeed
slipping, and in time, if we stick purely with a pay-as-you-go
system, and raise taxes as needed to finance current benefit
levels, the rate of return goes slightly underwater.  It 
doesn't keep up with the rate of inflation.  But it never goes
100% negative for the average retiree.  At worst, for the 
average retiree, it goes down to about 1 percent in nominal terms,
which, once inflation is taken into account, is like a negative
return rate of about 2%.

-Steve.