Social Security Reform in the US

[onthebottom]

Looks like the vote counting has begun. Many have been made to look silly in predicting the POTUS will back down or not get what he wants. I can't help laughing every time I hear the party of "save social security first" talk about how solvent the system is. I can't understand why so many are so afraid of people managing their own money. If the President can reform Social Security it will be the domestic equivalent of brining democracy (Afghanistan and Iraq) and peace (Israel, Palestine) to the Middle East - and no, those are not done yet but work-in-progress.

OTB with fingers crossed

Anyway, an interesting article:


House Undivided
House Whip Roy Blunt talks about the odds on Social Security reform.

By NRO Staff

President Bush may still have an uphill climb in the Senate, but the prospects for passage of a Social Security bill to his liking seem to be improving in the House. Over the last two months, several House Republicans have expressed skepticism about Bush's ideas. Bill Thomas, the chairman of the committee with jurisdiction over the issue, suggested that Bush's plan would be a "dead horse" because Congress would modify it so much. Rob Simmons, a congressman from Connecticut, wondered aloud about the urgency of dealing in advance with the program's fiscal imbalance — saying that he would be dead by the time there was a problem.

But the White House swayed some congressional Republicans at their retreat last weekend. Majority Whip Roy Blunt, who is in charge of counting the votes for House Republicans, tells NRO that even the skeptics among his colleagues are moving in the president's direction. This week, Rep. Simmons released a statement that referred favorably to personal accounts (while still cautioning against drastic change).

"I'm not naively optimistic, but I'm cautiously optimistic," says Rep. Blunt. Support for reform along the lines Bush has in mind is already the "prevailing" view among House Republicans and is on its way to being the "preponderant" view.

Blunt thinks that one argument for personal accounts that will prove effective with his colleagues, and with the voters, is that they are "115 million lockboxes": "For the first time, that surplus we've been collecting for Social Security for a generation really [will] go to Social Security."

The congressman breaks with the conventional wisdom about the political risks for Republicans in enacting cuts in future benefits. "The month after we get it done" — i.e., enact a bill — "52 million Social Security checks [will] go out. They go out the next month and the next month and the next month. And they're every bit as big as they have ever been. If [we] get [a bill passed] this year, you get 12 of those checks before the next election and 36 before the next presidential election. And in between, people get statements saying here's the size of your personal account." The risk, according to Blunt, is that Republicans vote for a future benefit cut that does not pass. In that case, he says, Democrats will be able to tell seniors that Republicans tried to cut their benefits and there will be no reality check.

Interestingly, Blunt also thinks that the upside for Republicans may be a bit lower than some enthusiasts for reform believe. "It does move the country dramatically toward an ownership society," he says. "That's good for us initially and it moves us toward a temporary majority. But there's no such thing as a permanent majority, and the Democrats will have to change. A majority of them will view competitiveness, the global economy, and the place where they work differently, and they'll certainly view the government differently than [if it were still] a 1960 economy where 10 percent of Americans owned stock."

Rep. Blunt's "cautious optimism" can be split in two: The optimism is about the House, and the caution is about the Senate. Bush cannot take the House for granted, but at the end of the day Bush and the House Republican leadership are likely to be able to get a bill through it if the Senate moves first. And that's more optimism than you would get from reading some of the newspapers.

[WoodPeckr]

I don't have much confidence in GWBs domestic policies.
...... So, what's his political purpose in trying to change another New Deal
program? Who'se going to benefit from his proposals? Hopefully not Haliburton...
again. :eek: Don

This will really be a huge gift to the banking and finance sector that salivates at the thought of all they will be making in administrative fees, expenses, costs etc. Current Social Security adminstrative costs are around 2% or less and none of this money goes to the Bank/Finance sector of the economy. So if GWB gets his way the Bank/Finance sector will be very handsomely rewarded.....and 'their adminstrative costs' will, of course, be substantially higher than 2 %! They will be raking in billions from these personal accounts they will handle.

It's all about taking care of the Bankers nothing more.

[langeweile]

I don't understand all the excitement about the social security. Like in Canada social security in the USA is a supplement at best. Certainly by itself it is not a whole lot to live on.
Even on a conservative base the return over 40 years is poor.Any money market fund has a higher return.
Personally i don't care either way, the bulk of my retirement will not be coming from SS.

Itnteresting to point out, that any member of the federal govrment, has a far better retirement package, than any SS ever will be. The same goes for health care.
I think there should be a voluntary option, and it should be on the same level as any federal employee receives.

[onthebottom]

I'd much rather manage my money (and that's what it is) than have Washington manage it for me. I don't know anyone that thinks they'd be worse off under this plan. Pecker tin-foil-hat aside, I can see a rational discussion about the cost of transition but not on the ultimate goal. Democrats, as usual, are stirring the fear and conspiracy pot, Republicans are being a bit hysterical about SS imploding as well. This could be a lasting beneficial structural change, if Bush can get it done he'll be long remembered for it - he may be stubborn enough to get it done.

OTB

[Drunken Master]

I find it interesting that several years ago Canada was toying with the idea of private accounts for health care and the like - until the stock market tanked. Enthusiasm for those plans dissolved pretty quickly.

[islandboy]

There are good aspects in theory about an increasedwonership society. But as we have seen with IRA's risk pools of 1 (one) can be disasterous when fly by nights investment advisors place people is scams or unsuitable investments. As well the top SS brackets return will decrease from about 40+ % of the maximum SS wage to about 20% of that wage. The effect is that todays profligacy will again be pushed onto future generations - and poorer generations at that. The real way to deal with the problem is to immediately put in better of cost of living controls, raise the retirement age, and consider decreased benefit levels for the
well to do via an income test. Then, after doing this, talk about some sort of partial privatization via SS manged invesetment options. Right now if the funds are privately managed you are looking at a bonanza in fees for brokers accompanied by higher overhead than if the SS simply provided diffferent types of mass broad basket pools that people could elect and switch between. With such a system there could be a shared risk system underwritten by the balance of SS.

[langeweile]

I find it interesting that several years ago Canada was toying with the idea of private accounts for health care and the like - until the stock market tanked. Enthusiasm for those plans dissolved pretty quickly.

was that before the Dow hit 10000 or after?

[onthebottom]

"I'd rather invest my own money" When are you guys going to give up this independence line. A proper pool of funds the size of the Social Security surplus will outperform an individual investment plan everytime. Just the size alone will lower costs and gain a more favourable price from the market.

What still don't get is the horrendus cost of the Bush plan - that alone should make you take pause OTB. Besides no where in Bush's overall economic plan is a plan to reduce the debt - just a commitment to reduce the deficit in 4 and half years, something both of us think the US economey can take care of on it's own in that time frame. I can't think of a better way to signal the US intention to get serious about it's debt than to do what I proposed.


bbk

If governments acted rationally then you'd have a point, but they don't. The temptation to screw with Social Security benefits (they should be called returns) and surpluses is too great for mere politicians to avoid. What return on investment is implied with my Social Security payments? What happens to my money if I die (like my father did) at 64? It's my money, and I'd rather invest it myself - I'm willing to pay a little more in administrative costs to keep Ted Kennedy's hands off my money.

OTB

[onthebottom]

One other thing you forgot OTB is clawbacks - does Teddy Kennedy realy need his social security check? Does Bill Gates?


bbk

No, but it's their money (as opposed to a welfare program) and thus they have it coming. You can propose means testing if you want but I think there are many (myself included) that will have a hard time with that. I look forward to the Democrats saying they want to limit benefits to those with high net worth - that would finish the party! LOL

OTB

[red]

I'd much rather manage my money (and that's what it is) than have Washington manage it for me. I don't know anyone that thinks they'd be worse off under this plan.

OTB

how many poor people do you talk with on a regular basis. they won't know what to do with the funds nor will they have access to good advice or have the time to properly educate themselves about where to invest. Alot of people lost their retirement nest egg in the dotcom crash and when companies like enron vaporized - those memories will make the individuals cautious. Bush may have his bill pass- but thats a far cry from the reforming social security.

[langeweile]

how many poor people do you talk with on a regular basis. they won't know what to do with the funds nor will they have access to good advice or have the time to properly educate themselves about where to invest. Alot of people lost their retirement nest egg in the dotcom crash and when companies like enron vaporized - those memories will make the individuals cautious. Bush may have his bill pass- but thats a far cry from the reforming social security.

That is why the proposed program is VOLUNTARY, Why is this important piece of little info never mentioned????

[red]

That is why the proposed program is VOLUNTARY, Why is this important piece of little info never mentioned????


yes. I understand that. I was responding to a point that OTB made that everyone he talked to, thought it was a good idea.

With respect to it being voluntary- ok- so the reforms will only help those (assuming they invest wisely) that invest their money. what happens to the rest of them. reduced benefits. will the reduction be greater if 10% of the richest individuals take out their share? Has any analysis of this been done?

[langeweile]

yes. I understand that. I was responding to a point that OTB made that everyone he talked to, thought it was a good idea.

With respect to it being voluntary- ok- so the reforms will only help those (assuming they invest wisely) that invest their money. what happens to the rest of them. reduced benefits. will the reduction be greater if 10% of the richest individuals take out their share? Has any analysis of this been done?
Certainly the alternative can't be higher taxes(we are paying too much already).
The USA is just facing the same problems that most European nations face today. A population that is getting older and not enough young people to pay in to the system.
Even with the extremely high tax rates in Europe, most goverment sponsored pension plans are on the verge of bankruptcy.
I hope the powers to be will learn from that.

[red]

Certainly the alternative can't be higher taxes(we are paying too much already).
The USA is just facing the same problems that most European nations face today. A population that is getting older and not enough young people to pay in to the system.
Even with the extremely high tax rates in Europe, most goverment sponsored pension plans are on the verge of bankruptcy.
I hope the powers to be will learn from that.


the alternative could be higher taxes. I always thought most businessmen would agree that there is no free lunch, but there is recently in alot of US conservative thinking that there is a free lunch. The Social Security premium would not be raised sufficiently to bankrupt the country. taxes have declined sharply in the US over the last twenty years. so a small increase over the next fifty to deal with this doesn't seem out of line to me

[islandboy]

One of the things driving tax reduction - in addition to lining pockets - is that there is a genuine worry about corporations moving either headquarters to countries with better tax situations or moving portions of their business to countries which will give them better tax agreements on the aspect of production located there.

We talk about deficits about which we talk alot but ignore tax competiviness and tax agreements These agreements permit a corporation to establish how much a fininished products taxable value is due to production and/or intellectualy value is imparted as a result of contributions from each of the countries in which the corporation does business. How do judge taxable profits when you have to account for the contribution of design in one country, production in another, and marketing, for example, in a third.

Now, you ask, how does that impact Social Security and privatization? Well the implications are endless. Where the taxes are paid affects available cash to finance the transition. If a headquarters changes for tax purposes, there comes the possiblity that the listing exchange may follow (this is also affected by Sarbaines Oxly reporting requirements). In turn this affects the quality and number of companies in which a private account can be invested.
Poor coordination of tax agreements between counties with competing interest will also affect 1) where the work is done - sic employement in the first place, and 2) failiure to tax income anywhere as things fall between the seams. Does this sound extreme? Perhaps. But markets have always had and will always have an element of risk. We are entering a new world of corporate and market competition. This change in the international landscape needs to shake out before we tie retirement to them as well. Every time you add an element of risk the penalty for failure increases exponentially. This SS plan is just to big, to bold, to risky, and I do not like taking the risky way when there are safer alternatives. (One thing I did not previously mention if that if we are also interested in increasing money availble for capitalization, you could slightly, safely, expand the investment options of the SS administration itself and permit voluntary but subsidized contributions, on an inverted sliding scale like the old negative income tax idea, to the SS administration)

[onthebottom]

yes. I understand that. I was responding to a point that OTB made that everyone he talked to, thought it was a good idea.

With respect to it being voluntary- ok- so the reforms will only help those (assuming they invest wisely) that invest their money. what happens to the rest of them. reduced benefits. will the reduction be greater if 10% of the richest individuals take out their share? Has any analysis of this been done?

Red,

The proposal is to allow people to invest in defined investment accounts, one being a mutual fund of bonds/equities, one being more aggressive, one being US Treasuries (there is no safer investment on the planet than UST) and one designed for low risk for people about to retire. So, 4 defined investments in a volunteer system - what is all the hysteria about?

Try and argue EVERYONE wouldn't be better off with 4% of their money going into UST for 20-30 years.

OTB

[onthebottom]

For those who know what a Balance Sheet is and can see beyond the hype on both sides of this issue:



Trading Up

Would you pay $2,000 today, to save $10,000 in 15 years’ time? That question lies at the heart of the debate about financing Social Security reform.

President Bush’s plan to create personal investment accounts for every worker has run into a snag over “transition costs.” A transition cost is the price you have to pay to get from point A to point B. Establishing personal accounts will require about $2 trillion in government borrowing over the next 15 years, but once the accounts are in place, the government saves about $10 trillion in future obligations. Any private business with large pension obligations would approve such a refinancing plan in a heartbeat. The debt restructuring would substantially improve the firm’s balance sheet, and the stock price would rise to reflect the improved long-term finances — despite the reduction in the firm’s current cash flow.

Why doesn’t Congress make this rational financial decision? Part of the answer is that government isn’t run like a business. In fact, Uncle Sam doesn’t use a balance sheet at all. This means that when the feds make promises to pay in the future — as with impending Social Security and Medicare obligations to baby boomers — those payments might as well be invisible to policymakers: They never show up in the accounting books.

Fortunately, Dr. John Templeton, the Pennsylvania-based philanthropist and public-policy entrepreneur, has devised a disarmingly simple method to blow through this government-accounting smokescreen. The Templeton Curve depicts two financial futures for Social Security. The first is the “do nothing” scenario in which we pretend the program is in fine shape and that only minor tinkering is required when baby boomers retire. If we choose that option, the program runs surpluses for another dozen years or so but hits the fiscal quicksand in 2018, after which it sinks deeper into debt each succeeding year.

The second option would be to create large personal investment accounts now, borrow to pay for them, and then let future workers draw their retirement incomes from these personal accounts, rather than conventional Social Security. In a previous National Review box (Dec. 13, 2004), we explained why workers would be substantially better off financially under this option. But the Templeton Curve shows why the government also comes out way ahead. Yes, it’s true that the investment-account option, as proposed by Sen. John Sununu and Rep. Paul Ryan, requires lots of immediate borrowing, but then those debts turn into surpluses, which increase every year afterward. Starting in 2015, the returns from these accounts will begin to cancel out Social Security’s benefit requirements. By 2040, nearly 40 percent of future obligations will be wiped clean, that figure rising to two-thirds by 2050.

The two paths produce diametrically different financial futures: The do-nothing approach yields deficits forever, while the personal-investment option produces surpluses forever. A tough choice?

The Templeton Curve teaches us that the short-term costs of Social Security reform are trivial relative to the long-term gain. The sooner we adopt the personal investment accounts, the better off our children’s and grandchildren’s financial future will be.

— STEPHEN MOORE

For the Curve: http://www.prweb.com/prfiles/2005/01/10/196263/Templeton_Curves_for_PR_Web.JPG

OTB

[red]

Red,

The proposal is to allow people to invest in defined investment accounts, one being a mutual fund of bonds/equities, one being more aggressive, one being US Treasuries (there is no safer investment on the planet than UST) and one designed for low risk for people about to retire. So, 4 defined investments in a volunteer system - what is all the hysteria about?

Try and argue EVERYONE wouldn't be better off with 4% of their money going into UST for 20-30 years.

OTB

what does the social security administration do with the money now? don't they lend it to the treasury?

[langeweile]

what does the social security administration do with the money now? don't they lend it to the treasury?

They put it in an IOU box called social security or how Al Gore called it "The Lockbox"

[islandboy]

OTB
You present a do nothing v a private account senario.

Something needs to be done.

With the Private Account senario it is true that we pay more now to pay less later - IF everthing else remains equal.

If the proposed types of investments are what passes and are cleared, I ask why can't the SS administraton itself make those same investments for a fraction of the overhead- sic mangement costs. If you let SS manage its money, it can diversify beyond the Amercian ecomonmy - - the IMF has an international porfolio, manages its money well, and has a great return.

The reason we do not go this far is that there are profits internally to be make by investment brokers (and I bet you are one) and a gamble on the internal economy to bail the deficits out via these private accounts.

Again the bets are to great, the real money goes to the wealthy while the poor average Joe gets less, and the risks are more than a prudent person should be asked to bear.

[red]

OTB
You present a do nothing v a private account senario.

Something needs to be done.

With the Private Account senario it is true that we pay more now to pay less later - IF everthing else remains equal.

If the proposed types of investments are what passes and are cleared, I ask why can't the SS administraton itself make those same investments for a fraction of the overhead- sic mangement costs. If you let SS manage its money, it can diversify beyond the Amercian ecomonmy - - the IMF has an international porfolio, manages its money well, and has a great return.

The reason we do not go this far is that there are profits internally to be make by investment brokers (and I bet you are one) and a gamble on the internal economy to bail the deficits out via these private accounts.

Again the bets are to great, the real money goes to the wealthy while the poor average Joe gets less, and the risks are more than a prudent person should be asked to bear.

this is exactly what I don't understand - if one of the big selling points is that they will invest in tbills- surely to god (note lower case) the social security administration can do that

[langeweile]

this is exactly what I don't understand - if one of the big selling points is that they will invest in tbills- surely to god (note lower case) the social security administration can do that

I don't trust goverment to manage my money.There track record is pretty bad.

[red]

I don't trust goverment to manage my money.There track record is pretty bad.


you don't trust them to manage your money, but you do trust them with nuclear weapons?

[langeweile]

you don't trust them to manage your money, but you do trust them with nuclear weapons?
I don't see the connection between those two. One is a necessary evil (nukes) the other is a money grab.

[islandboy]

this is exactly what I don't understand - if one of the big selling points is that they will invest in tbills- surely to god (note lower case) the social security administration can do that

Ya. If they want some privatization that works; let the SS administation manage the private accounts and give it a bit more leaway in the types of investments it makes. Safer, Less cost, greater assurance that no scams are involved, and could put in a hege for insurance (self underwritten or private) to spread losses if they occur. There are many other options than the extreme being proposed.

The ONLY good thing I can say about Bush is that once these third rails are crossed that future administration may have a chance to get the management and investment aspects right.

[onthebottom]

I just don't understand the mistrust / fear associated with allowing people to invest money that they have made. Bush's proposal would give me the CHOICE to let the government "invest" the money for me or let me do it. Why is this freedom of choice so threatening to so many people?

NPR reported this morning that if this proposal were adopted you would receive a 3% real return on your money if you opted OUT of personal accounts; the OMB is predicting that real returns on private accounts would be about 4.6%. This would not affect anyone retired or 55 or older. I know I think my investments over the next 20 years can do much better than 3% real return.

I think there are two issues here for Democrats, first is they like to oppose anything that Bush supports and can be used to whip up fear (lowering SS benefits), second, and more troubling, is the old Democrat elitist view that people who earn money are too stupid to manage it. Both these will get the party in trouble this summer.

OTB

[langeweile]

The "D's" are in a real dilemma with this. Especially since they are trying to be the partie of the "young generation". The price for inaction will be paid by the very same young people they are trying to get.

Maybe Bush's plan is not the best and needs some adjustment, but nobody is deniying that the system will be in trouble. While the "D's" can score some short term political points in the loing run they need to come up with a plan on their own.
I believe Canada had to face the same dilemma a few years back.

[lenharper]

Hey Lang

Judging by your quote at the bottom of your postings am I to assume that you are not in favour of the Patriot Act?

[langeweile]

Hey Lang

Judging by your quote at the bottom of your postings am I to assume that you are not in favour of the Patriot Act?

That act represents a real dilemma for me.
Some of the provisions I find necessary others are a bit over the top. It is a very diffcult balancing act between preserving individual freedom and fighting terrorists.
Imagine more people being killed due to a lack of strong meassures to protect our country? Would you want to stand in front of the survivors and explain to them why you have failed to protect them?

[Peeping Tom]

It is because you, as an American, don't grasp the full gist of socialism, which is a throwback to the feudal paternalism of old europe. In this system, one is entirely helpless, depending on everything coming from the fatherly hand of the prince, who quite naturally, and by divine right, knows better than his subjects. To such a feudal prince, subjects are merely children. In contrast, America by design is a free Republic in which citizens are responsible for managing their own affairs. See your own comment about the elitism of the blue blood Democrat faction, of which Billary is the most outstanding example.

Remember, one who managed his own retirement portfolio can't be simply cut off by the prince for being a bad boy - the socialist's nightmare, lack of total control over the life, and death, of the children.




I just don't understand the mistrust / fear associated with allowing people to invest money that they have made. Bush's proposal would give me the CHOICE to let the government "invest" the money for me or let me do it. Why is this freedom of choice so threatening to so many people?

[...]

the old Democrat elitist view that people who earn money are too stupid to manage it.

[irlandais9000]

Looks like the vote counting has begun. Many have been made to look silly in predicting the POTUS will back down or not get what he wants. I can't help laughing every time I hear the party of "save social security first" talk about how solvent the system is.

Actually, the system is quite solvent compared to the rest of the government. The projected Social Security 5 decades from now (in today's dollars) is projected to be 175 billion. That is slightly less than the 2001 Bush tax cut, which cost an estimated 180 billion in revenue. Bush said that was a modest loss for the Treasury. If that is true, why is 175 billion decades from now a crisis?

That deficit could be eliminated by either increasing the taxed portion of income from 90,000 to 200,000, OR raising the payroll tax from 12.4 percent to 14.9 percent. Not exactly the catastrophic tax increase we have been led to believe. I hate taxes as much as anyone else, but it would be worth it to maintain retirement security.

However you cut it, Bush's proposal would hurt Social Security. Less money would be coming into the system, and the "crisis" would happen a lot sooner. And by the way, we already have personal accounts. They are known as IRAs and 401ks.

[onthebottom]

Ir,

Go read my Balance Sheet post.

OTB

[irlandais9000]

OTB,

I notice that the balance sheet you refer to was written in December, before the President released any details of his plan (and he still hasn't released all the details). I would have to see more details also on the assumptions the authors are using to really comment more on their projections.

I do notice that they acknowledge that transistional borrowing would be significant, so they appear to be making intellectually honest arguments, something you rarely hear from the White House.

Even if they are correct about the long term, why replace Social Security with private accounts when we already have them (401s, IRAs)? I think it is important for everyone to have BOTH the Social Security safety net and a 401. And why incur such large transistion costs? If we wanted to borrow, we could prop up the existing program with a lot less borrowing than the President's plan. And, like I said earlier, a 2.5 percent tax increase could sustain Social Security indefinitely.

[irlandais9000]

It also scares me whenever I hear George Bush use the word "reform".

Medicare reform will be a colossal boondoggle. Only after the bill passed did Bush acknowledge the depth of spending involved. It wouldn't be so bad if at least the new Medicare was about helping people, but instead, the largest chunk of money goes in grants to drug companies for research. The drug companies, by the way, are already the most profitable industry in world history.

Education reform is a disaster. The bill promised new funding for everything, but is instead a large unfunded mandate. It is forcing incredible amounts of spending onto states and school districts. It is one of the biggest reasons why localities across the country are struggling (and yes, I know Erie County shot itself in the foot, as I am sure some of you are thinking).

Whenever Bush has used the word "reform" so far, it has meant destroy or weaken. So, yes, I am very concerned about a Social Security reform advocated by this President. He has zero credibilility.

[islandboy]

I fear that OTB is judging privatization based upon how he, and people like him, would fair. OTB, I would venture, is wealthier, more educated, more sophisticated, and better able to find ways to fend for himself that the avergage (or less than average Joe). Good for him!!! I really like listening to his point of view.

BUT, while the notion that people can better do for themselves - and learn how to better do for themselves - is laudable - and more ways to instill such things should be found - something like this change is so important and so sophistcated that notion of acceptable risks is the last part of the analysis. You should only get there after you have explored all other alternatives. And even after you have found that this is the only workable alternative, you still have to understand that no risk is ever really eliminated. The least change in the basic structure is the best way to proceed. The problem with modifying the present structure, is that the people most affected are alive, well, and want to pass the costs and risks of the present system - which does need reform - on to future generations. Politicians have a hard time with selfishness and fear by the voters now. If is better to promise a better system later and tell them that it makes sence by lessening the finacial burden by paying for the transition now. The way to pay for the problem is to increase the retirement age, stop the borrowing by the Federal government with US debt instruments, and means test SS payments after some specifed minimum guarantee.

Then after you have premitted the SS administration to get away from US debt instruments, you consider incentives to increase the savings rate. Probably another type of IRA - and particualarly if they do away with tax on interest and dividedends, consider a tax subsidized IRA with more subsidization going to lower wage earners. THe more money you have (make) right now the better able you are albe (up to a point) to shelter it; this has to be considered.

[Peeping Tom]

The less educated, ignorant and unwashed masses aren't being forced to participate!




I fear that OTB is judging privatization based upon how he, and people like him, would fair. OTB, I would venture, is wealthier, more educated, more sophisticated, and better able to find ways to fend for himself that the avergage (or less than average Joe). Good for him!!! I really like listening to his point of view.

[irlandais9000]

The less educated, ignorant and unwashed masses aren't being forced to participate!


Yes they are. If the program's finances are negatively impacted, then that could impact everyone. That should be obvious.

[onthebottom]

Yes they are. If the program's finances are negatively impacted, then that could impact everyone. That should be obvious.

I think the point is that the program is broke in the long term and one solution (and only one of many) is to allow people to partly withdraw from the system (privatization). The system would be shorter on payments now but much shorter on liabilities later when the system is actually in danger. Look at the balance sheet post in this thread; if you don't know the difference between an income statement and a balance sheet you will be ill prepared to have this dialogue (not saying this is you). The system is very cash flow positive now but is incurring liabilities to future generations it will not be able to pay. The privatization view is that you pay now to transition to the new system and you greatly reduce future liabilities. It also makes people less dependant on the government, which you can tell by my signature line, I would favor.

OTB

[islandboy]

I think the point is that the program is broke in the long term and one solution (and only one of many) is to allow people to partly withdraw from the system (privatization). The system would be shorter on payments now but much shorter on liabilities later when the system is actually in danger. Look at the balance sheet post in this thread; if you don't know the difference between an income statement and a balance sheet you will be ill prepared to have this dialogue (not saying this is you). The system is very cash flow positive now but is incurring liabilities to future generations it will not be able to pay. The privatization view is that you pay now to transition to the new system and you greatly reduce future liabilities. It also makes people less dependant on the government, which you can tell by my signature line, I would favor.

OTB


Yes I understand. I am glad that you note it is only one way to solve the very real problems you point out. I do understand the difference between income and balance sheets. But, as I noted, fix and decrease benefits now boosts income and reserves to pay the reduced benefits later. That is the first thing that should be done. Those who benefit most now, should start paying. Those who do not need is should contribute more to the problem through means testing.

By the way, Peeping Tom, what the hell were you trying to say? You make no sense.

[Peeping Tom]

Your post implied that in general, those favoring privatization tend to have the wherewithall to make sound investment judgement. From this, my retort was that those lacking such skills did not have to participate - the implication seemed that average joe would lose. That is how I interpreted your post.




By the way, Peeping Tom, what the hell were you trying to say? You make no sense.

[Asterix]

The following link is from testimony by Peter Orszag, senior fellow at the Brookings Institiute, to the House Budget Committee on the Bush proposal for social security. In it he documents his reasons why the risks are not worth any potential gain with this plan, and how future retirees may well wind up worse off. A bit of a long read, but I think he makes his points clearly. Not exactly a ringing endorsement of what GW has in mind. Now before our conservative friends call this liberal bias, a reminder that Brookings has many members on it's board from past republican administrations, including their past president who was Undersecretary of State for Reagan. Hardly a hotbed for left wing thought.

http://www.brookings.edu/views/testimony/orszag/20050209.htm

Questioned afterwards on the effect of the huge borrowing on the economy due to this plan (1 trillion dollars of increased debt in the first decade, 3.5 trillion of increased debt during the second), he responded, "Can we say with certainty this will cause collapse? No. Can we say it entails risks it doesn't make sense to be running? Yes."

[red]

the alternative could be higher taxes. I always thought most businessmen would agree that there is no free lunch, but there is recently in alot of US conservative thinking that there is a free lunch. The Social Security premium would not be raised sufficiently to bankrupt the country. taxes have declined sharply in the US over the last twenty years. so a small increase over the next fifty to deal with this doesn't seem out of line to me

[irlandais9000]

I think the point is that the program is broke in the long term and one solution (and only one of many) is to allow people to partly withdraw from the system (privatization). The system would be shorter on payments now but much shorter on liabilities later when the system is actually in danger. Look at the balance sheet post in this thread; if you don't know the difference between an income statement and a balance sheet you will be ill prepared to have this dialogue (not saying this is you). The system is very cash flow positive now but is incurring liabilities to future generations it will not be able to pay. The privatization view is that you pay now to transition to the new system and you greatly reduce future liabilities. It also makes people less dependant on the government, which you can tell by my signature line, I would favor.

OTB


Yes, OTB, you make a good case, but I just am concerned about what assumptions proponents are using in their forecasting. Also, I realize you are saying that your plan is the best in the long run, but I feel we can strenghen Social Security by fixing it, and incur less debt than privatization. I do disagree with you, but respect that you are making a good case using honest arguments - something the White House is not doing.

[onthebottom]

Yes, OTB, you make a good case, but I just am concerned about what assumptions proponents are using in their forecasting. Also, I realize you are saying that your plan is the best in the long run, but I feel we can strenghen Social Security by fixing it, and incur less debt than privatization. I do disagree with you, but respect that you are making a good case using honest arguments - something the White House is not doing.

Thanks.

I think the White House will play the same game as the Democrats in Congress. All you have to do is listen to Rep. Rangel (D-NY) to hear fear mongering and name calling of the first degree. The same guy who proposed a draft to make the President look bad. Bush is trying to use his power to make a substantial structural change to one of the largest government programs - a brave move. I don't remember Clinton doing anything of substance in his second term (other than perjure himself).

OTB

[irlandais9000]

Well, here's a Clinton accomplishment. He proposed honest budgets every year he was in office. Every single year, his projections were close to the mark. Not like the nonsense we see now, where money for Iraq and Afghanistan aren't included in projections.

As far as Rangel's proposal, I agree, all politics, nothing more.

And as far as perjury, it makes me think of the time that Bush refused to testify under oath before the 9/11 commission. He met with them, with Cheney present, on the condition that there be no notes taken during the proceeding, and that it not be under oath. It still galls me that he could not stand up and take the oath. He was legally free to say whatever he wanted. Oh, well, I guess he made sure he didn't perjure himself huh?

[islandboy]

I have no problem with Bushs appearance over 9/11. Best to keep the office strong.

As far as SS, the first thing Bush did when he got in office is get congress to amend the buget process so the congression budget office has to include supply side growth estmates into its projections. Of course, there is no known way to quantify that! (If indeed, supply side works as a general theory.)

[onthebottom]

Well, here's a Clinton accomplishment. He proposed honest budgets every year he was in office. Every single year, his projections were close to the mark. Not like the nonsense we see now, where money for Iraq and Afghanistan aren't included in projections.

..........

So his biggest accomplishment of the second term was doing nothing during boom times - I know I'm impressed.

OTB

[irlandais9000]

So his biggest accomplishment of the second term was doing nothing during boom times - I know I'm impressed.

OTB

Reread what I said. An honest budget makes a realistic projection of revenues and spending, good or bad. Given your discussion of balance sheets, I am sure you have the economic background to know that. It is possible to make both honest and dishonest budgets in any type of economy.

[happygrump]

If indeed, supply side works as a general theory.
It doesn't. Never has.

The North American economy is demand-driven. All the tax breaks on the planet for companies that make gizmos and whiz-bangs are useless if there's no market for gizmos and whiz-bangs... unless, of course, you happen to own the company and can pocket the tax breaks.

Even Reagan's budget director, the then baby-faced David Stockman, has long since admitted that no one in the White House or even the Congress or Senate could make sense of the budget numbers (Atlantic Monthly, 1981), and that supply-side theories were simply an outgrowth of an ideological mindset and had nothing whatsoever to do with monetary policy. He even wrote a book about it, Triumph of Politics: Why the Reagan Revolution Failed bemoaning the fact that even a true fiscal conservative had no hope of swaying that administration away from its headlong quest for tax breaks for the rich.

http://pages.stern.nyu.edu/~nroubini/SUPPLY.HTM
http://www.kuro5hin.org/story/2004/1/22/164856/449
http://slate.msn.com/id/2087957/
http://www.brothersjudd.com/index.cfm/fuseaction/reviews.detail/book_id/611/Triumph%20of%20P.htm

[irlandais9000]

So his biggest accomplishment of the second term was doing nothing during boom times - I know I'm impressed.

OTB

That's right, the economy was great and he didn't step in and screw it up. Bill Clinton, the laissez-faire economic conservative, at least compared to Republicans:)

[irlandais9000]

Yes, the evidence in support of supply side economics is scanty at best.

In 1981, taxes were cut, and supply side policies were implemented. We then had the worst recesssion in 1982 since the Great Depression, although to be fair, there was a long boom period after the recession.

On the other hand, in 1993, taxes were raised on the highest brackets, and we had the largest economic boom in history, which did not end until 2000 or 2001, depending on your definiton of what constituted the end of the boom.

[someone]

Even Reagan's budget director, the then baby-faced David Stockman, has long since admitted that no one in the White House or even the Congress or Senate could make sense of the budget numbers (Atlantic Monthly, 1981), and that supply-side theories were simply an outgrowth of an ideological mindset and had nothing whatsoever to do with monetary policy.

I don't think anyone can argue that with you when you say that they have nothing whatsoever to do with monetary policy. Monetary policy has to do with interest rates and the money supply. Tax cuts are an example of fiscal policy.

[islandboy]

http://money.cnn.com/2005/01/13/retirement/straight_dope/index.htm

http://money.cnn.com/2005/02/09/retirement/accounts/index.htm

http://money.cnn.com/2005/02/04/markets/gross_social_security/index.htm

http://money.cnn.com/2005/02/09/news/economy/aarp.reut/index.htm

[onthebottom]

http://www.cato.org/pubs/pas/pa-261.html

OTB

[langeweile]

http://www.msnbc.msn.com/id/6980160/

http://www.msnbc.msn.com/id/6979993/

Looks like we are at least talking about reform....I am still waiting for the "'D's" plan.

[Asterix]

Since no one commented on the link I provided to Brookings Institutes Peter Orszag's testimony to the House, I thought I'd give a condensed version. I'd still encourage people to read his whole account of the problems with the Bush plan, it isn't hard to grasp.

The plan is essentially the government giving a loan to the worker to set up an account. Like any loan it would have to be repaid + interest + administrative costs at retirement, by a reduction in benefits. If the debt of the account grows faster then the investment, the worker loses.

The accounts will do nothing to reduce the social security deficit. Even the Bush administration has admitted this, saying the plan would have a "net neutral effect" on the deficit, even if all the "loans" are repaid in full. Orszag lists more than a few reasons why they likely never will be, which will result in an increase of the social security deficit under this plan. If the point is not to reduce any future deficit, than what is the point.

The borrowing of 1 trillion in the first decade, growing to 3.5 trillion in the second decade, will add a substantial public debt that will be permanent. The reason is that no matter how long the program goes on the government will never catch up, since there will always be outstanding "loans", even if all those that come to term are repaid.

The government will have to severely reduce benefits for all. Since the administration has admitted this plan will do nothing to fix any projected deficit, and since it won't raise payroll taxes, the only alternative is to cut benefits unless other revenue is found.

Again, I'd suggest reading his whole testimony and the details he gives to support it.

[happygrump]

http://www.cato.org/pubs/pas/pa-261.html
OTB

The Cato Institute's motto is "Individual Liberty, Limited Government, Free Markets, and Peace".

OK, fair enough. Now we know where they stand. So let's look at their argument:

"Judging from the partisan political discourse in Washington, there is virtually no agreement about what that record tells us... Often partisanship and ideology prevent a dispassionate assessment of the Reagan years."

Wow, these guys are pretty observant!

"... any blemishes--again the big budget deficits--were inconsequential or the fault of the Democrats in Congress"

Yep. Just like the hangover sufferer, blaming his agony on everything - mixing drinks, the sugar in the soda, the tannins in red wine, the amosphere of the bar - except the booze.

Strangely enough, this is probably where Reaganomics did the most good, by out-spending the USSR in defence, which eventually broke the back of the Communist system. So, maybe instead of blaming someone else for this, the R's should actually take credit for it.

"This is one of the great enduring myths of Reaganomics: that the White House relied on wild supply-side assumptions regarding the revenue impact of the tax cuts. The Reagan administration never assumed that the tax cuts would pay for themselves."

Factually incorrect. Read Stockman's book.

The article is far too long to go through it point-by-point (though it would probably be a lot of fun), but given the partisan leaning of the source, the factual errors, and the direct contradiction of the result by the fellow who designed the entire program (Stockman), the argument unfortunately never gets out of the starting blocks. It's too bad, actually, because there were glimmers of hope in the Reagan era that are worthy of praise, but supply-side economics isn't one of them.