And when the money is stolen? Look at the defense industry, look at Halliburton and so forth in Iraq. Subcontracting it just means you’ll probably have to pay twice; once to the subcontractors, and a second time to the people the subcontractors cheated. That’s what you get when the way to make a profit is to not do the job; just like health care insurance. You need to have people running the system who won’t profit from cheating clients.
There are good arguments against privatizing Social Security, but ‘the market goes down’ isn’t one of them. Would you really care to calculate the return to the investor of all of those contributions make to Social Security, and all of the employer contributions to Social Security and make a case that it is a sound investment? I will take a basket of investments over any time period over the terrible return from Social Security.
There are a lot of ways to calculate that, but for our household it is just about negative one percent. For someone at the median income it goes to about 2 percent. For those of us well above the median household income the redistirbutive effects of Social Security make it a dreadful investment.
Here is what I would like to see. The Federal Government offer the Thrift Savings Plan, which offers a simple lineup of investment choices. I would be happy to be able to take 80% of my Social Security tax and be allowed to invest it as I choose. I would choose low cost index funds regardless, so a TSP like plan would be fine with me. Keep the other 20% and go ahead and redistribute it, but the rest is my own forced savings.
The argument that people might lose money and panic is paternalistic nanny statism at its worst when you offer a choice. Those who like Social Security can stay in, those who don’t can opt out. I do not need government to make my choices for me and I don’t need a tax that is disguised as a retirement program. I think most investors understand the concept of risk and can make their own decisions whether to opt in or out and in they opt out how to invest.
The people who argue that we as a country can’t make those decisions never say that they are incapable of making a decision and taking responsibility for it. It is always on behalf of some presumably helpless and incurably dumb other person that they argue for further reduction of freedom.
I don’t think that anyone has pointed out that Social Security (at least the retirement account portion) does not seem to disqualify itself as a “legitimate activity of the government” by your critieria. As far as I know there is no current means-testing, so everyone has the same obligation and receives the same benefit. How is this not something that provides equal benefit to all citizens? The only redistribution in the current (retirement) social security scheme is between generations, not between classes.
Also, one could very easily make the case that the military and police have a very disparate benefit to different segments of the population. Those with very little in the way of personal property receive far less benefit from police protection than those with much. Hell, those without health care would likely come out ahead even after a military invasion from the Great White North. And those without cars (or that can’t afford gas) obviously receive less benefits from roads.
Even without getting into why a for-profit social safety net is problematic it seems your criteria does not do a particularly robust job of differentiating between “legitimate” and “illegitimate” forms of government activity.
Another Doper Libertarian. Get the efficient government out and bring in looters to get good results. You can not even understand that health care in America is a fiasco. You think Medicare is the problem. I would hardly sit in great anticipation of your self serving glurge.
This is wrong in a number of ways. Everyone contributes the same amount up to the Social Security wage base. So everyone puts in 6.2% of their income, as does their employer. Then we would expect that a person who makes exactly $40,000 a year should get the same percentage of their working income replaced by Social Security as someone who made $100,000 a year, but that is not the case. The lower your income is over your lifetime, the larger the relative Social Security benefit.
In addition when you get that benefit either 85% of it, 50% of it, or none of it is taxable, depending on your income. It is absolutely redistributive among classes and this is a common misconception.
And if turns out that those investments are worth nothing just when you need them to survive, you’d be screwed.
Well, you are wrong. Most people aren’t financial experts. And you are demonstrating the elitism typical of those who oppose so-called “nanny state” programs; you are a superior being. You’ll never be one of “those people” who need help. And you care nothing for those who will need that help.
And how “free” are you when you are homeless and starving to death?
I think that SS (which is simply a mandatory minimum retirement system) is a necessary evil, because the fact is that most Americans will spend every penny they earn, and will starve under a bridge when they can no longer work if the government does not force them to save. Since the American public is not going to let this happen, we need a rational system to prevent it.
The real question is what type of mandatory system should be implemented. I fail to see why we can’t simply place each workers “contributions” into a separate account in their name, invested in TIPs Bonds. A small portion of your contributions goes to fund a disability plan. When it comes time to retire, your account is annunitized using actuarially sound methods, and you have an income stream for life.
What is wrong with this?
I find this argument somewhat compelling, but always come back to the fact that SS was introduced to address a real and serious problem - indigence amongst the elderly. Until and unless you can show me why you think this is no longer a real possibility, or introduce some method-of-last-resort for preventing it, then why should I believe we won’t end up right where we were before SS was introduced?
Also, while I know you are being sarcastic with your “incurably dumb” comment, surely you acknowledge that there is a large segment of the population that is bad with money, and likely would do a very poor job of preparing for retirement under a private scheme.
And finally, the equation of taxation as a loss of freedom is a popular tactic, but one that already seems tired. Taxation (especially taxation that is not progressive) is not in any way a loss of freedom - it is a cost of living in a civil society run by federal, state, and local governments at the behest of its citizens.
I note you have a response, so I’ll respond to that quickly. The studies I have seen seem to show that SS redistribution is not primarily along lifetime income lines. Life expectancies differences, amongst other factors, complicate your simple assertion. I will dig up a cite if you would like. The taxation part of your counter-argument is an issue with the tax code, not SS itself, AFAICT. That said, I would likely support a scheme in which no social security benefits were taxed.
You punish those responsible severely and pass the contract to someone else. Tight oversight is absolutely necessary.
But there are people who are incapable of making decisions and are incurably dumb. Elderly people are the prime example: senility affects an awful lot of people.
And this is the disagreement right here. One can be hardworking, productive, but horrible with money. Some just don’t have “the lobes” for it. Would you have someone spend their final years begging in the freezing street because they weren’t good with stocks?
I’d personally rather live in a society that looks after it’s own, myself.
To be clear I disagree with Rand Rover. I do think that there needs to be a mandatory savings for everyone. That alone would vitiate the comparison with the pre-Social Security era. The return on investment almost regardless of the choices individuals might make would provide a better return and thus a larger income stream over time than Social Security has.
Keep in mind that I am saying that I would prefer a system that would offer the traditional benefit and the new benefit for every person. The incurably dumb would first have to leave the old system, then they would have to make bad decisions and blame someone else. I am perfectly comfortable with exploring ways to mitigate the consequence of bad decisions. I can think of a few right off the bat:
[ol]
[li]Cap exposure to equities over different age brackets.[/li][li]Limit the frequency and the ability to make short term trades[/li][li]Require at the very least a partial annuitization of the funds at retirement age.[/li][li]Limit investment options to those below a low expense level and do not allow even mildly exotic investments[/li][/ol]
What I want is to own my own retirement funds with the knowledge that the government can’t take them away or give them to someone else. The current system leaves someone like me, closing on forty years old, unable to plan with any level of confidence. I don’t know what my retirement age will be under the system by the time benefits are available. I don’t know whether the system itself will be solvent. I don’t know how much I will be taxed on the benefit.
People might make bad decisions, but the government has managed to steward the system to the brink of insolvency, has produced a dismal return, and Congress and the Presidency has proven itself to be politically ill equipped to address the problem. I am confident that most all of us could do a better job.
Finally I agree that taxation is not theft. I am not one of those libertarians. I don’t like taxation in the guise of a retirement program. I will pull up some cites as well, but it is absolutely clear that Social Security benefits lower income earners more than higher ones when one would expect that the income replacement level would otherwise remain the same for those earning under the Social Security wage base.
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. That cost has to be borne by someone (guess who that’s gonna be!). Add that to the profit motive and you’ve just taken a huge chunk of any potentially increased returns and flushed them down the terlit.
But that assumes that the government bureaucracy continues to run the entire system. I believe the government’s role is better geared towards oversight than towards the management of the program. The simple answer is that you mandate that any company participating in accepting Social Security accounts offer the same investments at the same cost to everyone.
The administrative burden is then on the firms to stay within the rules and the market will set the cost for adminstering those accounts. This is hardly a foreign concept. If you go to Fidelity and invest in one of their funds you pay the same percentage cost whether you invest a million or $10,000. For some places like Vanguard this is not true. There are different share classes for larger balances. In the interest of fairness you simply disallow that distinction in Social Security accounts.
I agree that if the choice is the current system or a new government bureaucracy doing something they are completely ill equipped to do, then I will choose the current system.
Well, not exactly. Here’s what I’m assuming:
- Overhead costs will minimally remain substantially the same for general administration of the funds. This is based on a belief that the so-called “increased efficiency” of private business will still suffer from a lack of economy of scale. In reality, I think private funds will probably actually increase administrative overhead substantially.
- An new overhead cost will be created: The Bureau of SS Replacement Fund Oversight. This bureaucracy is what I was referring to.
- The private businesses running these funds will need to scrape off a profit somehow. If you let them claim a portion of the net increase in assests, you’ll get behavior like we just saw. Risks be damned, go for the money! If you make them get it through fees, then they are no longer motivated to take any risk and I doubt you’ll see returns much higher than SS.
The net result is a large extra cost on the market without any demonstrable benefit over the current system.
elucidator and Der Trihs, do you think it would be OK for you to knock down your neighbor’s door and take what you want from them? Or do you think that that would be a bad thing to do?
Why, no! Gosh, when you put it like that, my entire moral and political system is exposed as a lie! Well, damn, forty years shot to Hell.
(If your sarcasm detection system registers the previous at less than 750 millihicks, you need to re-calibrate.)
Then please explain why you think it’s OK for the government to do so (i.e., I’ve provided my theory of when it is OK for the government to do that–please provide yours).
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.
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.