Social Security and the Generation Gap

[Debaser]

@Kimstu

SS is not based on the premise that the worker/retiree ratio will always be increasing. In fact, for the last several years SS has been running a large surplus despite the fact that the worker/retiree ratio has been decreasing.

OK. You can technically keep the system going no matter how few workers there are and no matter how old the retirees start living, as long as we don’t consider the ever shrinking payouts. A better way to phrase it is that SS providing any kind of decent returns would need to be based on the premise that the worker/retiree ratio will always be increasing.

As I said, the predicted sustainability of SS depends on there always being more workers than retirees in absolute numbers, with a worker/retiree ratio predicted to stabilize at about 2:1. (And in your most recent post, you say you don’t contradicting this.) This is a perfectly reasonable assumption, since, as I said, there is no reasonable scenario in which the absolute number of over-70 retirees would be larger than—or even approximately equal to—the absolute number of workers between 18 and 70.

This is a side argument. Even if you are right and the numbers do stabalize at 2:1, I’d still want out of the existing system in favor of investing my own money to grow under my control.

However, I think it’s not safe for us to conclude that there’s “no reasonable sceneario” where this could happen. Medical science is now talking about curing old age. Who knows how long people might start living with the genetic and scientific breakthroughs over the coming decades.

You’re right about the compounding-interest advantage, and as I’ve said before, I wouldn’t have a problem with switching very gradually—over many generations, say—from our current “pay-for-your-parents” system to a “pay-for-yourself” one, as long as we did it gradually enough to avoid being hammered by the transition costs.

It’s good that you at least agree that compounding interest would be a better way to do the system.

But, what’s this about many generations? So, my grandkids may or may not be allowed out of this scam? That’s just unnaceptable. I want out now. You could let me invest the 12%. Tax me on my interest enough to cover my portion of the resulting SS shortfall. I’d still have way more money at retirement than under the existing system.

In all the actual privatization proposals I’ve seen, though, the transition costs are just way too big a burden on the transitioning generations.

Your mind seems like it’s already made up to me. Bush is the one leading this effort. He has said that all options are on the table. There isn’t a specific plan yet at all. You seem to be against the entire concept, not just the way it’s being transitioned.

And the argument that you don’t want to be “dependent on the government for bennies” because under the current system it’s “their money” is simply silly. As you said yourself two posts ago, if we had a privatized scheme, it would still be “the government tak[ing] a portion of your payroll taxes and invest[ing] them in an index fund”. Any realistic privatized scheme would not give you significantly more individual control over “your” retirement money than today’s SS contributors have.

This argument is far from “silly”. It’s good financial sense. I’d prefer a 401k (with money under my control) than a corporate pension (with money divied out by the company). This doesn’t make me “silly”. It makes perfect sense and any reasonable person would choose this.

It’s no different than with a government plan. Under existing Social Security they take my money and give it to existing retirees. All I have in return is the promise that future workers will pay for me. The government might renege on this promise, or the system might collapse by then, or any other number of things might happen.

I would prefer a system where the money gets saved into an account that I can control. Sure, the government can put limits on how I invest it or restrict how I can pull money out from it. But, it’s my money. As an investor, I can change investment options and see my balance grow over time.

This difference is hardly trivial, and I don’t know why you would attempt to dismiss it as such.

But there have been ten-year periods where that was the case (I did say “10- or 20-year periods over which the market hasn’t kept up with inflation or has even been negative”, remember), and in fact, your own cite admits that there have been periods as long as 16 years where stocks have failed to beat inflation.

Oh, come on now, provide the full quote:

“But there have certainly been 10- or 20-year periods over which the market hasn’t kept up with inflation or has even been negative, and some people’s salaried working lives are only 20 or 25 years long (e.g., women who spent many years as homemakers).”

You were specifically referring to those people who’s working lives are only 20-25 years long. This was obviously what I was responding to.

Do you seriously think that whatever program the government sets up can or should be expected to provide a full benefit for people who have only worked 10 years? If you’ve only worked a small amount of your lifetime it’s reasonable to not expect to get the same return as someone who did.

In the first place, the Administration’s current plan for privatization will not actually do anything to remove the predicted funding shortfall. They plan to eliminate the shortfall simply by cutting traditional SS benefits. So privatization by itself isn’t projected to do anything to stop SS “heading for bankruptcy”.

We’re on a sinking ship. Bush says “lets get some people off this boat”. You respond that leaving the boat is a dumb idea because it won’t help stop the boat from sinking. :rolleyes:

Privatization by intself doesn’t have to do anything to stop SS heading for bankruptcy. That doesn’t make it a bad thing. Private investment accounts is the way that the system should have been set up in the first place. The fact that the existing system is facing future collapse is simply one reason of many to privatize it.

---

I’m not going to respond to the end of your post, since you’ve already apologized for it.

Thanks tomndebb, and apology accepted Kimstu.

[pervert]

@Kimstu

pervert: *As I recall, your contention is that this will pose no problem. *

I don’t think you recall correctly. I have been saying all along that some measures probably do need to be taken to forestall the projected funding shortfall. I’ve also been saying that there are various combinations of raising taxes (including the possibility of raising the cap rather than the base rate) and cutting benefits (including the possibility of means-testing benefits, altering the benefits indexing formula, and/or increasing the retirement age) that should be considered.

Which is surprisingly similar to what Bush has been saying (except for the raising taxes part). Your not chanelling him are you

pervert: *The idea here is that increasing the amount of economic growth will increase wages. Doing that will increase benifits. *

I know. But even pro-privatization booster Don Luskin of Social Security Choice acknowledges that “higher benefits come outside the 75-year window” (emphasis added).

I’m not sure you are interpreting him correctly here. I think he is pointing out that limiting the analysis under criticism (Krugman’s if I am not mistaken) to 75 years makes his suggestion seem more productive than it is. I don’t think he meant a general statement that no benifit increases would occur in the 75 year period. I certainly don’t think he meant that such increases could be ignored if they occured outside this period. The whole paragraph is
“Kent Smetters, the Wharton professor who has pioneered the analysis of Social Security’s solvency beyond the deceptively arbitrary 75-year timeframe most often cited, told me that faster economic growth amounts to “very little over the long term.” Krugman’s analysis — which focuses on the higher taxes collected in the near term — ignores the reality that correspondingly “higher benefits come outside the 75-year window.” So you collect more now, but you just pay it out later. That’s largely because a 1977 law, passed by a Democratic Congress and signed by Democratic President Jimmy Carter, indexed Social Security benefits to economy-wide wage growth.”

Perhaps you could clarify a bit. Are you suggesting that problems outside the 75 year window are irrelevent?

It is conceded that robust economic growth in the next decades would in fact eliminate the projected funding shortfall within that 75-year window, which is what I pointed out.

I did not find anything like this in the article you linked to. Did you link to something earlier which claims this? I certainly hope it is not simply conceded by Krugman.

And Luskin also acknowledges that “stock returns in the neighborhood of 6.5 percent will not be possible over the coming 75 years if economic growth is as low as the 1.9 percent rate used by the actuaries of the Social Security Administration in their solvency estimates.”

Let’s look at the argument directly, shall we?

From the SSA.gov website

The real growth rate in gross domestic product (GDP) equals the combined growth rates for total employment, productivity, and average hours worked. Total employment is the sum of the U.S. Armed Forces and total civilian employment, which is based on the projected total civilian labor force and unemployment rates. For the 40-year period from 1962 to 2002, the average growth rate in real GDP was 3.3 percent, combining the approximate growth rates of 1.7, 1.7, and -0.2 percent for its components–total employment, productivity, and average hours worked, respectively.

For the intermediate assumptions, the average annual growth in real GDP is projected to be 2.9 percent over the short-range projection period (2004-13), a slower rate than the 3.3 percent average observed over the historical 40-year period (1962-2002). This slowdown is primarily due to slower projected growth in total employment. For the low cost assumptions, annual growth in real GDP is projected to average 3.4 percent over the decade ending in 2013. The relatively faster growth is due mostly to a higher assumed rate of growth in worker productivity. For the high cost assumptions, real GDP is assumed to fall in the first and second quarters of 2004, resulting in a total decline in real GDP of 0.8 percent. After 11 quarters of recovery, a second recession, with a total decline in real GDP of 1.6 percent, is assumed to begin in the second quarter of 2007 and last 3 quarters. After the second recession, a moderate economic recovery is assumed through 2010, with continued modest economic growth thereafter. For the high cost assumptions, annual growth in real GDP is projected to average 2.2 percent for the decade ending in 2013.

After 2013, no economic cycles are assumed for the three alternatives. Thus, projected rates of growth in real GDP are determined by the projected full-employment rate of growth for total employment, and the assumed full-employment rates of growth for total U.S. economy productivity and average hours worked. For the intermediate assumptions, the projected rate of growth for real GDP falls toward the assumed productivity growth rate because of the projected decline in labor force growth over the period. By 2080, the growth in real GDP slows to about 1.8 percent, due to the assumed ultimate percent changes of 0.2, 1.6, and 0.0 for total employment, productivity, and average hours worked, respectively. These projected growth rates are the same as those assumed for the 2003 report.

Growth falls to 1.8% in 2080. It is not assumed for the entire period we are discussing.

So as far as the predicted funding shortfall goes, it is quite true that robust growth will eliminate it, while anemic growth will sandbag the hoped-for high stock returns that are touted to fix it.

No, I don’t think this is true at all. This sounds like a rehashment of your “it is conceded above”. Can you show me a more thorough analysis using such assumptions?

pervert: * I will stop saying that SS is a ponzi scheme if you will help me stop this other myth.*

Hey, I’m perfectly willing to acknowledge that robust economic growth by itself is very unlikely to eliminate all problems with the way SS is currently structured, especially in the long-term future, even if it does succeed in eliminating the projected mid-century funding shortfall. That’s only honest. I’m delighted to trade that concession for your admission that SS is not in fact a Ponzi scheme.

That’s fine with me. I think SS has some ponzi characteristics. But it lacks the one essential one. Namely that the true source of revenue is hidden from those who invest. Ponzi claimed to make money by buying and selling postage stamps. In fact, he simply used new investors to pay older ones. SS is much closer to a pyramid scheme. People paying into it assume that other will pay them back with interest later.

pervert: *In the case of the charity we can say definitively that donations cease to be the property of the donatee. *

But the Social Security Administration is not a charity organization making donations to individuals at its own sweet whim. It is the law that says that the SSA must pay certain amounts of money to retirees meeting certain conditions, just as it is the law that would say that money in privatized accounts would have to be paid to the people in whose names they were held.

In both cases, it is legally mandated that certain people are owed certain amounts of money from the government, which must be paid in certain restricted ways. In both cases, the politicians currently in office would be able to change the laws so mandating. The words “personal account” and “your money” have no magic power to alter that basic fact.

Yes. I agree with your first sentence. However, the rest is a bit shakier. I will agree that any given government could suddenly overturn all precidents and declare that any particular property was now thiers. Its happened throughout history. However, claiming that money held in trust as the private property of an individual could be as easily taken as money held in common seems to confuse the mechanisms with the principles.

For the governmet to change SS so that money paid out is calculated using a different formula does not seem to be anything like the same thing as taking money from some people’s ownership and deciding not to give it to them. The mechanisms would be similar to be sure. But the principles involved would be vastly different.

[justwannano]

Quote pervert
Remember how that SS fund was invested? Who do you think is going to have to make good on those investments? Almost exactly like forcing your kids to pay for your retirement. Yes.

Exactly my point.
Please put the blame ,or whatever you choose to call it, on the correct administration. There were no ,and if I’m wrong please show me where I can retrieve the information, plans -used in the strictest definition of the word- to pay back the SS fund by those using the fund for their budget and claiming no tax increase.

[kniz]

@Liberal

Why did you not give thought to your financial condition before bringing into the world a human being for whom you would have a nearly lifetime obligation. I mean, when you buy a car, you sit down and look at what you can afford long before you go to a dealership. (Otherwise, you won’t know whether to go to Joe’s Used Wrecks or Nigel’s Luxury Motorcars.) So why not sit down and map out the costs of child rearing before having a child?

:smack: Now you tell me that my wife and I could have gone out and gotten “used” children. Well in fact three of our five children were adopted, but that didn’t make them cheaper. Our second was the only one that we didn’t worry about being able to afford and when the idea of adopting twins came up all I can say is WOW! But it all turned out fine. The point is that having children is such a long term commitment that if you think you can afford them…well maybe you can’t and visa-versa.

Directly answering the OP, here are some facts:
Retirement Plan Statistics

[Quote]
[ul][li]Almost 7 in 10 workers (68 percent) expect to work into retirement but 4 in 10 retirees end up having to leave the work force earlier than expected due to health problems, disability or company downsizing.[/li][li]Two in five workers say they are not too willing (19 percent) or not at all willing (15 percent) to cut back on their spending in order to save for retirement. [/li][li]Four out of 10 people aged 55 or older, have less than $100,000 saved toward their retirement.[/li][li]Nearly half of all American workers don’t contribute enough to their company’s 401(k) savings plan to get the full company matching funds.[/li][li]About half cash out their 401(k) savings when they change jobs instead of rolling it over into an IRA to avoid tax implications and to continue saving and investing for their retirement.[/ul][/li][/Quote]

There’s more but I thought that got the idea across.

I can’t find the poster that said we should double or triple SS payments because our European friends are doing so much better, but I have something to point out about that idea. There are many countries in Europe that are facing a much bigger problem than we are. The one I know for sure is Germany, which is very soon going to be in trouble. France is not too far behind. Funny thing is that Great Britain is in very good shape. The reason is that Maggie cut back on the automatic increases. We need to do the same thing as well as other measures. I am glad to see that someone the age of the OP is worrying about this subject, because it is his generation that is going to “hit the wall” if nothing is done.

For the record I am retired and drawing SS. I also was lucky enough to save approximately what he suggests is needed for retirement. But nothing is for sure, except the two unmentionables.

[Kimstu]

Debaser: * I want out now. You could let me invest the 12%. *

Sorry, but no realistic Social Security plan is ever going to simply hand you the full amount of the existing payroll taxes for your own investments. That simply ignores all the following issues:

1) Transition costs. If everybody who “wants out now” takes all their SS contributions out of the system, then the money has to come from somewhere to keep funding current retirees. We are talking big bucks here; merely taxing the interest of your investments a little bit would come nowhere near covering what would be essentially a double payment for at least one entire generation.

2) Disability/survivor benefits. The 12.4% payroll tax covers not only retirement benefits, but also support for workers (or their dependents) who are disabled or die before retirement. Again, if you want individual workers to be able to divert the entire amount to their own personal investments, these lost benefits have to come from somewhere.

3) Redistribution. The current system is somewhat redistributive from richer to poorer workers, since otherwise many of the latter would fall below the poverty line in retirement. If everybody “goes it alone” with their own payroll taxes invested separately, many poorer workers will not have enough to keep them above the poverty line in retirement. If we don’t want to have lots of indigent elderly as we used to before SS, then the money to supplement their inadequate savings has to come from somewhere.

4) Below-average returns. It is statistically inevitable that many people’s retirement investments will perform below the market average (this is especially true for those who reach retirement age in a market downturn). Thus, not only the poorest workers, but even many workers who would have had an adequate retirement income if they’d achieved the average rate of return, will not have enough to keep them above the poverty line in retirement. Again, the money to keep them out of poverty has to come from somewhere.

These are serious drawbacks which can pose serious economic and social problems for our society. Any rational plan for modifying Social Security is going to have to address them honestly and realistically.

Simply ignoring these issues while continuing to insist that “you want out” of the system because you want “your own money under your control” is—well, I got in trouble with a mod for using the word “childish”, but I honestly, sincerely, respectfully, don’t see any other way to describe it.

[Kimstu]

pervert: Which is surprisingly similar to what Bush has been saying (except for the raising taxes part).

pervert: Bush is the one leading this effort. He has said that all options are on the table. There isn’t a specific plan yet at all.

Well, there is a tentative plan that has been described by members of the Administration, and it’s the drawbacks of that plan that I’m focusing on. (I’ve also been pointing out the problems with shortsighted partial solutions like Debaser’s “take the 12% and run” proposal.)

I’ve been saying all along that it’s necessary to figure out a way for overcoming the projected problems with Social Security solvency, and I’ve talked about a lot of possible options. However, many in the pro-privatization camp seem to be using a kind of “duck-and-weave” strategy here: they argue in favor of a particular change, and when someone criticizes it, they respond “well, but there isn’t any definite plan yet, all options are on the table.”

If you, or the Administration, doesn’t want people objecting to SS overhaul on the basis of broad generalizations and vague possible options, than stop offering only broad generalizations and vague possible options to debate. Let’s see a detailed, specific proposal for revamping Social Security that would fix the problems you’re worried about and not introduce the ones I’m worried about. Then we can have a productive discussion of whether and how it would really work.

Continuing just to harp on the themes “Social Security is broken” and “Compound interest is good” is no way to convince anybody that you’ve got a solution that would actually work in real life.

Debaser: Medical science is now talking about curing old age. Who knows how long people might start living with the genetic and scientific breakthroughs over the coming decades.

Like I said, though, if a scenario like a sudden 40-year jump in life expectancy did happen, it would totally screw your privatized annuity system too. This is not a problem specific to the current structure of Social Security.

Debaser: You seem to be against the entire concept, not just the way it’s being transitioned.

I am definitely against incurring trillions of dollars in transition costs over the next few decades. This is partly because the current Administration has shown so much fiscal irresponsibility in other respects. Given the amount of the debt we’re already carrying, and the additional debt that will be added by measures that the President is stumping for, such as making his tax cuts permanent, I see no justification for piling on trillions more in order to privatize SS.

I’ve already said more than once on these boards that I see advantages to a “pay-for-yourself” rather than a “pay-for-your-parents” social insurance system, and that if I were personally designing a social insurance system from scratch for some hypothetical society—and conditions permitted it—I’d probably go with the first option. (Don’t be too quick to condemn FDR’s Administration for making a different choice, though: remember that during the Depression, conditions were such that the perceived crucial need was to start rescuing the elderly from indigence as soon as possible, rather than to boost retirement savings for current workers to use several decades down the pike.)

So I’m not disregarding the merits of your position. It’s just that you’re not making a convincing argument that the advantages of the “pay-for-yourself” system in theory come close to outweighing the real-life disadvantages of trying to implement it in practice, especially in the near future.

[Kimstu]

Oops sorry, the second quote attributed to pervert at the start of my most recent post is actually from Debaser.

[Kimstu]

kniz: * Funny thing is that Great Britain is in very good shape. The reason is that Maggie cut back on the automatic increases.*

Do you have a cite for that? An article I saw on the subject said that on the contrary, the UK’s privatized pension plan is currently in quite a bit of trouble, and in fact reformers are pointing to the “pay-as-you-go” US SS structure as a more sustainable model.

For all the fanfare that surrounds the Bush administration’s efforts to present a bold new idea on pension reform, the truth is that it is not new at all. In fact, the proposal looks suspiciously like the plan set in train during Thatcher’s first term in 1979 and which has since led Britain to the brink of a crisis. Since then, the nation’s basic pension, which is paid for out of tax receipts, has shrunk dramatically. The United Kingdom has the stingiest state pension program of any G8 nation, and there is growing consensus – even among British conservatives – that reform is needed. And ironically enough, considering that America is on the verge of copying Britain’s mistake, most experts seek reform in the direction of a more generous, and simpler, basic state pension – one similar in design, in other words, to America’s Social Security program. […]

Britain’s experiment with substituting private savings accounts for a portion of state benefits has been a failure. A shorthand explanation for what has gone wrong is that the costs and risks of running private investment accounts outweigh the value of the returns they are likely to earn. On average, fees and charges can reduce pension lump sums by up to 30 percent on retirement. The nation’s savings industry, which sells those private accounts, has already acknowledged this. […]

Finally, Britain’s financial services regulator, the Securities and Investment Board, reacted. Over the objections of the insurance industry, it undertook random samples of paperwork from personal pension clients of most large providers and discovered that a staggering percentage of pensions had been sold to those who would be worse off in retirement as a result. The public outcry over the “mis-selling” scandal forced the government to act. […]

In retrospect, it is no surprise that personal pensions became controversial; the insurance industry, which would bene?t most from their creation, was also the most in?uential in crafting their design. […]

And so, at the exact moment that America contemplates replicating this disaster, many in Britain – some conservatives included – are looking more and more kindly on American Social Security as a model for reform. The National Association of Pension Funds, a group of employers who sponsor the nation’s largest schemes, is urging government not to expect the private sector to shoulder the burden of keeping the nation’s elderly from poverty.

It’s quite true that throughout the developed world, everybody’s facing a pension crisis as populations age and their growth slows. Changes are going to have to be made. But that doesn’t mean that privatization is some kind of magic bullet that will solve the problems.

Nor is it rational to encourage an “every man for himself” panic where people insist on their “right” to invest their own payroll taxes for themselves, without paying any attention to the consequences for society as a whole.

[Kimstu]

pervert: For the governmet to change SS so that money paid out is calculated using a different formula does not seem to be anything like the same thing as taking money from some people’s ownership and deciding not to give it to them.

Looks to me quite a bit like the same thing, when the money we’re talking about is directly managed by the government for tens of millions of participants. I understand your point about the nominal difference in ownership of the funds, but I remain skeptical about significant differences in individual control at the practical level.

[pervert]

@justwannano

Exactly my point.
Please put the blame ,or whatever you choose to call it, on the correct administration. There were no ,and if I’m wrong please show me where I can retrieve the information, plans -used in the strictest definition of the word- to pay back the SS fund by those using the fund for their budget and claiming no tax increase.

[/QUOTE]
No, it does not seem like your point at all. I’m willing to put the blam on the correct administration. Let’s start with Roosevelt and trickle the blame down as we progress through the last 50 years. We could certainly blame the Bush administration for some of the problem. However, he doesn’t get all of it. I don’t even think he gets the lions share. There is very little he could have done about SS given its history, financial state, and the political realities of the issue. If you remove the option fo draconian cuts in benifits to current or soon to be benificiaries then there is absolutely nothing he could have done at all.

The SS trust fund has been “invested” in special treasury bonds for quite a while now. The “plan” has always been that when these bonds mature* they will be paid off (the money paid back with interest) from the general account. The surplus started to grow in the early 80s when the payroll tax was raised yet again. It is actually growing still.

However, its growth will begin to slow very very soon. As it does there will be less and less investment in the government from this source. As this occurs we will need to make up this shortfall from other revenue sources. In something like a decade or so, new investments in government from the SS trust fund will cease altogether. SS expenditures, however will continue to rise. This means that rather than rolling over maturing treasury bonds, the SS administration will begin to cash them in. This money also will have to come from some revenue source other than SS. And finally, in several decades, the trust fund will run out. Again, however, SS expenditures will still be on the rise. And Again, we will have to make up this third shortfall from other revenue sources.

This is the plan which has been in place for a couple decades now. Its not new. Bush is trying to seek out a new plan. Are there problems asociated with proposals for such a plan? Of course. However, there are bigger problems with sticking with the status quo.

[pervert]

@Kimstu

pervert: For the governmet to change SS so that money paid out is calculated using a different formula does not seem to be anything like the same thing as taking money from some people’s ownership and deciding not to give it to them.

Looks to me quite a bit like the same thing, when the money we’re talking about is directly managed by the government for tens of millions of participants. I understand your point about the nominal difference in ownership of the funds, but I remain skeptical about significant differences in individual control at the practical level.

Not at all. In the first case all the government would need to do would be to alter a formula which it put into place by law and which it is directly empowered by law to change. This is a very common occurance in principle. In the second place, however, the federal government would have to declare that property belonging to some people no longer belonged to them. By fiat. This would be unprecedented.

I agree with you that the mechanisms would be similar. In both cases Congress would simply pass legislation. However the principles would be entirely different.

pervert: Which is surprisingly similar to what Bush has been saying (except for the raising taxes part).

debaser: Bush is the one leading this effort. He has said that all options are on the table. There isn’t a specific plan yet at all.

Well, there is a tentative plan that has been described by members of the Administration, and it’s the drawbacks of that plan that I’m focusing on. (I’ve also been pointing out the problems with shortsighted partial solutions like Debaser’s “take the 12% and run” proposal.)

But erroneously in some ways. The criticism that slow economic growth is necessary to justify the plan and also sufficient to make it not work is in error. Your concern about transition costs is valid, but I’m not sure it is outweighed by concerns about going more slowly. The more slowly changes are implemented, the more people will become benificiaries under the current plan. In other words, you may trade a few trillion dollars savings over the next decades for several trillions of debt in later decades.

I’ve been saying all along that it’s necessary to figure out a way for overcoming the projected problems with Social Security solvency, and I’ve talked about a lot of possible options.

And I agree with you general sentiment this far.

However, many in the pro-privatization camp seem to be using a kind of “duck-and-weave” strategy here: they argue in favor of a particular change, and when someone criticizes it, they respond “well, but there isn’t any definite plan yet, all options are on the table.”

Well, to be fair, some politicians may be doing this, but I don’t think anyone here is. Dabaser and myself certainly are not.

If you, or the Administration, doesn’t want people objecting to SS overhaul on the basis of broad generalizations and vague possible options, than stop offering only broad generalizations and vague possible options to debate. Let’s see a detailed, specific proposal for revamping Social Security that would fix the problems you’re worried about and not introduce the ones I’m worried about. Then we can have a productive discussion of whether and how it would really work.

We did this in a thread a few months ago. I’m sure you participated.

Here is a CBO analysis of the plan we discussed.

It amounts to changing the indexing scheme of SS from wages to prices thus lowering benifits from their currently projected levels.

It adds the voluntary private accounts.

It also adds a legally binding promise that if the SS trust fund every fell below 0 the shortfall would be made up from the general fund.

If you look at figure 1A, you can see (sort of) the transition costs of this plan. Notice the sharp drop in revenues at around 2006 or 2007 in the second graph of this figure. This is the diversion of funds to private accounts. When you compare it to the first graph you’ll see that it pushes the date of the crossover (When revenues do not exceed expenditures) from 2020 to around 2010. However, you will also notice that the expenditures begin to fall around 2025. The total “transition costs” would be the area between the revenue line and the expenditure line while the expenditures are greater than revenues.

Notice how in the first graph the expenditures continue to rise throughout (except as was noted a few posts back for a brief dip around 2040 as the Baby Boomers die off) the time period examined. If we were to extend the drop in revenue (and it should be noted that for simplicities sake this CBO analysis assumed full participation in the privatization scheme) we will also extend the rise in expenditures.

Unless, of course, you are proposing that we cut benifits from currently projected levels and offer absolutely nothing in return.

If you would like to debate the merits of this plan in particular again, we could do that. I for one never got a good answer as to the effect on pverty level elderly under this plan. Perhaps we could figure it out together.

[Beware_of_Doug]

[QUOTE=F. U. Shakespeare]
Social Security was not originally conceived as an investment plan by which one could try to beat the market and buy a bigger condo in Boca.

It was there as a safety net.

If your world-changing invention didn’t work; if the factory closed when you were 50; if your husband died of a heart attack at 42 and left you with four kids; if the blight killed your crops; etc., SS was supposed to be there so you wouldn’t be a senior citizen begging on street corners. To use William Bennett’s terminology, it was “the milk money”.

Over the years, we have come to think of SS as another investment vehicle.

IMO, this shift in thinking is the major problem in agreeing on how much risk we consider acceptable with the SS funds.

[quote]

And IMHO, it’s due more to ideology than to any impending fiscal crisis (real or perceived). Simply put, a lot of conservatives don’t believe in a safety net, because they have the notion that it weakens “character.” :rolleyes:

Of course, no one’s saying that about SocSec, 'cuz the old folks vote. I rather think the ideological motivation is carefully hidden, sort of like those “pro-life counseling centers” we keep hearing about. On the face of it, everybody wants to be seen as saving the system…

[justwannano]

Quote pervert
I’m willing to put the blam on the correct administration. Let’s start with Roosevelt and trickle the blame down as we progress through the last 50 years. We could certainly blame the Bush administration for some of the problem. However, he doesn’t get all of it. I don’t even think he gets the lions share. There is very little he could have done about SS given its history, financial state, and the political realities of the issue.

Well you certainly ain’t gonna get anything done by blaming anyone before GWBs administration so how about starting by calling a deuce a deuce.

Borrowing from the SS fund because your predecessor did it and claiming to not raise taxes when in reality you are forcing your children to pay them is part of what you have been complaining about.

Interesting you should mention the political realities of the issue though.

[Debaser]

@Kimstu

Sorry, but no realistic Social Security plan is ever going to simply hand you the full amount of the existing payroll taxes for your own investments.

You obviously went through a lot of work on this post. It’s odd that you would type up a multiple point response to something I never said. It’s probably the longest and most thought out strawman I’ve ever seen on the boards. It’s rather like being run over by a particularly nice car.

In the post you are responding to, I specifically state that yes, it would be OK for the government to tax my retirement dollars. This makes moot your first two points about transition costs and disability bennies. It also accounts for your third point about the redistributive nature of the program.

Your fourth point about below average returns is unfounded. The average rate of return of the stock market is 12%. This figure includes the bad periods of time such as the great depression and black monday. Sure, it’s possible for someone to retire at the wrong time and get less than this amount. But, that would be extremely unlikely when we are talking about both long investment timelines and long payout timelines. Even if the amount of interest ends up being less than 12%, it would still be far greater than the 0% return (or even negative return) that Social Security will be paying out.

---

Simply ignoring these issues while continuing to insist that “you want out” of the system because you want “your own money under your control” is—well, I got in trouble with a mod for using the word “childish”, but I honestly, sincerely, respectfully, don’t see any other way to describe it.

You cannot ignore the rules of GD simply because you follow your insult with a bunch of modifiers.

Can I honestly, sincerely, respectfully call Kimstu a moron for not being able to see anyone who disagrees with him on Social Security as anything but a child? Of course not. That’d be against the rules.

[Debaser]

@Kimstu

Continuing just to harp on the themes “Social Security is broken” and “Compound interest is good” is no way to convince anybody that you’ve got a solution that would actually work in real life.

Social Security is broken. Compound interest is good.

Pointing out these two things is a perfectly rational starting place. Until we can at least agree on these fundamental facts, trying to argue about the specifics of a privatization plan would be absurd.

There isn’t any specific plan on the table yet for reform of the plan. Once there is we will debate it, I’m sure. Until then we can debate these underlying assumptions of which many of us disagree.

Be honest: No matter what a specific privatization plan said, people on the left will be against it. The details aren’t important as much as the overall concept.

Like I said, though, if a scenario like a sudden 40-year jump in life expectancy did happen, it would totally screw your privatized annuity system too. This is not a problem specific to the current structure of Social Security.

My privatized annuity system? What are you talking about now? I haven’t used the word annuity once in this thread. If you cannot respond to the actual points I’m making and instead need to respond to figments of you own imagination, then I suggest you stay free of GD altogether.

[pervert]

justwannano, I’m afraid you’ve completely lost me.

@justwannano

Well you certainly ain’t gonna get anything done by blaming anyone before GWBs administration so how about starting by calling a deuce a deuce.

I agree that blaming various administrations for current problems is not very productive. Blaming Bush for the practices of the last 20 years seems particularly silly. Especially given his heroic efforts to do something about those proactices.

Borrowing from the SS fund because your predecessor did it and claiming to not raise taxes when in reality you are forcing your children to pay them is part of what you have been complaining about.

You still don’t seem to understand. Borrowing from the SS fund is not something one administration decides to do more than any other. The SS surplus is invested in treasury bonds by law. The SS administration cannot legally do anything else with that money. You seem to be under the impression that the SS surplus is in some sort of federal coffee can or mattress and Bush is sneaking a hand in there to pay for his tax cuts. That’s simply not the case. If the tax cuts had not taken place, (and assuming for a moment that this had not other economic effects) the government would have a certain amount of extra money And would still have borrowed the SS trust fund.

Blaming SS for our budgetary problems is not productive as some on your side of the argument have pointed out. But blaming the rest of government for the SS problems is at least equally unproductive.

Interesting you should mention the political realities of the issue though.

I’m not sure why. I was simply stating that SS has been a sacred cow for many decades. At this point it is an unremarkable observation.

[tomndebb]

@Debaser

You cannot ignore the rules of GD simply because you follow your insult with a bunch of modifiers.

Can I honestly, sincerely, respectfully call Kimstu a moron for not being able to see anyone who disagrees with him on Social Security as anything but a child? Of course not. That’d be against the rules.

• ::: sigh ::: *

No, you can not call Kimstu a moron for any reason in this Forum. My first intervention was prompted by the context and presentation of Kimstu’s remark, including the “baby talk.” Kimstu was careful, in this most recent exchange, to refer to the idea as childish–a fine line, but one he successfully negotiated while your “rhetorical question” that involves actually calling him a name fails.

I realize that this is a passionate topic, but you could both stand to not worry about how to characterize either the argument or the poster. Neither of you are going to persuade the other, so concentrate on the audience at home and keep to the topic, letting the audience decide how they would characterize the arguments (as long as they don’t post opinions of your persons here).

[ /Moderator Mode ]

[Kimstu]

Thanks for the clarification tom, but if my more recent use of the term “childish” still strikes Debaser as insulting, I willingly withdraw it. (Now, could both you guys give me my correct feminine pronoun? Thanks. ;))

Debaser: *[…] I specifically state that yes, it would be OK for the government to tax my retirement dollars. This makes moot your first two points about transition costs and disability bennies. It also accounts for your third point about the redistributive nature of the program. *

Let me make sure I’m understanding you correctly this time. You are advocating a privatization plan in which the full 12.4% of payroll taxes goes into private accounts, which the government may tax enough to fund transition costs, disability/survivor benefits, and enough redistribution to provide a guaranteed minimum income for low-wage workers whose earnings didn’t produce enough savings to put them above the poverty line in retirement? Because that’s what you seem to be saying.

If so, how are you advocating that that tax work? Would the government take it off the top of the 12.4% before putting the remainder into your private account? (That may be what confused me, as I wouldn’t have considered such a scenario equivalent to “letting you invest the 12%”, which is what you were suggesting. In this scenario, you wouldn’t have 12% left to invest.) Or would there be a separate taxation process to handle it?

Debaser: The average rate of return of the stock market is 12%.

Do you have a cite for that? That figure’s quite a bit higher than in the analyses I’ve seen, even from pro-privatization advocates like this one:

• The average annual real rate of return over each of the 35-year periods ending between 1961 and 2002 was 7.3 percent after inflation. […]

• The lowest earning 35-year period, which ended in 1982, generated a 3.6 percent average annual real rate of return.

The figure I’ve most commonly seen for average real rate of return on stocks over the past 75 years is 7%.

Debaser: *Social Security is broken. Compound interest is good.
Pointing out these two things is a perfectly rational starting place. Until we can at least agree on these fundamental facts, trying to argue about the specifics of a privatization plan would be absurd. *

We can’t agree on them, though, unless we settle what we mean by “broken”. Social Security faces funding problems, sure. But I disagree with your earlier analogy about Bush’s privatization being equivalent to rescuing some people from a sinking ship. I think a more accurate analogy would be that the ship is having engine trouble, and Bush is suggesting that instead of trying to fix the engine, we should scuttle the ship and see how many people we can stuff into the lifeboats.

Debaser: *Be honest: No matter what a specific privatization plan said, people on the left will be against it. *

Being honest, I disagree. Oh sure, if you mean there would be a few lefties who would turn down any plan, no matter how good, because conservatives were proposing it, I’m sure there would be. There’s nuts on both sides.

But I think that if somebody came up with a privatization plan that responsible economists of all political persuasions could agree would improve the solvency of Social Security, while still providing the financial security that elderly people need for their retirements, and not saddling the economy with burdensome transition costs, most people of all political persuasions could get behind it.

The trouble with the plans proposed so far is that they don’t inspire any solid consensus. Privatization advocates and the financial industry support them, but they don’t gain widespread support because they have serious drawbacks.

Debaser: *My privatized annuity system? What are you talking about now? I haven’t used the word annuity once in this thread. If you cannot respond to the actual points I’m making and instead need to respond to figments of you own imagination […] *

The “actual point” of yours to which I was responding is the following: You’ve been arguing that it’s not too unlikely that Social Security might be confronted with a sudden drastic leap in life expectancy, which (as SS is currently structured) would cripple it. I’ve been arguing that such a change would also cripple any feasible privatized system, so privatization would accomplish nothing to solve that problem.

I referred to annuities only because every single attempt I’ve seen at a serious, detailed proposal for a workable SS-privatization scheme assumes that most people’s private accounts will be at least partly annuitized upon retirement. If you feel that that misrepresents your views on the subject, though, I apologize and withdraw the reference.

However, it doesn’t affect my point: namely, I don’t think there’s any feasible privatized system, with or without annuities, that wouldn’t collapse if retirees suddenly started living 40 years longer than expected.

[Kimstu]

pervert: We did this in a thread a few months ago. I’m sure you participated.

It’s perfectly possible, but I don’t remember. Would you happen to have a link to the thread?

pervert: Here is a CBO analysis of the plan we discussed. […] If you would like to debate the merits of this plan in particular again, we could do that. I for one never got a good answer as to the effect on pverty level elderly under this plan. Perhaps we could figure it out together.

Great, I’m up for that. I’ll read it over and get back to you in my next post.

[Debaser]

I openned a pit thread to vent on this a bit.