Yale Economist Robert Shiller's Proposal to Reform Social Security

Robert J. Shiller
Robert J. Shiller

Robert Shiller's Proposal to Fix Social Security

Yale economist, Robert Shiller, floated a novel proposal to "fix" Social Security in a long article in the NY Times June 9, 2013. Unless changes are made the Social Security fund will not be able to maintain current benefits beginning in 2033. Various proposals have been made to deal with this eventuality, ranging from President Bush's proposal to "privatize" Social Security to President Obama's chained CPI proposal which would reduce future cost of living increases in benefits. Shiller's proposal would replace future increases in benefits tied to inflation with changes based on changes in the country's G.D.P. (gross domestic product).

Shiller is critical of Obama's chained CPI proposal claiming that it "solves the wrong problem and, in doing so undermines the integrity of the Social Security system" whose purpose is to "help families" by "reinforcing the intergenerational sharing...that families already provide....It helps retirees by stabilizing their income, and it helps their grown children, who are relieved of any excessive burden of supporting them."

Shiller's proposal which would tie Social Security benefits to a measure of gross domestic product would "align the interests of the retired with society as a whole...because," according to Shiller, "Older Americans should share both the windfalls and the losses with other generations--with working adults, and with children....Why should retired people feel no effect at all from the recession while younger people are suffering.?" And vice versa?

Assuming that the economy continues to grow in the future as it has in the past, Shiller's proposal would result in a greater increase in Social Security benefits than under the current adjustment fomula because benefits have been falling as a percentage of G.D.P. for the past 20 years.

Although his proposal would likely require an increase in the contribution rate by employees and employers, Shiller believes that this would be worthwhile in order to "preserve the integrity of Social Security which is "crucial to our identity as a civil society."


Robert Reich on Chained CPI

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Comments 44 comments

HSchneider 3 years ago from Parsippany, New Jersey

Robert Schiller's social security solution is a sensible one and does address the correct source of the problem. I would address it by raising the income threshold limit above $106,800. This limit has been in effect for almost 20 years without inflation adjustments. A rise in this level would in itself cure this problem in its entirety or close to it. Excellent and thought provoking Hub.


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

Thanks for your comment. We are usually on the same wave length.


AMFredenburg profile image

AMFredenburg 3 years ago from Southwestern New Hampshire

I'm not sure how I feel about raising the income threshold limit; particularly with self-employed people, much higher tax rates kick in at about the same time, so at this level the cut0ff eases the tax burden imposed by the higher rate a bit. With the cutoff increased, self-employed individuals are hit with taxes for both their portion and the employer's portion of Social Security and Medicare taxes.

I still think my idea is better: http://amfredenburg.hubpages.com/hub/How-We-Can-Fi...


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

We already have "personal accounts," i.e., IRAs and 401k plans which are in need of revision to increase participation and reduce excessive costs. Allowing workers to elect to put SS taxes into credit unions or other private accounts would be a mistake because it make the prey to Wall Street vultures and other scam artists. SS has served the country well as a bare minimum source of retirement income sufficient to prevent starvation and reduce the number of panhandlers off the sidewalks.


Miks7 profile image

Miks7 3 years ago from Sioux Falls SD

Ralph,

But wait...private institutions would be INVESTMENT solutions, not 3 workers pay for every 1 recipient. If you do a study on private investment accounts, you will find that the money collected in a private institution has triple the payout for average recipients, wouldn't this be a better method? I have studied this via a Texas county that exempted itself from FDR's social security system, and it works.

BECAUSE you mention "Wall Street vultures and scam artists", are you telling me that you feel Congress isn't fitting your description much more succinctly? Relying on the Government to manage your money is as inefficient as you can get. Government doesn't create wealth, they want to control Social Security because most of us would not let recipients that are illegal immigrants that have never paid into the plan to receive our money we are paying in. GET IT?


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

The Wall Street Banksters were the ones behind Bush's privatization proposal. They were salivating to get their hands on Social Security deposits.

Have you been reading about the privately managed under-funded municipal and state pension plans that are going bust all over the country?

Social Security was never intended to be an investment program. It is a social insurance program which depending on how long you live offers anything from a zero return or a quite nice return. It also provides for orphans and disabled individuals.


AMFredenburg profile image

AMFredenburg 3 years ago from Southwestern New Hampshire

Ralph, I'm not suggesting that banks and credit unions be allowed to invest in Wall Street; we need to bring back Glass-Steagal and build a firewall between savings and stock speculation.


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

I agree wrt resurrecting Glass-Steagall, but aren't you suggesting that people be allowed to invest their own SS taxes in private accounts, i.e., Wall Street. I'll have to re-read your proposal.


d.william profile image

d.william 3 years ago from Somewhere in the south

Great article. The worst of the worst of arguments as to why SS should be altered, reduced, privatized, or eliminated is: "Why should retired people feel no effect at all from the recession while younger people are suffering."

People who make such inflammatory statements know little or nothing of why SS was started in the first place. And those who would privatize SS have little or no knowledge of how the private sector manages to screw up things more that the government does. There are many examples of private businesses who went belly up and ate up all the retirement funds of their workers, leaving them high and dry without any retirement income at all.

SS funds were never meant to be used as part of the governments general funds, and those politicians who allowed this finger dipping into those funds should have their own retirement benefits put back into SS as punishment for doing so.

And therein lies another problem. The exorbitant retirement benefits that congress voted to give to themselves - should never have been allowed and they should be made to be part of the SS system NOW.

For what little they contribute to public service they certainly do not deserve any additional awards taken from tax payer money.

The second most sensible solution would be to raise the income threshold, or remove it altogether.

And lets pray to our respective Gods that SS is NEVER privatized.


AMFredenburg profile image

AMFredenburg 3 years ago from Southwestern New Hampshire

Actually, Ralph, I'm suggesting that the money be collected and administered by the SSA, but be placed in secured, FDIC- or NCUA-insured deposit accounts that earn a minimum of 5 percent. The banks could use the money for local lending, but not for investing in Wall Street, and would have to agree to *lots* of federal scrutiny. The program would need a junkyard dog-regulatory arm.


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

"And lets pray to our respective Gods that SS is NEVER privatized."

Amen to that!


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

That makes more sense to me. Sorry I misinterpreted your proposal. Still not sure I agree.


Dr Jerry Allison profile image

Dr Jerry Allison 3 years ago from Mount Olive, NC

Interesting thoughts but leaving the money in the government's hands is like letting the fox guard the chicken coop. Currently, money that goes to SS is spent, not kept back like it is supposed to be. The SS trust fund is a bunch of IOWs because Congress got their hands on the money and has spent it on pet project. This is why the federal government is in such bad financial shape. We are having to make up the money that should have been saved as well as pay for current operating expenditures. At least if people have the freedom to invest their own money, they stand a chance. Oh wow, freedom and choice. They are such ugly words to some individuals.


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

It's true that the government borrows the money from the SS trust fund to pay it's bills. However, the bonds that are put in the SS trust fund are about as secure as any financial instrument can be. The money will be there to pay SS benefits. Politicians from neither party would vote to allow a default on these bonds. Social Security has no direct effect on the federal deficit. Any changes in SS should be discussed separately from issues involved in the national debt. The debt is attributable, not to SS, but to the unwillingness of politicians to vote tax increases and/or close loopholes sufficient to pay for the bills they have passed for wars, defense and other functions of the government.


Credence2 profile image

Credence2 3 years ago from Florida (Space Coast)

Ralph, this says a greaat deal:"

"The debt is attributable, not to SS, but to the unwillingness of politicians to vote tax increases and/or close loopholes sufficient to pay for the bills they have passed for wars, defense and other functions of the government"

That is why the politicians raided SS to avoid the more responsible if more painful route of tax increases of spending cuts. I don't hear a great deal about that in Washington.


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

Very true! Thanks.


Dr Jerry Allison profile image

Dr Jerry Allison 3 years ago from Mount Olive, NC

This is in response to Credence's comment about politician's not willing to raise taxes. If you all love tax increases so much, then voluntarily donate your money to the government to reduce the debt. The website is http://www.treasurydirect.gov/govt/reports/pd/gift... Please lead the way in showing us all how to donate to pay the bills and reduce the federal debt. But don't steal it from other people through taxation.


AMFredenburg profile image

AMFredenburg 3 years ago from Southwestern New Hampshire

"Steal it from other people through taxation"? Unless you're willing to get rid of all taxes everywhere and forgo driving on public highways, paying air traffic controller to prevent planes from running into each other and operating satellites that track and warn about hurricanes and tornadoes, you have to admit that taxation is a necessity, and the question becomes, what do we spend the money on? That's not stealing; it's setting priorities to "promote the general welfare," as the preamble to the Constitution says.


Dr Jerry Allison profile image

Dr Jerry Allison 3 years ago from Mount Olive, NC

Again, as I have said, if you love it so much, donate all your money to take care of the things you love. The federal government existed and worked fine before income taxes were created by the 16th Amendment in 1909. Incidentally, promoting the general welfare in the Constitution means what is good for everyone, not just certain special interest groups.


Credence2 profile image

Credence2 3 years ago from Florida (Space Coast)

Dr. Allison "This is in response to Credence's comment about politician's not willing to raise taxes. If you all love tax increases so much, then voluntarily donate your money to the government to reduce the debt. The website is http://www.treasurydirect.gov/govt/reports/pd/gift Please lead the way in showing us all how to donate to pay the bills and reduce the federal debt. But don't steal it from other people through taxation."

" BTW, a considerable amount of time has passed since 1909

My point, Dr. Allison is that it is cowardly to raid the Social Security funding to pay for other projects. That money has been and should remain untouched . We have a social security crisis because politicians borrow money from it and do not pay it back.

No one supports profligate taxation, but if taxes do need to be raised and I guess since 1909 there have been several instances where that may have been the case, dont use our national retirement piggy bank to avoid facing the public with the need to raise taxes


Dr Jerry Allison profile image

Dr Jerry Allison 3 years ago from Mount Olive, NC

I did not understand your position and I apologize. I agree with you. But I would go further and say that most of the stuff the federal government does should be done by the states as the 10th Amendment declares. We would not be having most of the debates we have if that Amendment were taken seriously


Credence2 profile image

Credence2 3 years ago from Florida (Space Coast)

Apology accepted, thanks. I just don't know how feasible it is to put the chicken back into the egg once hatched. However, I do suppose that the principle of federalism was certainly a main theme at the founding of the republic


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

Taxation=Stealing? That's crazy.


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

Please get serious or go somewhere else.


Dr Jerry Allison profile image

Dr Jerry Allison 3 years ago from Mount Olive, NC

If someone picks your pocket while walking down the street, it is called stealing. When the government does it, it is called taxation. Please explain the difference.


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

I don't know why I'm wasting my time on you. The answer is obvious. The pick pocket is a thief. Your taxes are approved by our elected representatives in Washington to pay for programs that have been passed by the Congress and signed by the president. You and I don't agree with some of the programs on which our tax money is spent, but that doesn't mean that taxes equate to theft. I hope you have better advice for your accounting clients.


Dr Jerry Allison profile image

Dr Jerry Allison 3 years ago from Mount Olive, NC

So using your logic, since if three branches of government agree on listening to phone conversations, that is OK. But if I do it, that is a crime? Would you agree with that?


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

Please stick with the topic of this Hub, i.e. Professor Shiller's proposal for reforming Social Security. If you want to talk about government surveillance of citizens start a new forum topic.


Dr Jerry Allison profile image

Dr Jerry Allison 3 years ago from Mount Olive, NC

My point was you choose to use a set of criteria for one topic and then a completely opposite set of criteria for something else. I am just pointing out the inconsistency.


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

Okay. There is a constitutional issue, possibly, with government surveillance of citizens without court-approved warrants. There is no constitutional issue with federal, state and local taxation. taxation in no way equates to stealing. As Felix Frankfurter said, "Taxes are the price of a civil society."


Dr Jerry Allison profile image

Dr Jerry Allison 3 years ago from Mount Olive, NC

Your statement is true if the basis of morality (or right versus wrong) is solely based on the Constitution.


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

What's the basis for your morality? Survival of the fittest, Devil take the hindmost? Herbert Spencer's social Darwinism? My morality is more consistent with our civilization's Judeo-Christian heritage which embodies a slightly greater element of community values than yours apparently does. (The guy who dies with the most toys wins or Gordon Gecko's "greed is good.")


Dr Jerry Allison profile image

Dr Jerry Allison 3 years ago from Mount Olive, NC

So you should be allowed to impose your morality on me through tax policy because you think it is better? Please explain.


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

I don't claim any right to impose my morality on you or anyone. However, we are fortunate to live in a democracy, however imperfect, which imposes taxes to pay for schools, roads, defense and other activities deemed in the interest of our COMMUNITY. You might find a Latin American dictatorship more compatible with your morality.


Dr Jerry Allison profile image

Dr Jerry Allison 3 years ago from Mount Olive, NC

But someone has to pick what is right to spend money on and not to spend money on and that is the basis of morality. We live in a republic, not a democracy, and leaders make decisions on what is right to spend money on -- a moral decision. That morality is then imposed on everyone in the country. Please tell me how wrong I am. I am really enjoying this conversation!


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

That's right and you and I each have one vote. Others like the Koch brothers, the Wall Street Banksters, hedge fund operators, big oil, big pharma, big coal, et al have thousands of votes on the rules. Are you unhappy with the results? Hasn't inequality of wealth and income grown enough in recent years to make you happy? Aren't you getting your share?


Dr Jerry Allison profile image

Dr Jerry Allison 3 years ago from Mount Olive, NC

It sounds like you have a lot of anger. How much money is too much for a person to have?


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

That's true I do have a lot of anger toward scamming bankers, polluters, hedge fund operators who make their money via systematized insider trading, corporate tax avoiders and corporate CEO hogs who ass-kissed their way up the lader andnever had an original idea in their life but feel they should be paid like Henry Ford, Bill Gates or Charles Kettering. How much is too much? That depends on how the money was made. I don't begrudge the fortunes of a Gates or Ford or Warren Buffett who actually created something and apparently paid their taxes every year. I do wonder whether the average CEO is worth $12.9 million which is 380 times the average worker, the highest in the industrial world.


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

"But someone has to pick what is right to spend money on and not to spend money on and that is the basis of morality."

That's true. Here's a bit of ancient wisdom on that:

C. 430 B.C. China--Mozi says

"JUST SAY NO

"It is the business of the benevolent man to seek to promote what is beneficial to the world, to eliminate what is harmful, and to provide a model for the world. What benefits men he will carry out; what does not benefit men he will leave alone. Moreover, when the benevolent many plans for the benefit of the world, he does not consider merely what will please the eye, delight the ear, gratify the mouth, and give ease to the body. If in order to gratify the senses he has to deprive the people of the wealth needed for their food and clothing, then the benevolent man will not do so. Therefore Mozi condemns music not because the sound of the great bells and rolling drums, the zithers and pipes, is not delightful, not because the sight of the carvings and ornaments is not beautiful; not because the taste of the fried and broiled meats is not delicious; and not because lofty towers, broad pavilions, and secluded halls are not comfortable to live in. But though the body finds comfort, the mouth gratification, the eye pleasure, and the ear delight, yet if we examine the matter, we will find that such things are not in accordance with the ways of the sage kings. And if we consider the welfare of the world, we will find that they bring no benefit to the common people. Therefore Mozi says: Making music is wrong!

"Now if the rulers and ministers want musical instruments to use tin their government activities, they cannot extract them from the seawater, like salt, or dig them out of the ground, like ore. Inevitably, therefore, they must lay heavy taxes upon the common people before they can enjoy the sound of great bells, rolling drums, zithers, and pipes. In ancient times the sage kings likewise laid heavy taxes on the people, but this was for the prupose of making boats and carts, and when they were completed and people asked, “What are these for?” the sage kings replied, “The boats are for use on water, and the carts for use on land so that gentlemen may rest their feet and laborers spare their shoulders.” So the common

"Art is a jealous mistress, and if a man have a genius for painting, poetry, music, architecture, or philosophy, he makes a bad husband and an ill provider. Ralph Waldo Emerson

"People paid their taxes and levies and did not dare to grumble. Why? Because they knew that the taxes would be used for the benefit of the people. Now if musical instruments were also used for the benefit of the people, I would not venture to condemn them. Indeed, if they were as useful as the boats and carts of the sage kings, I would certainly not venture to condemn them.

"There are three things the people worry about: that when they are hungry they will have no food, when they are cold they will have no clothing, and when they are weary they will have no rest. These are the three great worries of the people. Now let us try sounding the great bells, striking the rolling drums, strumming the zithers, blowing the pipes,

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"waving the shields and axes in the war dance. Does this do anything to provide food and

clothing for the people? I hardly think so. But let us leave that point for the moment.

"Now there are great states that attack small ones and great families that molest small ones. The strong oppress the weak, the many tyrannize the few, the cunning deceive the stupid, the eminent lord it over the humble, and bandits and thieves rise up on all sides and cannot be suppressed. Now let us try sounding the great bells, striking the rolling drums, strumming the zithers, blowing the pipes, and waving the shields and axes in the war dance. Does this do anything to rescue the world from chaos and restore it to order? I hardly think so. Therefore Mozi says if you try to promote what is beneficial to the world and eliminate what is harmful by laying heavy taxes on the people for the purpose of making bells, drums, zithers, and pipes, you will get nowhere. So Mozi says: making music is wrong!

"Now the rulers and ministers, seated in their lofty towers and broad pavilions, look about them, and there are the bells, hanging like huge cauldrons. But unless the bells are struck, how can the rulers get any delight out of them? Therefore it is obvious that the rulers must have someone to strike the bells. But they cannot employ old men or young boys, since their eyes and ears are not keen enough and their arms are not strong, and they cannot make the sounds harmonious or see to strike the bells front and back. If they employ young men, then they will be taking them away from their plowing and planting, and if they employ young woment, they will be taking them away from their weaving and spinning. Yet the rulers and ministers will have their music, though their music making interferes to such an extent with the people’s efforts to produce food and clothing! Therefore Mozi says: making music is wrong!

"[Mozi, from “Against Music.” Born a few years after Confucius’ death, Mozi professed the doctrine of undifferentiated love: “When everyone regards the states and cities of others as he regards his won, no one will attack the others’ state or seize the otherrs’ cities.” His disdain for music was part of a larger critique of the aristocracy’s lavish banquets and theatrical performances.]"

From: “LAPHAM’S QUARTERLY, Volume III, NUMBER 2 Spring 2010

page 2 of 2


Dr Jerry Allison profile image

Dr Jerry Allison 3 years ago from Mount Olive, NC

Your comment regarding who you are angry with and why strikes a chord with me. We actually agree on something here. Those who have gotten wealthy illegally should be punished in accordance to the law. I also agree that many CEOs are not worth what they are being paid, but I do not think it is the federal government's business to step into that. But I noticed that those you admire are liberals and those you despise are conservatives (going back to the names you quoted in a previous post). In my opinion, included with those that do not have original ideas but have just ridden their fortunes are the Kennedy's. Joe Kennedy earned a ton of money running liquor illegally during prohibition and the family has ridden on that fortune ever since.


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

David Siegel is a guy who has too much money.

http://hubpages.com/entertainment/Queen-of-Versail...


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

I notice you're from Southeast U.S. Anywhere near Baton Rouge where I grew up?


Dr Jerry Allison profile image

Dr Jerry Allison 3 years ago from Mount Olive, NC

Sorry. Wrong side of the Southeast. I have often wanted to visit Louisiana. I was there briefly once as a kid but I don't remember much.


Ralph Deeds profile image

Ralph Deeds 3 years ago Author

Ben S. Bernanke

ECONOMIST AND

FED CHAIRMAN

Princeton University

“A meritocracy is a system in which the people who are the luckiest in their health and genetic endowment; luckiest in terms of family support, encouragement and, probably, income; luckiest in their educational and career opportunities; and luckiest in so many other ways difficult to enumerate — these are the folks who reap the largest rewards.

The only way for even a putative meritocracy to hope to pass ethical muster, to be considered fair, is if those who are the luckiest in all of those respects also have the greatest responsibility to work hard, to contribute to the betterment of the world and to share their luck with others.”

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