In his push for Social Security privatization choicepersonal accounts abolition, George Bush is raising the prospect that, some time around 2050, Social Security will go bankrupt. This claim has been refuted quite a few times, so let me raise a different answer.
If you’re a young working-age American, don’t routinely pay your credit card balance(s) down to zero each month, and don’t have top-flight health insurance, it’s odds-on, based on recent experience[1] that you’ll go bankrupt at some point.
About two million people, or one per cent of the working-age population[2], go bankrupt every year, a number that has risen dramatically in recent years. So, given about 50 years in the working-age bracket[3], and ignoring multiple bankruptcies, it’s almost exactly even money that a given person will go bankrupt. But, not surprisingly, the risk isn’t evenly distributed. The two major causes of personal bankruptcy are health crises and credit card debt.
Looking at credit cards, the population is about evenly divided between those who pay off their balance every month, and therefore get almost-free credit, and those who run balances, pay interest and keep the card companies in business. Assuming that the two groups are fairly stable, as appears to be the case the risk of credit-driven bankruptcy is fairly low for the first group, and these are also likely to have safer jobs and better health insurance. In fact, one way of viewing the credit card business is that it needs to extract as much interest as possible from members of the second group before their highly probable resort to bankruptcy.
As I’ve mentioned previously, bankruptcy is now more common than divorce. But because bankruptcy has risen so fast, the number of people who’ve experienced it is much smaller than the number who’ve been divorced. The stigma that was associated with bankruptcy is already declining, and it’s now a private financial issue rather than the public disgrace it once was. By the time Social Security supposedly goes bankrupt in 2050, Uncle Sam will merely be joining the majority of his constituents.
fn1. Of course, if a trend can’t be sustained, it won’t be. But there’s no obvious reason why the current upward trend in bankruptcy should halt, let alone be reversed. So it seems reasonable to assume that the current rate of bankruptcy will at least be maintained in future.
fn2. Children can’t go bankrupt. Retired people can, but bankruptcy rates are fairly low for this group, and are likely to stay low as long as Social Security exists.
fn3. Normally 15-64, but for the purposes of this post, 20-69 fits a bit better.
John Quiggin 
What does an increased rate of bankruptcy have to do with social security reform?
Beside showing the need of people to have access to their money.
A little extra on the bankrupcy issue, in relation to health care;
Random, its pretty hard to be able to pay for your own retirement (or support while sick / disabled) if you’ve declared bankrupcy.
John, i was wondering how much further GWB’s proposals go than our current Australian Superannuation System?
What is the prospect of Howard following the same course post July?
Living in Sydney and with house prices the way they are, I have twisted hopes that I will be fleet of foot enough to beat social security to the punch. Huzzah!
Personal bankruptcy should be a personal financial strategy and not a public disgrace.
The public disgrace is that credit card companies are not doing adequate risk analysis of the people that they are lending to. Poo to them if they are getting burned.
“In fact, one way of viewing the credit card business is that it needs to extract as much interest as possible from members of the second group [as opposed to those who get “almost-free credit�], before their highly probable resort to bankruptcy�.
John, this may be an overly pedantic point, but you’re not factoring in credit card/charge card merchant fees, which are a significant, if deeply hidden, cost to (all) consumers.
Merchant fees are usually between 2% and 5% of each transaction; with the higher end applied by the non-bank, former pure charge-card providers (Amex and Diners) and/or to high-risk-of-consumer-dispute merchants (e.g. porn vendors).
Thus, on a typical $10k per year credit card throughput, even a non-interest paying “transactor� (as opposed to a “revolver�) has garnered about $300 worth of fees for the card company – and card-issuing bank (if applicable).
Otherwise, while you’re generally right about the credit card industry’s usurious business model, there are large sections of the finance industry that far more usurious, objectively speaking – starting with “personal finance� providers like GE Capital.
alphaCoward.
Australia is in a much beter position than the US because our pensions are means tested.
Any look at the projections for pensions show that the government can comfortably afford them even on the worst of assumptions.
It is health care that is scaring the major daylights out of the government in particular the PBS scheme.
As time goes on the PBS subsidy will get less and less. Look particularly at those on the health Card that pay a pittance for drugs at present.
That is unsustainable as more and more of the population becomes eligible for this.
on compulsory and voluntary superanuuation we are seen at present as leaders. If the SGC was at 15% as envisaged and legislated by Keating we wouldn’t be even talking about the subject.
To Paul Watson’s comment:
1. John, this may be an overly pedantic point, but you’re not factoring in credit card/charge card merchant fees, which are a significant, if deeply hidden, cost to (all) consumers.
Not at all pedantic. It has irritated me for years.
1. Thus, on a typical $10k per year credit card throughput, even a non-interest paying “transactor� (as opposed to a “revolver�) has garnered about $300 worth of fees for the card company – and card-issuing bank (if applicable).
You make it sound like they are earning $300 for lending $10K. Not so. For $10K per year, the card company (bank, whoever) has to lend $833 per month – but it is the same $833 each month. They are getting it back, paid promptly by the “transactor�. That $300 of fees is garnered on $833, which is an interest rate of 36% pa!
Years ago I was a credit card merchant and paid a fee of 4% of the transaction. Naturally, the price of the product has to reflect this. The credit card company pays the merchant pretty well straight away (less 4%) and they send a bill to the customer once a month. If the customer has “up to 55 days interest free� as the credit card promotion says and the customer pays the whole bill before the interest cuts in and assuming the purchases were spread throughout the previous month, then the average interest free period will be a maximum of 28 days.
So the credit card company is earning 4% for four weeks credit to the merchant. That is a rate of 52% per annum. Is this a hoodlum loan shark racket or are these are fine upstanding venerable institutions?
And they don’t actually have to do anything for there’s no choice. If you don’t offer card facilities you won’t do business. According to the contract in my day (it may have changed) the merchant could not offer a reduction for cash. So the banks take a massive slice of all the action throughout the economy.
Note that all this is ignoring those customers who maintain a debt and actually pay interest – it is only a measly 17% or 23% or whatever it is.
Note, too, that an economically rational purchaser must use a credit card all the time and pay it off promptly since to pay cash for a purchase is to pay a premium but get nothing for it.
I’ve long pointed out the external costs that even we conscientious non-users of credit cards face from the merchant charges. I even mentioned it in an example in one of my articles that rested on how externalities affect unemployment.
This is really frustrating – This is supposed to be such a breakthrough, but there was a study a couple of years ago with the same finding done at some US university. None of the reports seem to give any credit to this initial study. I remember the study co-ordinator / leader was a woman, (not “Steffi Woolhandler” who sounds like a Kiwi to me…) I have googled and looked in my files of stuff, but can’t find references to it. Anyone remember that one?
JQ,
The independent variable in your discussion isn’t the rising rate of bankruptcy but the decreasing potency of shame.
And the rapid rise of Christian fundamentalism in the US (and Australia) will only exacerbate this problem.
Fundos, you see, believe in salvation by faith and not by works.
And in any case the more bizarre of their number (Red Staters all) fully expect to be raptured up to heaven before the bailiff comes knocking.
See Bill Moyers on this diverting aspect of fundamentalist social ethics:
http://www.zmag.org/content/showarticle.cfm?SectionID=41&ItemID=7158
Katz faith without works is no faith at all as we read in James!
John, an interesting point to note about bankruptcy in Australia is that an individual’s superannuation, up to the Pension Reasonable Benefit Limit – about $1.2 million, is protected from creditors. Therefore a couple could go bankrupt and still have assets of about $2.4 million (imagine if you were in a threesome!) (I wonder how much super John Elliott has!)
Katz – keep taking the meds, you must be disconsolate with the HowardBushHitlerites in power. It sounds like you are off them at the moment.
One thing that really jerks my chain in these type of discussions is the fact that individual responsibility to look after ourselves is virtually ignored. As adults we are responsible for our own destiny and if we fail to provide adequately for our retirement then it is our own fault. Only a very small minority should be on the welfare teat.
Razor,
Thanks for your concern about my health, a very Christian gesture. I’m feeling quite cheerful, all things considered, praise the Lord.
If you are one of the brethren that expect to be raptured up in the near future, it must be a busy time for you, so your interest in the petty affairs of the world and in the health and welfare of others is even more impressive.
You have probably deduced from my comments that I don’t expect to be among those “taken up”, but if by chance you are, perhaps you could enlighten me about certain matters. For example, is it advisable to sleep in your “Sunday Best”? Or is being raptured up in your jim-jams ok?
If by chance you aren’t a Believer, you seem to be an ideal convert. You might well consider it. And, shucks, every fellah needs a hobby.
It is been an annoyance to me for a while that RWDBs (and the previous comment by Razor is a case in point) who demand apologies from anyone who wasn’t actively agitating for carpet bombing of Moscow in the 50s, are quite happy to use that old Soviet tactic of stating that your political opponents are mentally ill.
Thus a dislike of Howard and Bush becomes a “pathology”. People who won’t be diverted by easy lies from political helpers are “obsessive”.
In Wednesday’s Oz Greg Sheridan was (again) calling opponents of Bush and Howard “deranged”.
It is so over-used that it is not even a worthwhile insult (as Katz’s amused response shows), but it remains offensive because of its sheer leering stupidity.
Razor (and the rest of you), read some HL Mencken and learn what a real insult looks like.
Razor is correct however if one has money to spaer you can pour it into Superannuation ( it is called an undeducted contribution) and it is not counted as part of your RBL.
Katz – Although I am a RWDB, I am also an Aethiest so I’m expecting to be left behind with you.
Andrew, lighten up. Although Margo Kingston . . .
I found the reference which is here, and I blogged it last year here. The study appears to have released some preliminary finding back then. How come it’s all over the media now, (judging by the number of google hits I get for reports dated February 2005), when it barely raised a whimper back then?
Katz, have you been on the receiving end of some unpleasant Christian proselytizing or something?
You have posted two comments in response to people’s thoughts regarding social security, and both of your responses have consisted entirely of bashing Christians. I don’t understand why.
I have been considering how to contradict Katz on a point he made in another post without incidentally treading on his understandable feelings. I still haven’t figured out how, and it was only a side issue anyway, but it could matter in the future.
Random,
The Christian proselytising to which I have been subject is no less unpleasant than most other forms. By circumstance, it has merely been more frequent.
I’m not particularly interested in religious enthusiasm, even examples of it from its wilder shores. I don’t recall ever having mentioned it before on this MB.
I brought up the subject in relation to JQ’s observation about the secular rise in bankruptcies in the United States. I had just read Bill Moyer’s article (referenced above) on the rapid rise of the “rapture” movement.
In a spirit of what I believed to be levity (pardon the pun) I imagined what folks who fully expectd to be taken up to heaven in the very near future might think about the need to pay off their credit card debts.
In short, I was being facetious.
Then came Razor’s somewhat tendentious observations about my mental state. My reply to him provoked Razor to tell me more about his cosmological views than I wanted to know.
No offence intended, but I don’t want to know about Random Prose’s eschatological views either.
PML, I’ve also had second thoughts partly in your favour about an earlier discussion on religious toleration. And this seems as good a place as any to post it.
So, with the indulgence of others:
PML,
I think I’ve identified the source of our disagreement. Both of us have identified aspects of Enlightenment-inspired policy on religion that suit our overarching positions. In fact, there are aspects of religious policy that favour your view and aspects that favour mine. The problematic status of the Catholic Church did tempt governments bent on unravelling the ancien regime to adopt intolerant policies. On the other hand enlightenment-inspired tolerance guided policy to other religions and denominations.
The story begins in France. You’re right that controversial aspects of contemporary French public policy are intolerant. And you are right that current French policies on such issues as headscarves and other “overt” religious symbols stem back to the revolutionaries’ formulation of dealing with the fraught issue of the relations between State and Church. Thus I would argue that it is necessary to understand the context of the articulation of the foundation documents of the French Revolution to understand how this state of affairs arose.
By the same token, I believe that you would agree that French revolutionary religious policy had embedded within it the foundations of religious toleration along the lines established in the First Amendment of the United States Constitution. (Notably, this amendment went into effect in late 1791, after the promulgation of the French Civil Constitution of the Clergy.)
I take “toleration” to mean “official permission to worship or not to worship in any way that does not infringe on the liberties of others”. This is a positive rephrasing of the negative restrictions imposed upon government actions embodied in the first amendment “Congress shall make no law respecting an establishment of religion, or abridging the free exercise thereof…”
I grant you that successive governments in France since 1789 have had “issues” with the Catholic Church. Indeed, the Civil Constitution of the Clergy sought to transform the Church into a quite peculiar institution. It aimed to establish the Catholic Church under conditions much less advantageous than the Church had enjoyed in ancien-regime France. Under this constitution the Catholic Church was denied the status of a private voluntary organisation of the kind that proliferate in healthy civil societies.
Interestingly, on the other hand, all other dominations and religions in Revolutionary France were accorded precisely this voluntary society status. On the contrary, the Catholic Church was to be transformed into an arm of the state and subject to the popular suffrage of all “active” French citizens.
These two approaches to organised religion are, it hardly needs to be said, contradictory. The former is the model of toleration as I understand it. The latter arises out of fear, hatred, jealousy for an institution whose practices and claims were dangerously at odds with the “general good” as understood by proponents of a secularist state.
The fears of these secularists may have been well-founded. It might be argued that supporters of the Civil Constitution in the National Assembly mounted a preemptive attack on an institution that they assumed would turn against the Revolution. This suspicion came true: however, it might be argued that the revolutionary regime created unnecessary enemies, we’ll never know now. Nevertheless, the methods they adopted to address these fears were very rash indeed. Ever since, whenever religion became a difficulty in France, the authorities have been tempted to return to the policy not of toleration but of an appeal to the promotion of the “general good”. Current legislation on “overt religious symbols” is the most recent example of the French succumbing to this temptation.
France was not alone in assuming that the Catholic Church posed a major threat to national sovereignty. Bismarck’s Germany waged the Kulturkampf against the claims of the Catholic Church to a large role in the public and confessional lives of Germans.
Is there an underlying reason for people as different as the Jacobins and Bismarck treating the Catholic Church in similar ways? Perhaps the very nature of the Catholic Church — the universality of its claims and its status as a sovereign power — makes it a problematic candidate for toleration within the constitutional arrangements of the nation state. Perhaps this is one reason why the Catholic Church remained subject to intolerant legal control in the same way that Communist Parties in many countries that aspired to liberal principles provoked illiberal laws and the rise of the mechanisms of the Security State.
(Interestingly, since the Reformation, Great Britain has never recognised the Pope as a Head of State.)
I guess one’s attitude to these elisions of toleration is at least partially influenced by how one interprets “does not infringe on the liberties of others”, but I think it is an overstatement to deny that “that tolerance was inspired and transmitted by the enlightenment”.
lol
Americans’ Future In One Plan
I know that most of you are busy to read my book. As I explained previously that Taman Health Plan (www.trafford.com) takes care of all the health care, Medicare, Medicaid and social security. It will threw away all bureaucracies out of window. Let me explain shortly how it works:
1- there will be no more health care insurance companies, no Medicare, Medicaid or Social Security. My plan will take care of all.
2- Basically will be only one Big Health care organization (Taman Health Plan or THP).
3- The center of the plan will be in Washington while the health departments in every state will be the branches.
4- One organized body will be taking care of the Health Care and long term care of all Americans replacing 1500 insurance companies, Medicare, Medicaid and Social Security.
5- This will allow us to provide a uniform service to all Americans every where in both inpatients, outpatients and long term care.
6- When you go to any Duncan Donuts branch your expectation is to have a fresh coffee and a donut with no long wait. We will try to provide a similar predictable service everywhere as Duncan Donuts. With having only one body will be able to do that.
7- The Capital of the plan will be the funds of Medicare and Social Security (before the bankruptcy of both systems). The maintenance will be a yearly tax from each of us (will replace our yearly social security and Medicare holding taxes). A percent of each of us go to his account cards and a percent go to THP itself. The money of the plan will be invested by the investing sector of the plan very likely in Wall Street.
8- We will have 5 ATM cards with a corresponding accounts. Card A (children), Card B (working group 18-65years old), Card C (Medicare card >65 years old), Card D (Medicaid card), Card E ( expensive medicines or investigations).We will have the health cards devoted to health care and long term care. Thus we will have: health cards, banks with accounts to each card and credit card machines in outpatients care and hotelling part of hospitals and nursing homes.
9- Cards will pay for the outpatient medical care including doctors, emergency room visits, investigations, medical supplies, pharmacies and the hotelling part of hospitals and nursing homes. While the medical part of hospitals and nursing homes will be budget by the plan itself.
10- In the first year of issuing cards: Card B and C (most of people) will have a bonus it could be a percent of their Medicare and social security withholding (70 % or so). We will try to be fair to every one but every one has to now that most of us already lost a lot of money with the HMO’s. For next year new comers to card B at age of 18 when first issued will have a bonus of 50,000 dollars. It will change every year by a percent a according to inflation.
11- every one of us will get a statement every one or two months of his card account. Card B account will phase in card C at the age of 65. If card C account is vanished Card D will be issued (hoteling part will be less luxurious). Only few of Card B will have card D if there account vanish most likely those with severe medical problems.
12- So basically most of us will have our own account Card B then card C. Say you are 45 and you have now in your account $ 200,000 you can take one or more years out of work, you Can retire early if you like and with your card you will control all the medical services and its prices.
13- With this card system we will end all bureaucracies of health care, Medicare and Medicaid. No one will stand between you and any medical or long term service (only your card). Shop around with you card, have early health care security and responsibility and invest in your health.
14- We will not need Social Security since after age of 65 we will be able to use our cards to stay in any nursing home each according to his account in card C or card D. So when you invest well in your health you will be able to enjoy a nicer nursing home when you get old (actually it will be also a kind of tourism).
15- The money in cards do not get inherited when we pass away but recycle in the plan to support the next generations.
16- The plan will have very positive effects not only in simplifying our care, save a lot of waste in health care, give early health care security and responsibility to Americans it will also have a positive effect on the economy, saving billions of dollars to Americans, creating jobs in health care and cutting outsourcing.
Very likely, you figure it by now I could have sold the plan to one of the presidential candidate before the 2004 election for millions of dollars (they already spent 2 billion dollars). It is my gift to the American people (it will help the healing process of the two worlds America and the Muslim/Arabs).
Maged Taman.
2/20/05
There is one mino problem with the Harvard report. The cause of bankrupcies was self-reproted by subjects with no independent verification.
If, say, I went bankrupt due to a drug habit or sheer incompetence in running my business I might be temtped to say “health expenses” instead.
Nobody seems to have mentioned home equity loans in the US – THis is a market that has grown up since the last upturn in interest rates – People can borrow against their house for things that used to be financed on credit cards. What this means is that if/when interest rates turn up (and it isnt hard to imagine them double or even triple the lowest levels they reached) many people will face interest payments they cant meet – they will end up losing their houses because they went out and bought flat screen t.v.’s and vacations. It could get very ugly in bankruptcy court.