More Social Insecurity
I have the feeling I will be writing a lot on this topic, considering the efforts that Bush and company are exerting to ram it down the country's throat before his teeny weeny mandate expires, sometime in April. My good pal Gleason seems to be a firm believer in privatization, as is Duffy (needless to say), and we've been engaged in a lively three-way correspondence on the subject. This morning, Gleason sent a note with the subject "This will be a bare-knuckle brawl," and cited a post from Factcheck.org, the non-partisan watchdog site that monitors mendacity in political advertising. His note reads as follows:
I can't wait to see some finalized proposals. And I love how the anti-SS reformers are trying to misinform the public about the risk involved....they make it seem like you are investing all of your retirement funds in a dot-com stock. [factcheck summary follows]
I replied thusly, with my usual economy of verbiage, and it occurred to me that I could double up my effort by making it the EA post for today:
I agree with your subject line. I also agree that if the opponents are overstating the risk, that’s bad. But it’s nothing compared to what the anti-SS forces are saying.
These are the facts as I understand them. Please amend (with references) if you believe they are in error:
- The issue about worker-to-retiree ratio is irrelevant – rising productivity has taken care of that up till now and will take care of it going forward, even under the most dire projections. We’ve gone from 40-1 in the 30s to 3-1 today with few adjustment pains so far. Hell, SS is running a surplus under the current ratio!
- The date at which the “trust fund” goes from revenue positive to revenue negative (CBO projection is about 2018, I believe) is irrelevant: the whole idea of the trust fund is that it’s a buffer for when revenues fall short. The fact that the trust fund is composed of “IOUs from the general budget” is irrelevant, in that those IOUs are US Government Bonds which the government is Constitutionally obliged to honor (14th amendment), regardless of whether the holder is a US citizen, foreigner or another branch of the US Government. The bonds have been issued, they have to be paid. Whatever we do about SS, short of running another surplus and retiring the debt early (hah!), won’t impact that.
- The date at which the trust fund is exhausted and SS must run only on current revenues, estimated at 2042 or 2052 depending on who you believe, is irrelevant, in that SS will still be able to pay between 77-88% of the benefit until 2077 or so (under current projections) even with no change at all in the system. Note that this date has moved further out into the future with each set of estimates. In 1993, D-day for social security was estimated at 2032 or something. Today, it’s ten years further out. Seems that the trend is moving in the right direction, not towards imminent collapse.
Moreover, the estimates that the GAO and CBO are using are something like 1.4% annual economic growth – extremely pessimistic. If those low estimates are correct, there is no way that equity growth even with the equity premium could perform well enough for the private accounts to pay for the management costs and provide a comparable benefit without adding trillions to the deficit. If growth is higher, then SS will pay for itself under the current system and no “reform” is necessary. If growth doesn’t meet the low targets in these projections, then we are all fucked anyway.
President Bush says SS will be “bankrupt, flat broke” by 2042. In fact, SS will pay between 77-88% of benefits once the trust fund is exhausted, based on takings from the payroll tax. Factoring in planned increases in benefits, the amount in real dollars for reitrees in 2042-2077 will exceed those of retirees today. Bush obviously has a different definition of “flat broke” than someone who actually IS flat broke. More likely, he is lying to create a phony crisis so he can act, as he did with Iraq. His words on this subject are lighter than air.
Bush and the anti-SS people are bandying about the number that SS will end up $10 trillion in debt if we don’t act now. This number comes from not setting an end-date for the forecast, a principle that is actuarially unsound according to general accounting methods. Perhaps in 2105, SS will be $10 trillion in the hole, if nothing changes between now and then. How many forecasts from 100 years ago came true? This phony fact tells us nothing, other than causing panic among the uninformed.
Transition to the new system is projected at around $2 trillion, and given the manifest incompetence and corruption with which Bush administers practically every aspect of government, it’s easy to see that becoming $3-4 trillion by the time it’s all done. And to do what? To reduce the current guaranteed benefit, offer some workers a chance at a slightly higher return if they invest properly (even if the “average” is favorable, millions will be below average at the time they want to retire – what do we do about them?), and fundamentally alter a system that is a guaranteed entitlement for American workers into a forced savings plan.
I understand why people who consider themselves sophisticated investors and those who work in the financial services industry favor this, and don’t expect to change your minds about it. But man, this is a bad idea, wrecking one of the basic pillars of American prosperity. It’s like pulling down a Cathedral to build a parking lot, and the people behind it are savage vandals with a long record of failure. If the American people are dumb enough to sign up for this, we’re really in deep trouble as a country.
