Privatizing Social Security.

Great Debates
21

As I see it, a privatized SS system would be administered similarly to private pension plans.

So many pension plans have gone belly-up from mismanagement or embezelment that the very real risk of a privatized SS going down the drain is horrifying.
I don’t want to live in a cardboard box in my old age.

And I don’t think that our nation’s janitors, store clerks & cleaning ladies should be put out to starve in the streets, even if pldennison does.

By the way pldennison–why doesn’t your much vaunted love for fuzzy kittens & puppies apply to your fellow human beings? Your statement:

indicates that, perhaps, my comments on your lack of compassion & (shall we say) frayed moral standards ; that I have made many times in other columns, are indeed correct.
Time to face facts pl----you love animals to the exclusion of your fellow human beings.

22

Phil replied to my reply to him: *you don’t think people should have to suffer the consequences of their own stupidity [in mismanaging their retirement funds]? *
“Well, not to the point of starvation. I wouldn’t argue that the government should provide unlucky or stupid investors with the catamarans and beachfront villas that lucky and/or smart ones will obtain for their retirement. But letting old people starve in the streets is quite another thing.” *Well, good heavens, if there are no consequences for stupidity, what’s to deter people from acting stupidly? *

Er, are you saying that the only possible or effective deterrent to stupid action is the prospect of starving in the streets? I don’t think that having to give up one’s hopes for a prosperous retirement and fall back on the minimal benefits from the government safety net counts as “no consequences.” Is there really no middle ground between complete lack of security and complete improvident recklessness?

Incidentally, I have no trust in nor no need for the government to nanny me, which is why I take a big portion of my pay every two weeks and put it into a nice, juicy 401(k). With employer matching and profit sharing, it’s grown significantly since I started contributing (it doubled last year thanks to profit sharing).

Congratulations, and I’m glad your financial plans are going well for you. But I find it hard to believe that you would entirely abandon all your industry and prudence even if you felt convinced that a governmental safety net would keep you from actually starving or freezing.

23

I have very little to add. bosna, and especially Kimstu defended my post better than i could. but I will say one thing, Pl, how about the mentally disabled, the ‘slow’, the “forrest gumps” of this worls. I guess since they are ‘stupid’ we will let them starve in the streets, while you fund programs to feed out-of-work lab rats.

And I am not entirely against ALL privatization. Currently a small portion goes to the 'surplus" or “trust fund”. I think that if you show you invested that much in a locked retirement plan, you could get a credit for it. I beleive it is about 1%, so if you earned 50k, you could invest $500 and get a for credit for that. Then, the basic safety net would still be there, but you would have some to invest YOUr way. And those who did not would get slightly higher SS checks.

tradesilicon: with the Government picking up the bill for the insurance, it is the same as if the gov’t paid out the $$'s in the 1st place, but with no tax reciepts. So, millions of Americans investments go belly up, and the Gov’t is stuck with the payments anyway. Explain how that makes things better, please?

24

Kimstu:

No, I’m not saying that at all. I am saying that we should not reward people for willful stupidity. Taking my (and your, and Daniel’s) money to provide for the willfully stupid is a reward.

Incidentally, if there were no SS, what efforts would you, personally, make to save people from “starving in the streets”? I’m curious. Last time a similar question was posited, Daniel regaled me with stories of how he would blow all his money on yachts and vacations instead of helping the poor if taxes didn’t exist. Since I’m supposed to be the uncharitable one, my curiousity is piqued.

Unfortunately, most people (well, many people) believe that SS is their hope for a prosperous retirement. They’re taught that the government will take care of them in their old age, when in fact the reality is much more stark, and they therefore do little or nothing to provide for themselves. If told they were required to provide for their own well-being after retirement, people might exercise a bit more prudence.

Of course there is, and it should be a matter of individual choice. If someone chooses complete improvident recklessness, why should they not suffer the consequences of that recklessness?

Of course I wouldn’t. Perhaps that is because I, unlike the people I am asking about, am not stupid.
Danielinthewolvesden:

Apprently, however, Daniel thinks I am stupid, and don’t understand the difference between mental retardation and willful stupidity. Go troll elsewhere, Daniel. I’m not going to feed your need for fighting strawmen. You are free to discuss your argument with someone who does not understand the difference.

I also wan’t to point out that Bosda, with the statement: “And I don’t think that our nation’s janitors, store clerks & cleaning ladies should be put out to starve in the streets, even if pldennison does,” apparently classifies all janitors, store clerks and cleaning ladies as willfully stupid. I’m sure they’ll appreciate that.

25

Oh, Moderators, can you please delete Bosda’s post, above? The bulk of it is nothing more than an attack on my personal character, inappropriate for this forum. This person is free to invite me to the Pit if he/she chooses to do so.

oldscratch: When are you going to learn to accept the consequences of your syllogisms? (“It’s nice to know that you are for old people starving in the streets pldennison.”) Do you think all old people are stupid, or do you not understand the difference between the group “old people” and the group “willfully stupid people”? They may intersect at points, but they are not identical.

26

Well speaking as someone who is an actuary (thanks for the plug Gadarene!) - and a pensions actuary to boot - I think that I ought to give you guys a little lesson in the concept of asset-liability matching.

A pension is a series of payments, right? You want this income to be nice and steady, increasing a little in line with inflation but certainly not waivering violently every time the market shifts. Well, what asset provides this nice series of payments for you? Equities? No - they revalue constantly and the dividends are inherently unpredictable. The answer is: government bonds.

Government bonds, for those who don’t know, provide a series of payments that is fixed either in nominal or inflationary terms. Their terms vary considerably, but ones can be easily found of 20 year term. The market in bonds makes equity trading look like pocket change, so trading them won’t affect the market value too much, unless you are trading unimaginable quantities. At the end of the term you receive the nominal stake back - this is again fixed either in nominal or real terms.

If you want a pension of $1 a year and you are expected to live for another 20 years then the life company you buy your pension from will go straight out and buy a 20 year goverment bond that pays (just under) $1 a year (just under because receiving the stake back will give them that little bit extra).

So the cost of your pension at retirement is dependent on the state of the government bond market at the time.

So what should you invest your money in prior to retirement? Well to begin with, if you’re feeling lucky, equities. These have higher expected returns over the long term. However if you want to play it safe (especially as retirement approaches), you must switch all of your assets into government bonds, thus locking into the market which will directly affect your pension.

This is essentially what those who are running social security do. The only thing is, since they are the government they don’t need to buy government bonds, they just don’t sell as many in the first place (it can be shown that the net effect is the same).

Since social security is a safety net (as has been pointed out already), the government does not and should not have any interest in seeking the maximum return, foresaking asset-matching in the process. It makes sure that the real value of the pension in being protected, by investing in the most appropriate asset.

Apologies to anyone who got lost in any economic jargon there - I’m at work and can’t concentrate too hard on this post. I’ll happily clarify any misunderstood points.

I hope you see though that even if social security was privatised (note that we have the option to run our own state second pensions in the UK via a process known as ‘contracting-out’*), the funds would naturally be invested not all in equities. At the very least, in the 10 years leading up to retirement they would be switched to bonds.

Regards,

pan

*If anyone is interested, I’ll post details of how this works. Suffice to say the funds that would have gone to social security are ring-fenced and restrictions apply to what can be done with them.

27

Well, let me jump in and get fried with phil for wanting ‘old people to die in the streets’.

As kabbles has pointed out, even in full privatization there are investment options which provide the same basic security and return as Social Security; so for those who wish to ensure a small return with no risk (okay; there’s the risk that the government collapses and won’t pay off bonds. If that happens, I suspect that Social Security checks won’t be sent out either, so it’s a moot point) can certainly still do so.

But people who do take more risks in the hopes of a higher payout should not be automatically reimbursed or hand-held by the government. There exist perfectly safe alternatives for investement; taking a risk involves risk.

So by moving to a privatized system, people can still opt to stay in low-risk, low-payout programs (and again, not losing anything vis-a-vis Social Security) or take some risk upon themselves and try for a larger payout.

(As a note, Gad- Bush’s system, from what I’ve read and heard, is a two-tiered system like what you express interest in; Gore wishes no privatization whatsoever.)

28

Well, let’s see. Did I say you’re for all old people starving in the street? No.
So far in the last several days you haven’t seen fit to understand a single comment someone has made in argument against you. Is it willful, or are you maybe fighting off an a caffine addiction (I know when I do that my concentration goes all to hell). Let’s look at what propmted my comment.

This was posted "But letting old people starve in the streets is quite another thing. " To which you responded “Well, good heavens, if there are no consequences for stupidity, what’s to deter people from acting stupidly?”

Now. I can’t think of any possible way to construe that, except to believe that you are for old people starving. Most of the other posters in this discussion thought so as well. Are you going to retract that statement or do you stand by it?

29

Well, looks like you are right, oldscratch–I misrepresented the scope of the original statement. I owe you an apology for that. I’m sorry.

I stand by my statement that willfully stupid people should be required to deal themselves with the consequences of their stupidity; if you or I decide to help them out, that is our business, but it shouldn’t be compulsory. God knows I’ve bailed my stupid sister out enough times.

I also stand by my statement that any SS argument that relies on the emotionally-loaded premise of “old people starving in the streets” is flawed, as it implies that all old people are willfully stupid.
I’m glad my grandparents on both sides had the good sense to put away for their own retirement, and to instill the same ethic in me.

30

I am certainly for old people starving in the street.

I’m also for old people getting hit by cars.
The way I figure it, if an old person walks onto a busy freeway without bothering to look both ways, then he/she took upon themselves the risk of getting hit by a car, and so the fact that they did is no skin off my nose. It’s sad, but if you’re not going to look both ways before crossing, you take that risk upon you.

Likewise, if you decide to invest all of your savings money in a very risky scheme, you need to accept the fact that you may be soon starving in the street, and not whine about the government not giving you a safety net.

31

**

I know that what you mean is when caused by their own stupidity. However, there is a fundamental difference. If someone walks in front of a car and gets hit, there is nothing you can do about it. They have suffered, you can now go and help them get better (if they’re still alive). In fact what you are arguing is that if someone walks out into traffic and gets hit, just leave them there and allow them to get hit again and again. That is the effect of lettiing someone slowly starve. Are you for leaving someone out in traffic? For seeing someone in distress and just leaving them? I don’t think you are. And I’m surprised you don’t see starvation in the same way.

32

It’s generally accepted and is framed in legislation (in the UK at least) that the financial services industry is fundamentally different to other retail markets.

Finance is a complex issue - average Joe Public can’t be expected to understand it well enough to make well-informed decisions that will affect the rest of their life. Hence those of us working in the field must well well insured against bad advice and regulators make sure those giving advice are properly qualified to do so.

Now I’m not saying that Joe should be expected to not understand the issues either. Bully for him if he does. He can go and use his knowledge to make gains for himself. But decisions can and must be taken for those incapable of making their own.

“Wilfully stupid” doesn’t even begin to cover it. If you think that you can control unaided the many financial, tax, legal and administrative issues with pension funds and expect others to do the same then I think you woefully underestimate the task in hand. Social security is just a way for the government to invest a bit for you. Just in case.

Please note that I am in no way attempting to repudiate the abilities and financial nous of anyone on this board. I just don’t believe that those less fortunate in terms of being financially educated (not less intelligent) should be left to fend for themselves.

regards,

pan

33

It certianly seems like that could go either way.

I can. It seems to me that Phil is simply saying that if a person, old or otherwise, is starving because he willfully had refused to consider his future and make provision for it, he is simply reaping what he has sown. On the other hand, if the person need make no provision because provision is being made on his behalf, then if he starves, who is to blame?

I know that your concern for starving old people is genuine. Perhaps there is a tactic you have not considered. What if you played the game of capitalism, made yourself wealthy, and actually built shelters and care-centers for starving old people? Wouldn’t that satisfy you more than just having a few measley bucks docked from your pay that must go toward not only helping old people, but paying the millionaires in government who redistribute the few measely bucks after pocketing a portion of it?

34

Kimstu, Daniel,

Your arguements against insured private retirement accounts (IPRA) instead of social security make the assumptions (or so it seemed to me) that all investments in these accounts will go belly up. I know we should always look at worst case, but I do not believe that this is reasonable. However, it is possible. But here is my take - if all investments in IPRA go belly up, our whole economy will prooobably be in shambles. If that were to happen with present day Social Security in place no better benefits would exist for retired persons, since we depend on taxes to feed the system.

Anyway, I want to clarify one thing - do you both feel that the possibility of losing part or all of your investment is the only arguement against privitization? If so, I feel the same way about the system today. I’ve paid into it for at least fifteen years, would have to pay in for thirty more, but I feel it can be cut off anytime. I feel I can lose all of that investment if the Gvmt screws up with out having any say in it. I’d rather have a savings account.

Let me clarify my position on one other item -
Daniel Said:

I quoted part of this, and replied:

I was replying to this portion only: “Do you think the american public will go for that? NO” Kimstu, you quoted the whole paragraph, and made it seem like my reply was to the whole paragraph. I was trying to point out that Daniel was speaking for the American public, of which I am part, and I wanted it clear that I WOULD go for the private accounts. Not necessarily for allowing people to starve in the streets - this is going on now for those who are not happy using the services available to keep them from starving.

Now, your idea for a two-tiered scheme sounds very nice. The only difference I would propose, is that both be porivate accouts, but one would be a very secure savings account (to take care of the minimums now seen to by SSA), and the second can be one with more potential and risk.

I still think this would reduce the overall cost, increase the amount each person would get at retirement, and keep the grubby hands of the politicians off of more of our money ('cause you know they’ll grab it with the first good excuse they’ll find).

  1. Reduce Cost - do away with the SSA, move accounts to private institutions which already exist, and will not charge for administering accounts.

  2. Increase Benefits - even a savings account will produce more income that current SSA, not to mention CDs, Mutual Finds, Etc.

  3. Washington is all to willing to dip into the Social Security Fund, and given half a chance will raid this fund when they feel justified, and perhaps not replenish it. Think it can;t happen? (Sweeping Generalization Ahead)No one in Washington cares about any laws, they’ll do it if enough of us are unwilling to object.
    Sili

35

Phil asked me: *Incidentally, if there were no SS, what efforts would you, personally, make to save people from “starving in the streets”? I’m curious. Last time a similar question was posited, Daniel regaled me with stories of how he would blow all his money on yachts and vacations instead of helping the poor if taxes didn’t exist. Since I’m supposed to be the uncharitable one, my curiousity is piqued. *

Oh, I don’t believe that either you or Daniel would really refuse to give any money away to people who needed it. I think the point Daniel was probably trying to get at is that constructively helping the needy takes a whole lot of effort, information, and organization, and that realistically speaking, most of us in a totally privatized society would probably fail to meet our theoretical goals of altruism. As kabbes pointed out about investment finance, these are complicated issues, and giving people the responsibility to handle them on an individual basis without ensuring that they have the knowledge to do so wisely would be ineffective, if not downright cruel. How many of us have any hard data on whether, where, how, and how many people in our society are starving in the streets? How many of us know hard data on what needy people need in terms of food, shelter, clothing, medical care, and education, how much it would cost, and the best way of giving it to them? How many of us know how to go about getting such data, developing a realistic plan of expenditure, and putting it into operation? Government agencies may be bloated and ineffective but they’re not literally inert: the Social Security Administration and other entitlement programs are handing out a lot of concrete assistance to a lot of people, and if we citizens had to handle all of that personally in our free time it would involve a huge amount of work.

And it would also introduce a sort of perpetual competition between our altruism and our personal desires, which I think is what Daniel was implying. Of course, I give to charity and I’m sure that you and Daniel do too. And if we had no public entitlement projects and no professional civil servants whose job it was to handle them, I’m sure we’d all resolve to give what was necessary to prevent our fellow citizens from suffering. But as I pointed out above, it’s so much work finding out what’s necessary! Whom do we ask, whom do we trust, whose needs are we overlooking, which aid projects are honest and effective and which ones are just scams? It’s very confusing and frustrating, and besides, we have our own needs to consider. “The knee is nearer than the shin,” as good old Augustus used to say, and if our own beloved family needs a boat or a vacation, it’s very tempting to put aside all the charitable prospectuses we’ve been puzzling over and resolve to get our altruism budget really straightened out next month. Now you personally might have the perseverance and self-discipline to ensure that you were always doing every bit of your share to help the needy; but I’d hate to entrust the survival of our needy people to the blithe assumption that all citizens are going to be as good as you.

“I don’t think that having to give up one’s hopes for a prosperous retirement and fall back on the minimal benefits from the government safety net counts as `no consequences.’” *Unfortunately, most people (well, many people) believe that SS is their hope for a prosperous retirement. *

Really? It seems to me that I’ve been hearing for decades that old people with nothing but Social Security to depend on are struggling to make ends meet. Do many people still believe that Social Security support means ease and comfort, rather than a very basic safety net?

“Is there really no middle ground between complete lack of security and complete improvident recklessness?” *Of course there is, and it should be a matter of individual choice. If someone chooses complete improvident recklessness, why should they not suffer the consequences of that recklessness? *

Indeed they should and do; I just don’t agree that it should necessarily cost them their lives. As oldscratch pointed out, just because somebody stupidly walked out into traffic doesn’t mean that we’re willing to leave them to bleed to death by the side of the road. And just because somebody stupidly squandered their savings doesn’t mean that we’re willing to leave them to starve in the street (although we’re certainly not likely to maintain that they should be pampered in luxury, either).

36

Kimstu

I’m not willing to let someone starve either. I’d just like to decide for myself exactly what way I would help whom when. Why am I any less capable than you are in that regard? Why must I do it your way?

37

Libertarian: *I’m not willing to let someone starve either. I’d just like to decide for myself exactly what way I would help whom when. Why am I any less capable than you are in that regard? Why must I do it your way? *

Why, you don’t have to do it my way—you have exactly as many votes as I do, and exactly as much say in what government entitlement programs should do, and how they should do it. And you have exactly as much free choice as I do in selecting charitable projects to support with your disposable income over and above your tax contributions to the government programs.

Do you mean, “Why must I make tax contributions to government entitlement programs?” Simple—it’s the law. If you don’t like the law, you have exactly as much opportunity to change it, or to persuade others to change it, as I do. I was just presenting what I consider to be some valid arguments for not changing it.

Or do you mean, “Isn’t the existence of such a law a violation of my rights?” Well, we’ve been around that track before, and you know that my opinion is “no”, and that most constitutional scholars say the same. However, you certainly have the right to engage in Thoreauvian civil disobedience of the law (and accept the legal consequences) in order to protest it; I for one would be quite impressed! :slight_smile:

Whoo! How’s that for forestalling another endless libertarianism debate? :wink:

38

said the spider to the fly.
Parlor = privatization.
Spider = banks, brokers, et al.
Fly = the public.
So I’ve made up my mind, thanks to all the info here and my own research. And to my experience with people.
Privatization would indeed be boon to those who already have the resources to take advantage of it. But to those who, for whatever reasons, are in marginal or dire financial circumstances it would be a disaster.
I’m not about to move out of my comfortable home and into a studio apartment so that some “invisible” homeless people can have a roof over their heads. And I don’t think that most of the rest of you are either.
My point being that any social “safety net” cannot be voluntary. Human nature won’t let it. We will always put our own luxuries above the needs of others. We rationalize.
SSI (don’t forget the “I”) needs to be fixed, not tossed.
Or we could make this rule;
If you’re not financially set by age 55 (my age) or so you would just be euthanized. Pleasantly, of course. Most people live too long anyway.
BTW; I make a comfortable living and, barring any financial collapse, I am set for retirement.
Peace,
mangeorge

39

Kim

Well, I thought I asked a perfectly straightforward question, but thanks anyway. That you chose to answer with a legalist epistemology was interesting. Basically, it’s “Do as we say or we’ll throw you in prison, that’s why.”

40

Well, Lib, I thought I gave a perfectly straightforward answer—but you’re welcome anyway! :wink: