Social Security Reform

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There was a lot of discussion about this topic in the socialism thread. Rather than continuing to hijack it I decided to start a new thread.

I read this and to me it seemed like the President may be on to something. To me the key point was the private investment if invested in U.S. treasury notes would grow to the exact same amount as if no private investment was made. The obvious advanatage of this is that upon death there are assets to pass on to the next generation. I'm curious how this wil all play out.

Quoted for those who don't click on links

 

To update this just a bit...The Prez is just on all the major news channels once again trying to "pitch" his social security reform. As of yet, his plan has still not been officially released to the public. The good news is that the American people are not convinced that private accounts are the answer to the Social Security "problem."

As George continues on with his program of carefully orchestrated "townhall meetings," he still continues to loose ground. Even the responses to my letters of opposition to his SS aganda, which were sent to both US Senators of Texas, were vague on the issue of private accounts and if they were an answer to the problem (but they were form letters anyway).

But the battle is far from over. King George is getting desperate, but that does not mean that the battle against his huge payoff to his Wall Street buddies is being won - yet. One thing, even though George continues to loose ground on this issue, never "misunderestimate" a "dupe," especially one who is engaged in his favorite pastime -- duping the American public.

 

Heh. How nice of Wall Street to manage all of that money for free! I gotta admit it: GWB has to be brilliant to have set that one up!

I like how the guy with the blog (how classy, he poses with his rifle) sees this letter as another reason "we just can't trust mainstream media"TM. On my part, I would see it as showing how gullible the public has become to imagine such a document proves anything at all. It says absolutely nothing concrete about Bush's SS plan, it carefully skirts around discussion of transaction and management costs, and it tries to suggest that by barely addressing but two of the many, many concerns about the plan, it has uncovered all objections to the plan as "myths." And then Bush can rely on deep thinkers like rifleblog guy to draw the obvious conclusion that "MSM" must be lying about everything they say about the plan...

 

Ok first, the privatization of SS will not cure the problem. There is no painless cure. We have 3 choices for the immediate future, we can cut benefits, increase taxes, or a combination of both.

1st option, cut benefits

Pros: Does not negatively impact the economy, is not unfair to those who are forced to pay in to SS

Cons: Is unfair to those whose benefits will be cut

2nd option, raise taxes

Pros: None. That is right there is no upside to this option. I know that on first glance the pro would seem to be that we keep our promise to those who are receiving or expecting to receive this entitlement. This is wrong however. Raising taxes to a level that would pay the benefits at the current levels would be disastrous to the economy. After the hit to the economy there would be less money to pay SS recipients meaning we would still have to cut their benefits.

Cons, see above

3rd option, cut benefits and raise taxes

Pros and cons don't matter, it will never happen as it is political suicide. Any one who goes with this option pisses off both the rich and the elderly, and is doomed in the next election.

So the question is, are we going to face up to the fact that benefits will have to be cut, and make the hard choice, or are we going to hurt a minority of the people, or are we going to hurt that same minority and the majority as well?

Now to address the privatization of SS: We have to do 2 things. We have to get through the current crisis, and we have to implement changes to make sure it doesn't happen again. IMO, privatization fits the second part of the equation nicely. The current system is wrong, and as proof of this look at it from a different perspective. If someone tried to start a private version of this "retirement plan" they would be put in jail for fraud (ironically by a government that is committing the same act). Partial privatization of the program is the best long-term solution. Is it really so wrong to expect people to be responsible for themselves?

 

As I understand it, the people who created SS foresaw a time like this. They set aside a great deal of money that the government can't touch, to be used in our own Time of Troubles. I wonder why Bushie never mentions this, and what will they do with that money if this insane and idiotic man gets his big fixer passed?

 

I'm not sure I understand the opposition.

I'm more than willing to give a management fee to "The Evil Wall Street", for the ability to keep the money in my name and opt out of a "ponzi scheme. To me that is a no brainer.

The ability to pass the money down to my heirs (assuming I don't spend it all) carrys a lot of weight with me.

The fixation on the "Wall Street" fee is ridiculous. I'm betting we currently pay a much higher fee. This fee is called "the bloated social security administration". Does anyone here own any bond funds? The fees are very low, because the fund doesn' need a lot of management.

If given the option, I would without a doubt take out the maximum allowed for private investment. The thing that has always burned me about social security is that you have to live long enough to see a dime and the government can change the benefits. If it is your money, then you decide. Now true, there will be stupid people that will blow the money and then cry that the government "owes them" a retirement. Well, that attitude just doesn't cut it in a capitalistic society. I recommend N. Korea or some other "worker paradise".

 

Personally I'd recommend just any of the nordic countries.

The key thing is that if wall street crashes or the firm you've invested your money happens to do a bankrupcy you're in deep trouble. Of course if the government would somehow guarantee these investments or atleast a part of them, but I would not find that much fun either. It is true that the government can and probably will cut your retirement money which really sucks but at least they guarantee that you will be getting something eventually when you decide to retire. Personally I would rather be robbed by the state than some private corporation.

 

That isn't the way Wall Street works. If a brokerage house were to go bankrupt, that doesn't mean your investments are also worthless.

The way I understand the plan, the "funds" that people would be allowed to invest their portion of the money into would have strict guidelines as to what investments they could invest in. The plan isn't going to allow people to invest in whatever they want or to put all their eggs in one basket. In fact it is expected that most people will pick the U.S. obligation funds. If those become worthless, we will have far bigger problems to worry about.

P.S. I would much rather be robbed by a private organization. At least that way I have the government and courts to try to get recourse. If the state passes a law to take my property, their isn't much I can do about it.

 

There is not a "current crisis." Even by the estimates of the Prez, the "crisis" is projected forty years in the future.

 

Well congress pays into private accounts, not social security. If it's good enough for the likes of Ted Kennedy, why isn't it good enough for me?

 

Ravynn,

Sorry to be blunt, but you are mistaken. The money was not set aside. It was placed in the same accounts as the rest of the government's money, and only kept separate in its accounting (try googling Social Security Trust Fund Myths). The government can and does touch it, and has been dipping into it for decades. Further, the people who started this program did not foresee this event. SS is a ponzi scheme, or a pyramid scam if you will. As long as the base keeps growing, the money keeps flowing, but when the base shrinks, the scam collapses. They never adequately planned for a time when the ratio of those paying in to those receiving approached 2 to 1 (IIRC the ratio at the time they started this program was around 7 to 1, but that is from studies I completed long ago). They couldn't have planned for this, because just like a pyramid scam, sooner or later the base diminishes and there is nothing short of injecting funds artificially (from outside the system) that can prolong it. To be honest, they were just like the politicians of today and of the last decade...only concerned about getting elected/re-elected in 2 to 6 years. There have actually been documented cases of politicians saying that as the problem will not manifest for so many years, it isn't their problem.

Morgoroth,

From what little I have read about it, most of the Nordic countries are looking at having to cut, or are considering cutting benefits, as the burden of these programs has become too costly for their gov'ts to sustain. I can't speak to any specifics, it just seems that I remember reading about it.

Chandos,

I disagree. There is a current crisis, but its effects will not be felt for years. This is evidenced by the fact that every year we wait to make changes the problem will be amplified geometrically in the years that follow. This became a crisis a decade ago when we realized that the system was in trouble, and yet did nothing about it.

Snook and khazad, nice points! :thumb

 

Back in the early 80's, the county that Houston occupies, Harris county, opted out of social security for it's public workers and went private and their rate of return is about four times that of so-so security.

 

Actually, for the people most concerned with "reform," SS was a crisis from the moment it was enacted by FDR, as it established a role for the gov't beyond that of simply enabling business, as Hoover et al had envisioned it. Saying that the program will only pay around 70% of it's current level of benefits in 40 years if taxes aren't raised doesn't exactly connote "crisis" to me: maybe some adjustments are needed, but not an overhaul.

If we gotta get the govmint out of our biznis, why is it OK for Bush to pump gov't money into Medicare? Because much of that cash will go straight to HMO's and big pharma?

Robert Samuelson, the fiscally conservative economist who writes columns for WaPo, recently had an article pointing out that the Bushie SS plan, if it went into effect, could end up wildly distorting markets, given that all of the SS "personal accounts" invested in the market would still be subject to some form of government control, and that this could come to account for about 25% of US market holdings.

Actually, I can't think of any serious economist who's had anything good to say about the Bush SS plan. Of course, Bush hasn't come out and said exactly how his plan would work, but that's another story...

 

Well not really, atleast not Finland. They might be forced to do that in ten years or so but I'd suspect the cuts be taken from somewhere else. I expect to privatize the public healthcare system in some form though, and that decision I would give my 100% support.

@Snook. I still would not entrust my future on the hands of some broker. The bankrupcy might not be such a big deal now that I think of it since it won't directly affect your investments, but the markets are not nearly stable enough for me to invest my future wellbeing in them, I find the Finnish state much more safe.

 

Bion,

You can't save it with a tweak. If you look into the numbers, they are staggering, and there are only 2 knobs to turn, taxes and benefits, so you don't have much wiggle room.

I believe that it is Brazil that has a system very similar to the one the most anticipate the President will present, and it has worked out well for them.

As far as the argument of distorting the markets, the same arguments were made with allowing IRA's and 401k's to be invested in the financial markets, and yes, they have created a slight inflationary effect on the market values, but they more than offset this negative symptom with the amount of growth they facilitated in the economy.

Morgoroth,

Your governments funding is only as stable as the business environment that supports it.

The investments people can choose from (in general, not for SS) run the gamut from speculator bonds and penny stocks (basically rolling the dice) to government bonds. If you are investing in government bonds, it is going to have the same safety net as the gov't itself, only you get to keep the interest. I don't see where your fear is based.

 

@Morgoroth

There is no way these monies will be open to the vagaries of individual brokers. Unlike other retirement accounts which offer participants so many choices it is mind boggling, there will probably be only a few choices allowed per brokerage house and they will all have stringent guidelines as to what type of investments they can invest in. As I posted earlier, they will probably not allow risky investments and focus on more income based investments and/or moderate growth. Junk bonds and penny stocks need not apply.

 

What I don't quite understand is what makes this investing in government bonds any different from social security except that you will have the option of investing elsewhere, which I do not understand the point of. I do not think that people's retirement money is something to be played it not even by themselves. I want my my retirement to be secured so that as little as possible can go wrong even if it means that I will get a little less when I retire and I feel the government offers better security than any private corporation ever.

 

Thanks for clearing that up, Darkwolf. Grrr. Shows what I know. Hmmph. Well, I still don't think we should privatize SS.

 

Morgoroth,

The difference is that we don't invest in SS. It is a tax, the proceeds of which goes to the US government's general fund. The money is not kept for the individuals who it pay for it, and there is nothing that guarantees that anyone will get any benefits from it (that is a challenge to anyone who wants to take it!). The government can at any time cancel this program and keep every dime in it (political suicide at the moment, but it could be done). The government has not set this money aside, it has spent it as it desired, usually in the form of pork (sorry, pork barrel funding is a term that has connotations that mean excessive spending in ones home constituency to keep the voters happy) to guarantee that the folks back home keep electing the same representatives.

If it is privatized, the money will not be in the governments hands, and they will not be able to spend it, hence the politicians resistance to privatization. Ravynn is right in a backward way, the founders of SS never intended it, but if the money had been managed in any way even close to resposibly, we would not be having this discussion. They didn't plan it, but it would have probably worked out for at least another 50 years. But instead they have squandered it, instead of investing it, and now it is rapidly disappearing.

 

Thanks! i think.