What do you think would have been a better solution to the problem that FDR was dealing with?
Background InformationThe point is that the accrued liability as of every reporting period should have accurately stated the funded and unfunded components of the total liability for the trust, discounted to its net present value as of the statement date. In this manner, at all times the precise amount of money that is owed is known at all times.
Instead, the public has been living a lie for all these years. People actually believe there is a "lock box" with THEIR money in it, even though there never was, even on Day One. It is just plain, old fungible money and not as much as they believed. Even when they say, "This is how much is Social Security's money" it is a misrepresentation because it doesn't explain it isn't enough of it to meet the obligations.
As a CPA who once studied exhaustively APB 8, "Accounting for the Cost of Pension Plans", early in my life I learned that any pension that is material in amount (which SS is, effectively) must be accounted for using accrual based accounting, NOT cash-based accounting in which expenses (reductions in assets) appear only after payments to beneficiaries are made.
That is, the plan's financial statements and books/records must reflect future required payments to beneficiaries as liabilities (e.g., amounts actually owed to participants, discounted appropriately for the time value of money). If that is not done, the public will not understand: the money they believe is "owed" to them is actually nonexistent and must be collected from others who believe the SAME MONEY is owed instead to THEM, later on. In accounting, this is an untenable situation.
Yet is has been the case since inception, that the Social Security trust was technically insolvent, with the net insolvency growing year-by-year. The plan's failure is guaranteed. (The first beneficiary, who drew $24/month, put the trust in deficit and it has always been since then).
The only eventuality that could save it from demise is a net decrease in beneficiaries, but if that happened, who would pay THEIR benefits?
The plan is to slice benefits, but that is tantamount to doing away with the program:
1. People aren't going to pay, or be forced to pay, for what they perceive as a non-existent benefit. See: Student Loans.
2. The number of beneficiaries will continue to increase over time, so long as the covered population is growing.
3. As the population begins to shrink, the resources to pay future commitments will also shrink.
It is, by all reasonable metrics, a Ponzi Scheme.
Now, to your question: "What do you think would have been a better solution to the problem that FDR was dealing with?"
Early in my accounting career I attended a CE seminar put on by some tax attorneys where the class received sage advice: "IN MOST CASES, DISCLOSURE SOLVES ALL THE PROBLEMS." That was a learning moment for me. Throughout my career, everything was disclosed. Whether it was tax reporting, financial reporting to stockholders, or to banks, whoever: When in doubt, there are no secrets.
The most important thing that could have been done IMO was to have crafted a reporting structure so that at least once a quarter or year, every beneficiary got a statement of account like he might receive from a credit union or bank. An individual and combined reconciliation of accounts individual accounts, along with a one page summary of the fund's status.
And every year, Congress needed to budget for the money to move into the SS Trust, even if it were to be then lent out again. All in a nice package that showed the ESTIMATED TRUST SHORTFALL.
So, everyone was clear: The money isn't there isn't going to be there unless we do something different. They knew it wasn't going to be there.
It would have forced an element of truth out of government that isn't there today. I see people every month posting on FB about how it is "their money" and government ought to stay out of it: These people have no idea at all how this money on which they are reliant is being managed and that the money simply isn't there and isn't going to be, if they live much longer.
So, my answer is:
1. I would have not done as FDR, which was to go with against the advise received from the Wisconsin consultant, and
2. I would have required the public be kept informed.
I'm sorry, but this is the best I can do. |
