June 12, 2016

The Return on My Investment

By: Aaron Datesman

It's easy to recognize a win when it comes with a trophy at the end (or, in the case of politics, an inauguration). It's harder to recognize a win when somebody else gets the credit, and very often impossible when the win involves an undesirable outcome avoided. Although it's difficult to answer the question "What might have been?" this is exactly the context in which we ought properly to evaluate the results of our actions.

I was reminded of this recently when President Obama announced his support for strengthening Social Security, on June 2nd. Just a few years ago, the landscape was very different. Obama's 2014 budget contained Social Security cuts amounting to about 0.25 percentage points:

If the chained CPI were implemented, Social Security benefits would be about $3 per month lower in 2014, and about $30 a month lower by 2023, according to Congressional Budget Office calculations. And by 2033, Social Security payments are projected to be 3 percent lower than they would be using the current measure of inflation.

Senator Sanders led the charge to reject adoption of the chained CPI, going on to make strengthening Social Security a central theme of his presidential campaign:

Lawson’s organization [Social Security Works] has worked with lawmakers and other nonprofit organizations to oppose Obama’s proposed Social Security cuts and shift the conversation towards expansion. By the summer of 2014, a small group of Democratic caucus senators, led by Sen. Bernie Sanders, started advocating for lifting Social Security’s payroll tax cap so wealthier people paid more into the system, and then increasing benefits to seniors. Polling by advocacy groups found broad support for expansion.

Two years later, here we are: Obama and Clinton, the presumptive nominee, are both on the record supporting Social Security expansion. One of them will get the win, but it's easy to make the case that Sanders deserves the credit. It's not provable, I suppose. Maybe I really want to believe it because I donated about $1000 to the Sanders campaign this primary season. My guy lost (or, properly, is going to lose), and maybe that was just money wasted.

But I don't believe that's so. In fact, I think I made a very smart investment. As if on cue, as it happens, I got an interesting letter in the mail the other day: my Social Security statement. It says on the front page

Your payment would be about $2442 a month at full retirement age.

The math is very easy to do. I'll be 45 years old this year, so we can use the figure of 3% lower in 2033 cited above with good accuracy. If the chained CPI had been implemented, my expected Social Security benefit would be lower by $879 per year. The net present value of that money is about $500.

So: Senator Sanders protected my Social Security benefits for the duration of my retirement. In exchange I donated an amount equal to two years' worth of the benefits that would have disappeared had the cut been implemented. I make out quite well! Now the program will be strengthened, and possibly benefits even increased. Of course, it's even better than this for me: I'm married, for one thing, so I'll share my wife's benefits. Also the same analysis extends to cover all of the people whom I love and care about (many of whom depend on Social Security, or will do so in the future).

I was lucky to be able to afford the money I donated (although it was a bit of a stretch). Actually this little calculation (based on a justifiable but unknowable assumption about where credit should go) was not the basis of my decision to donate to the Sanders campaign. But it makes me feel pretty good regardless. If I live to 85 years of age, I'll have something like $10,000 (2016 dollars) in additional retirement income thanks to Senator Sanders. This is a return of 10:1 (present day) on my $1000 in campaign donations.

When I first began to learn to look at the world in this way - by evaluating counter-factual situations ("What if the chained CPI had been implemented?") - I found my side winning a lot more battles than I had ever understood. I think it's a valuable lesson. Thank you, Bernie Sanders.

Posted at 12:00 AM | Comments (3)