# Private Sector Solutions Part I: Social Security **URL:** \ **Category:** Great Debates\ **Created:** [February 13, 2010, 3:15pm UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860 "2010-02-13T15:15:03Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [February 14, 2010, 4:00am UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/41 "2010-02-14T04:00:30Z")
> [@RickJay](#): > > Do you understand the different between an annuity and an investment? Because it really does not read as if you do. > > It may not be rocket science, but proceeding as if an annuity is the same as an investment account is, frankly, bizarre. It’s like confusing car insurance with a car loan; they’re totally different financial instruments. Social Security is not a mutual fund or an index fund or a stock. It’s a group annuity. There is no logical connection between SS and a provately managed investment fund; the logical private sector counterpart would be a privately arranged annuity program. What? The word “annuity” just means an instrument that provides a periodic payout. The assets that are used to make the periodic payout are paid to the payor of the annuity in some fashion and invested by the payor in some fashion. With the current government-provided social security, the pay-in is done over time through forced payroll deductions, and the amount is not really invested. Under my proposal, the pay-in is also done over time by either those that agree to it or by others on their behalf, and the amount is invested in an amount chosen by someone. Under both scenarios, the pay-out is in the form of an annuity. ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [February 14, 2010, 4:02am UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/42 "2010-02-14T04:02:55Z")
> [@Fear\_Itself](#): > > Yes, criminal invasion and larceny are bad things. What do they have to do with Social Security? > > Show me where in the Constitution you are guaranteed the right to keep evey dollar you make in America. What a silly, selfish notion. I’m not talking about “the Constitution” or any constitution. I’m talking about theory of government. When I say an activity is not a legitimate state activity, then I’m saying that the activity does not accord with my theory of government. I would eventually like the U.S. Constitution and the governing documents of all other governments to which I am subject to adopy my theory of government, but they don’t yet (but some are much closer than others). ---
**Author:** ![RickJay](https://avatars.discourse-cdn.com/v4/letter/r/bb73d2/32.png) [@RickJay](https://boards.straightdope.com/u/RickJay)\ **Post date:** [February 14, 2010, 4:09am UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/43 "2010-02-14T04:09:04Z")
> [@Rand\_Rover](#): > > What? The word “annuity” just means an instrument that provides a periodic payout. Exactly. That’s what Social Security is. I just wanted to make sure we were on the same page, because a lot of the “privatize Social Security” plans seem to then get away from annuity payments. Honest question; how can you make an annuity program better, purely from not having it universally administered? I understand you’re seeing a benefit just by virtue of it NOT being government-run, and that’s a respectable philosophical position, but economically speaking I don’t see any benefit at all. The very problem with annuity plans is that when sold on an individual basis, they’re subject to selection bias, driving up the cost. ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [February 14, 2010, 4:13am UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/44 "2010-02-14T04:13:04Z")
RickJay–I’m not necessarily trying to come up with something that is exactly like Social Security but better. I’m trying to show how the private sector can do something that is like Social Security. It very well could be “worse” on different metrics that are important to different people. But it absolutely will have the benefit of not being an illegitimate government activity. You can dismiss this position as merly “philosophical” if you like, but in that case I’d invite you to provide a different philosophy. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [February 14, 2010, 4:23am UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/45 "2010-02-14T04:23:50Z")
> [@Rand\_Rover](#): > > I’m not talking about “the Constitution” or any constitution. I’m talking about theory of government. So there is only one legitimate theory of government? If the legitimacy of a government theory isn’t based on a constitution, isn’t this less a debate and more of an opinion poll? I disagree with your contention that social security is not a legitimate function of government. Stale mate. ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [February 14, 2010, 4:31am UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/46 "2010-02-14T04:31:29Z")
Huh? I have a theory of government that explains which activities are legitimate government activities. If you disagree with me about whether an activity is a legitimate government activity, then you can explain your theory of government. We can then discuss our different theories. This is different than an opinion poll. So, you think social security is a legitimate government function. Please explain your theory of government and how this conclusion follows. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [February 14, 2010, 4:34am UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/47 "2010-02-14T04:34:48Z")
> [@Rand\_Rover](#): > > So, you think social security is a legitimate government function. Please explain your theory of government and how this conclusion follows. My theory of government is tyranny by the majority. It isn’t perfect, but at least it is based on one man, one vote, and not some unquantifiable cosmic law that says you get to keep everything you make. ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [February 14, 2010, 4:41am UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/48 "2010-02-14T04:41:36Z")
So you are OK with using other people as a means to your own ends? ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [February 14, 2010, 4:43am UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/49 "2010-02-14T04:43:55Z")
> [@Rand\_Rover](#): > > So you are OK with using other people as a means to your own ends? So long as everyone has an equal vote, I think the majority should determine what the legitimate functions of government are. Do you disagree? If so, why? ---
**Author:** ![Hawkeyeop](https://avatars.discourse-cdn.com/v4/letter/h/958977/32.png) [@Hawkeyeop](https://boards.straightdope.com/u/Hawkeyeop)\ **Post date:** [February 14, 2010, 6:37am UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/50 "2010-02-14T06:37:01Z")
> [@Rand\_Rover](#): > > RickJay–I’m not necessarily trying to come up with something that is exactly like Social Security but better. I’m trying to show how the private sector can do something that is like Social Security. It very well could be “worse” on different metrics that are important to different people. Except your plan isn’t like social security at all. It is simply people investing with some minor adjustments. Now you could argue the government shouldn’t be in the business of Social Security, but saying it is “exactly like Social Security is silly” Let’s take it a word at a time. The social means for everyone. Not just the people with enough money to invest, but every single American. Does your plan take care of the people, for whatever reason, haven’t been able to put money towards their retirement? Security is for safety of knowing no matter what you will have a nest egg. It doesn’t mean maximizing return and it doesn’t mean you get what you put in, it just means you will get something. Can you guarantee everyone will get something? Come up with a plan that fits the criteria of Social Security and I will listen. So far you aren’t even close. ---
**Author:** ![Quartz](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/quartz/32/267_2.png) [@Quartz](https://boards.straightdope.com/u/Quartz)\ **Post date:** [February 14, 2010, 8:35am UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/51 "2010-02-14T08:35:41Z")
> [@Zakalwe](#): > > See GIGObuster’s cite in the 2nd part of Post 14. You’d be adding a HUGE cost to the program that doesn’t exist today. I disagree. There should be tight oversight regardless of whether SS is run by the state or by the private sector. You’re merely not subcontracting that part of SS. The U.K. has been through something very similar: a one point we had school vouchers for primary schools. Parents could educate their children wherever they liked, and the State paid. It got cancelled for ideological reasons. I’d be interested in seeing an analysis of cost-effectiveness and abuse there. ---
**Author:** ![wmfellows](https://avatars.discourse-cdn.com/v4/letter/w/c2a13f/32.png) [@wmfellows](https://boards.straightdope.com/u/wmfellows)\ **Post date:** [February 14, 2010, 11:31am UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/52 "2010-02-14T11:31:20Z")
> [@Rand\_Rover](#): > > So you are OK with using other people as a means to your own ends? Yeah, mate, it’s called human society eh, and outside those queer Ayn Rand porn-fests, most of humanity gets that. Of course there is legitimate reason to subscribe to promoting individual initiative, for the greater good. Regardless, any propo that does not take modern behavioural economics observations into account is pure bollocks to begin with. The queer American Randist hostility to any state service in the social area is about as useful as the Communist Manifesto. Both are utter tripe. ---
**Author:** ![Zakalwe](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/zakalwe/32/270_2.png) [@Zakalwe](https://boards.straightdope.com/u/Zakalwe)\ **Post date:** [February 14, 2010, 2:15pm UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/53 "2010-02-14T14:15:20Z")
> [@Quartz](#): > > I disagree. There should be tight oversight regardless of whether SS is run by the state or by the private sector. You’re merely not subcontracting that part of SS. Except that currently, the fund itself doesn’t require massive manpower for oversight. It’s investments are extremely conservative (from a risk/return standpoint) and utterly vanilla (in the sense that they only invest in one type of vehicle). This wouldn’t be true of the thousands of privatized funds and would require massive additional oversight just on the investment side. Then you have to oversight the advertising, the contracts and adherence to them, the courts would have to deal with lawsuits and claims. Meanwhile, you would keep the fraud and administrative costs of current SS, but make them less efficient by splitting them up amongst thousands of separate companies while retaining some portion of the current government functions (to help people pick between funds, explain the program, etc). Now add a management fee or profit share. The net result is that overhead goes up. Would that increase be offset by increased returns? As for Rand thinking an investment fund is an annuity, once again, how do you smooth it out? The “annuity payments” on his plan are extremely dependent on the performance of the market at the time you convert the investment to an annuity. ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [February 14, 2010, 2:36pm UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/54 "2010-02-14T14:36:31Z")
> [@Fear\_Itself](#): > > So long as everyone has an equal vote, I think the majority should determine what the legitimate functions of government are. Do you disagree? If so, why? So laws that respect slavery are OK by you as long as the majority passed those laws? ---
**Author:** ![fruitbat](https://avatars.discourse-cdn.com/v4/letter/f/58f4c7/32.png) [@fruitbat](https://boards.straightdope.com/u/fruitbat)\ **Post date:** [February 14, 2010, 3:03pm UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/55 "2010-02-14T15:03:28Z")
> [@Hawkeyeop](#): > > Except your plan isn’t like social security at all. It is simply people investing with some minor adjustments. Now you could argue the government shouldn’t be in the business of Social Security, but saying it is “exactly like Social Security is silly” Let’s take it a word at a time. > > The social means for everyone. Not just the people with enough money to invest, but every single American. Does your plan take care of the people, for whatever reason, haven’t been able to put money towards their retirement? > > Security is for safety of knowing no matter what you will have a nest egg. It doesn’t mean maximizing return and it doesn’t mean you get what you put in, it just means you will get something. Can you guarantee everyone will get something? > > Come up with a plan that fits the criteria of Social Security and I will listen. So far you aren’t even close. Hawkeye, with all respect remember I am not Rand and I think my plan does that. Everyone can invest during their working years. You can take risk, up to certain parameters and without access to exotic investments. At your retirement age everyone must convert their accumulation to either a single or a joint with spouse lifetime annuity. They can go to a private insurance company or I am fine with the government offering an annuity option that competes with private options. So everyone gets something. Let’s take two people who invest over their lifetime. One does well in their investments and one does not do as well. The first guy has $525,000 accumulated and the other has $375,000. They both recieve a fairly substantial benefit, but it is not equal. Both were offered the choice to take the basic Social Security benefit and chose to opt in to individual accounts. It isn’t like the guy with $375k even has to have a worse outcome. If he or she delays taking the benefit they have a couple more years to pay in and the annuity payout gets larger due to a decreased life expectancy as they age. Not that I pay attention to Der Trihs hysteria, but we don’t want homeless starving people on the streets. What Rand doesn’t get is that if we allow opt out then there is further pressure as those who chose not to save lie homeless and starving in the streets, which is intolerable as an outcome. I don’t think the principles of this proposal are that exotic. They are based on the idea that everyone should own their own future and be able to plan. Everyone should be forced to save to a minimum level. Everyone should have some substantial benefit. Most fundamentally it is based on the acknowledgment that the government has been a poor steward of Social Security and it isn’t getting better. The return is lousy, it is insolvent and people my age have no idea whether and how we should plan for it as we save during our working years. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [February 14, 2010, 3:03pm UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/56 "2010-02-14T15:03:34Z")
> [@Rand\_Rover](#): > > So laws that respect slavery are OK by you as long as the majority passed those laws? I believe the majority should determine what the function of government is. The result is that as much as 50% (minus one vote) will be dissatisfied with the resulting government. There is a risk that the majority will vote for functions of government that I don’t like. **I accept this risk.** It is far preferable to have a majority decide what the function of government is, than to have a minority impose their ethics on the majority that do not agree. You do not have a corner on the market for judging what is ethical, and what is not. If the majority chose to enslave the minority, I would not like that. But I accept that risk because I believe the majority sees such anti-social practices as slavery as abhorrent. I have faith that the majority will usually make the right decision (by my judgement). That they sometimes do not is an acceptable risk, and far preferable to imposing a minority morality not based on a consensus. My theory of government is derived from the consent of the governed, as expressed by the majority. From what is your theory of government derived? ---
**Author:** ![Rand\_Rover](https://avatars.discourse-cdn.com/v4/letter/r/db5fbb/32.png) [@Rand\_Rover](https://boards.straightdope.com/u/Rand_Rover)\ **Post date:** [February 14, 2010, 3:31pm UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/57 "2010-02-14T15:31:27Z")
Fear Itself, haven’t I seen you railing against manyof the things Bush did when in office on this here SDMB? How do you explain that? Bush was duly elected by a majority of electors, so you should have been perfectly fine with everything he did, right? Your attitude should just have been “Well, he represents the majority, so be it.” My theory of government is derived from the nature of a government as the only human institution with the power to legitamitely make people do things that those people don’t want to do. Each human being should be treated as an end unto him/herself and not as a means to accomplish someone else’s ends. Therefore, the government’s monopoly on force demands that force be used only when absolutely necessary, which I believe is only for those things that could not be accomplished without a government. ---
**Author:** ![Wesley\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wesley_clark/32/20581_2.png) [@Wesley\_Clark](https://boards.straightdope.com/u/Wesley_Clark)\ **Post date:** [February 14, 2010, 4:04pm UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/58 "2010-02-14T16:04:04Z")
> [@Rand\_Rover](#): > > Nope, it decreases costs because it allows participants to choose the right mix of costs and services. That choice isn’t available when the government provides it. Chile has a private pension plan, and overhead is a huge problem. Something like 15-20% is eaten by overhead. [http://www.socsec.org/publications.asp?pubid=332](http://www.socsec.org/publications.asp?pubid=332) > [@](#): > > 1. High Expenses and Fees. Total AFP expenses range from 15% to 20% of annual contributions–an average of $62 per enrollee in 1995. (U.S. Social Security expenses, by way of contrast, amount to less than 2% of contributions.) Approximately one third of these expenses represent sales costs, which from 1988 to 1995 more than doubled as a percentage of total expenses as AFPs competed for enrollees, not by reducing charges but by mounting ever more extravagant marketing campaigns. Swayed by free toaster ovens and other prizes or the promise of bigger returns, 25% of enrollees switch AFPs each year. These expenses consume a higher percentage of low earners’ contributions than high earners’ contributions, and they reduce the rate of return for every Chilean. In 1995, fees and commissions amounted to 23.6 percent of contributions, or 2.4 percent of average wages. According to World Bank economist Hemant Shah, commissions reduced individuals’ average rates of return between 1982 and 1995 from 12.7% to 7.4%, and between 1991 and 1995 from 12.9% to a mere 2.1%. One actuary has calculated that for a new enrollee the 3.5% gross yield in 1996 actually amounted to a return of -6.8%. That same year the profit margins for AFPs–five of which controlled 80% of the market, constituting an implicit cartel–averaged more than 22%. That isn’t to say private plans have no place, but the concept that a private plan will decrease costs wasn’t true in Chile. Social security has an overhead of \<1% to 2%. [http://www.njfac.org/us21.htm](http://www.njfac.org/us21.htm) So the Chilean private plan has an overhead of about 15-20%, Social security has an overhead of 1-2%. So you’d really have to design the private system extremely well to make it more efficient than social security. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [February 14, 2010, 4:44pm UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/59 "2010-02-14T16:44:08Z")
> [@Rand\_Rover](#): > > Fear Itself, haven’t I seen you railing against manyof the things Bush did when in office on this here SDMB? How do you explain that? Bush was duly elected by a majority of electors, so you should have been perfectly fine with everything he did, right? Your attitude should just have been “Well, he represents the majority, so be it.” Just because I don’t like what the majority has wrought doesn’t mean it is not legitimate. I can continue to disagree, and try to change the will of the majority, even when I am not “perfectly fine” with their previous choice. I see no inconsistency. > [@](#): > > Each human being should be treated as an end unto him/herself and not as a means to accomplish someone else’s ends. Therefore, the government’s monopoly on force demands that force be used only when absolutely necessary, which I believe is only for those things that could not be accomplished without a government. But where does this come from? Is it a moral absolute? ---
**Author:** ![Wesley\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wesley_clark/32/20581_2.png) [@Wesley\_Clark](https://boards.straightdope.com/u/Wesley_Clark)\ **Post date:** [February 14, 2010, 4:46pm UTC](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860/60 "2010-02-14T16:46:16Z")
> [@Rand\_Rover](#): > > Well, if the administrators don’t fulfill their end of the agreement, they would be in breach of the agreement, and the investor could enforce the remedies available to it (such as suing for a return of fees and other damages). The US is descending deeper and deeper into plutocracy. And whatever regulations designed to limit plutocratic behavior has either been blocked or co-opted. So this talk of regulation designed to force private industry to treat their investors fairly is absurd. We live through horrible abuses and public corruption from the financial, mortgage, insurance and pharma industries. And we know they are wealthy/powerful enough to block any attempts to regulate them or hold them accountable. This talk that there would be meaningful checks and balances to hold private companies with trillion in assets accountable for their behavior isn’t realistic in America in the 21st century. There is nothing to stop them from taking the money and running if they choose to do so. [Previous page](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860.md?page=2) [Next page](https://boards.straightdope.com/t/private-sector-solutions-part-i-social-security/528860.md?page=4)