Social Security Privatization, # Whatever: what's the downside

Great Debates
41

[QUOTE=Debaser]
Well, I’m not saying that exactly. My point isn’t so much that it’s going bankrupt but that it’s an inefficient ripoff.
[/quote]
In what sense? Its overhead costs are extremely low.

[QUOTE=Debaser]
There are a hundred ways to do it.

Scrap the whole program and privatize it. Then implement a new payroll tax which is only few percent to cover the non-retirement things social security does now.

Figure out exactly how much of payroll taxes are going towards retirees vs how much are going towards the other parts of social security. Let people invest that amound in private accounts, since it’s not likely to change.

Let people opt out of the program entirely, even from the disability bennies. If you must we can require that they prove they have privately bought disability insurance to make sure they won’t end up on the street.

Why would it be hard to do?
[/QUOTE]
Because the vast majority of the money going in, is being paid out to existing retirees and persons on disability. And the rest is being saved up for the Baby Boomer retirements. (The youngest boomers are already halfway through their working careers, and while it’s possible to start saving for retirement in one’s 40s, earlier is a lot better. Their pay-ins are part of their ‘earlier.’) It’s not an investment fund, it’s an intergenerational bargain. There really aren’t any leftovers to invest in some other way.

[QUOTE=Debaser]
You’re missing something, though: It’s private accounts, not government accounts that we want.
[/QUOTE]
‘We’ who? The vast majority of Americans like Social Security and don’t want it monkeyed with.

42

[QUOTE=Debaser]
It’s occurred to me. You’re missing something, though: It’s private accounts, not government accounts that we want. Using that logic you could argue that the finance companies like Fidelity or Vanguard own everything in America. They don’t. People put their money into Fidelity, and then use it to buy ownership of companies. That means the people have ownership, not Fidelity.

It would be the same with Social Security private accounts. Mrs. Jones gets 15% taken out of her paycheck and some of it is invested in an index fund. She now owns a piece of all the public companies in America. The government is just holding it for her. They don’t actually own it.
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It would depend on how they set up the system. Assuming they do it like mutual funds, then what Voyager said pertains - the fund manager votes the stock in the fund.

I do not know if Fidelity or Vangard or whomever own majority control of any company. I do know that some funds hold a large enough block of some companies that the funds have to list them as “affiliated companies” or somesuch in their fundholder reports.

43

[QUOTE=Voyager]
There are so many funds, and so many managers, that it is not a big issue in the present system. With one ginormous fund, it’s a different story.

[/quote]

Well, as I’ve already said, there are some scary elements to consider when we’re talking about the government dumping so much money into the market. However, IMO, these considerations aren’t any better or worse than the many things we already have to consider with the federal government having so much control over everyones retirement in the existing system. I fully admit: In a perfect world, the government wouldn’t be meddling with the whole mess at all. However, if we must let Uncle Sam manage a huge system like this for us, lets at least do it in a way that kind of makes some sense.

What about un-managed funds? Managed funds have fees of about 2%, but I’d be in favor of using unmanaged index funds that have fees more like .2%. Even if the fees were the higher of the two it would still be a bargain compared with the current option of doing nothing with the money at all except for spending it!

Then later,

Bolding mine. You answer your own question. I guess talking about “efficiency” isn’t the best way for me to frame it I don’t mean that there is some cost or spending problem with the way the system is run. There probably is, being a government program and all, but that’s not what I mean. I’m talking about the flawed way that the whole program is set up. Being an intergenerational ponzi scheme instead of an individual account setup is what’s the problem.

The fact that there isn’t any real leftovers to invest is what I meant by calling the program inefficient. If you instead saved the money people paid in and grew it you could be paying out all of the disability and other bennies you are now and have enough left over to pay retirees ten times as much as the current system. The way we’re doing it now is wasteful, inefficient, and just stupid.

44

[QUOTE=RTFirefly]
‘We’ who? The vast majority of Americans like Social Security and don’t want it monkeyed with.
[/QUOTE]

I only meant “we”, the many people who are in favor or privatization.

But, since you bring it up, do you have a cite that the “vast majority” of Americans don’t want to monkey with social security? You might be able to argue that “a majority” of Americans weren’t in favor of Bush’s plan. But, most Americans properly realize that the program is in trouble and will need some monkeying, according to all the polls I’ve seen. Also, IIRC, most younger workers such as myself are actually in favor of private accounts.

We’ve just got to wait for you liberals and old dinasaurs to die off and we’ll be all set. :wink:

45

[QUOTE=Debaser]
I only meant “we”, the many people who are in favor or privatization.

But, since you bring it up, do you have a cite that the “vast majority” of Americans don’t want to monkey with social security? You might be able to argue that “a majority” of Americans weren’t in favor of Bush’s plan. But, most Americans properly realize that the program is in trouble and will need some monkeying, according to all the polls I’ve seen. Also, IIRC, most younger workers such as myself are actually in favor of private accounts.

We’ve just got to wait for you liberals and old dinasaurs to die off and we’ll be all set. :wink:
[/QUOTE]

Sure, it will need some monkeying around. There already has been ( my full benefit age is 67, not 65 ), and there will be more in the future. Eliminated in favor of private accounts is a different issue altogether. I doubt there is or will soon be a majority in favor of that.

Who won’t be in favor

  • current recipients won’t be in favor because they’ll fear it will affect their benefits.

  • people who have already been paying in for years and were expecting SS to provide some income in retirement. And their children, who may have to help their parents out (either on an individual basis or through higher taxes) while saving for their own retirement and their children’s education.

  • people who realize that they will not be able to provide accumulate enough money to provide retirement/disability/survivor income on about 7.5% of their pay (I know the employer pays an equal amount in SS. I also know that if SS is eliminated,employers will not give an across the board raise in that amount unless mandated by law). And you don’t have to be particularly low-income for that to happen. I’ve contributed between 3 and 4% of my income to a deferred compensation plan for the last 17 years. I don’t even have $50,000 in it. Quadruple it and it’s under $200,000. I’m 43- if I get hit by a bus tomorrow and can’t work, how long is that going to last?

I’m sure younger , relatively well-paid workers are in favor of private accounts. There will probably always be a group of younger,well-paid workers who favor private accounts. And as they get older, many of them will become dinosaurs.

46

[QUOTE=Debaser]

But, since you bring it up, do you have a cite that the “vast majority” of Americans don’t want to monkey with social security? You might be able to argue that “a majority” of Americans weren’t in favor of Bush’s plan. But, most Americans properly realize that the program is in trouble and will need some monkeying, according to all the polls I’ve seen. Also, IIRC, most younger workers such as myself are actually in favor of private accounts.

[/QUOTE]

Remember, Reagan provided leadership in setting up the commission that fixed a far more serious problem with Social Security. You can be a conservative and not want to destroy it. I think this was probably because he did not grow up with a silver spoon in his mouth.

As for Bush’s plan: I think we need a poster of the president with the caption: Would you take financial advice from this man? Given his record, if Bush says buy, I’ll sell.

47

In case you really want to know, costs of administering OASDI were .9% of contributions in 2005. You are free to opine whether that is high or low - or merely indicative of the inefficiency inherent in all government activities. :rolleyes:

48

[QUOTE=doreen]

Who won’t be in favor

[/QUOTE]

First hit on Google “social security privatization poll”:

You guys make it sound like only a small portion of trust fund babies likes the idea of privatization. That’s not the case. Many people like the idea, especially young people.

I do recall that the numbers in favor of Bush’s plan fell the more he tried to sell it. That’s a failure of him and his administration’s unpopularity. That doesn’t mean that a more charismatic, popular president couldn’t come up with a coherent plan that people would be more open to later. In fact, Bush never really even had a “plan” that I can recall. He never got that specific. But don’t mistake Bush’s unpopularity due to Iraq with people not wanting to privatize Social Security.

49

[QUOTE=Dinsdale]
In case you really want to know, costs of administering OASDI were .9% of contributions in 2005. You are free to opine whether that is high or low - or merely indicative of the inefficiency inherent in all government activities. :rolleyes:
[/QUOTE]

Meh. That should probably be lower, since we’re talking about .9% of a whole helluva lot of money. But, I’m not worked up about it. A huge program like that is going to cost something to manage.

Like I said, index funds typically have fees of only .2%. They are still making profit at that rate. The government isn’t trying to make any profit at all and they’re charging significantly more. Granted, they are doing quite a bit more than just managing a passive index, but you get my point.

There’s also the issue of fraud. I personally have known a couple of poeple who have figured out ways to milk the system by getting disability for “mental illness” simply because they are too lazy to work. If you cut the overhead costs of social security aggressively then they might have even less resources to fight fraud than they do now and the real costs to the program might go up.

50

[QUOTE=Debaser]
I only meant “we”, the many people who are in favor or privatization.

But, since you bring it up, do you have a cite that the “vast majority” of Americans don’t want to monkey with social security?
[/quote]
We had a referendum of sorts on that in 2005. You may remember it.

No, that’s impossible to argue. He never really presented a plan.

51

[QUOTE=doreen]
…I’m sure younger , relatively well-paid workers are in favor of private accounts. There will probably always be a group of younger,well-paid workers who favor private accounts. And as they get older, many of them will become dinosaurs.
[/QUOTE]

Hey, those younger well-paid workers surely have enough money to invest outside Social Security. That way, they’ll be really rich when they retire & can sneer at the folks getting by on SS.

Unless their investments go bad. Or their health goes south.

52

[QUOTE=Debaser]
But, most Americans properly realize that the program is in trouble and will need some monkeying, according to all the polls I’ve seen.
[/quote]
‘properly’? You mean ‘been fed a lot of scare nonsense that has a weak factual basis’?

If it’s true, I doubt that sentiment factors in the trillions of dollars it would cost to switch from a pay-as-you-go system to an investment system.

You’re welcome to your own opinions, but not your own financial realities.

53

[QUOTE=Debaser]
I fully admit: In a perfect world, the government wouldn’t be meddling with the whole mess at all.
[/quote]
Yeah, I know: in a ‘perfect world’, there’d be a lot more old people living on cat food.

How’s it a Ponzi scheme? I know something about them; the college I used to teach at was suckered in by this one. I don’t see the resemblance.

I think you’ve got it backwards: if there were leftovers to invest, that would be emblematic of government inefficiency and overtaxation.

And if we didn’t pay anyone any benefits for 40 years in order to enable that, sure, it would work out.

TANSTAAFL, you know.

54

[QUOTE=Debaser]
There’s also the issue of fraud. I personally have known a couple of poeple who have figured out ways to milk the system …
[/QUOTE]

As entertaining as your anecdotes might be, if you wished to look at publicly available data you might see that the actual incidence of fraud is pretty darned infinitesimal - tho isolated incidents are admittedly sexy to report and bitch about. Attorneys from both SS and DOJ exclusively charged with aggressively investigating and prosecuting SS fraud with (to me) impressive results. And if you truly believe you are aware of individuals who are defrauding the system, there is nothing preventing you from notifying the OIG - which takes all such allegations extremely seriously.

But it’s far easier to sit back and bitch about the vast hordes who are abusing the inefficient system - at the expense of wealthy healthy youth.

Here’s my (not entirely tongue-in-cheek) proposal for cutting SS admin costs. Initiate universal SS payments to every single person immediately following birth, then recover them from income taxation. You could get rid of the entire SS bureaucracy charged with determining who is and isn’t entitled to SS, and could replace it by simply beefing up the IRS a bit. Keep SS bennies low enough that individuals would be encouraged to seek higher income through gainful employment. Of course - that would mean I personally would need to get a real job… :smiley:

55

[QUOTE=Debaser]

I do recall that the numbers in favor of Bush’s plan fell the more he tried to sell it. That’s a failure of him and his administration’s unpopularity. That doesn’t mean that a more charismatic, popular president couldn’t come up with a coherent plan that people would be more open to later. In fact, Bush never really even had a “plan” that I can recall. He never got that specific. But don’t mistake Bush’s unpopularity due to Iraq with people not wanting to privatize Social Security.
[/QUOTE]

You recall correctly, but the reasons are wrong. He wasn’t all that unpopular then, pushing privatization helped start the slide. What was really going on was that he had to start answering the hard questions. Sure privatization sounds great, who doesn’t want control of their money, and be “guaranteed” a higher return to boot. Plus they threw in the scare stories about it going bust. But then he had to admit that privatization wouldn’t delay that, and people started getting the problem of having to borrow to pay for current benefits when money started going into private accounts. The more people learned, the less popular it got.

56

[QUOTE=Bridget Burke]
Hey, those younger well-paid workers surely have enough money to invest outside Social Security. That way, they’ll be really rich when they retire & can sneer at the folks getting by on SS.

Unless their investments go bad. Or their health goes south.
[/QUOTE]

Or they couldn’t resist using the money meant for their 401K for that Lexus they just had to have.

57

[QUOTE=Debaser]
I’m not excluding the great depression. If you bought stocks on the day before the crash, you still would have made money if you were investing for the long term.

Why not? What should we bet on? That’s what the market has historically done, so that’s what I’m using. So what if it returns a different amount. Let’s say it returns 6% instead of 12%. That’s still a lot better than the 0% or so that we’re getting now. Anything is better than nothing.
[/QUOTE]

The great argument that the market will always rise. Over the long term, it will.

Unfortunately, the timing of your retirement and the timing of the market may not agree.

Let’s go directly to the Dow Jones Industrial Average. Not a perfect barometer of the private sector, but it has the benefit of being long-term and generally accepted.

In September 1929, the Dow hit a record peak of 381.17. When did it reach that peak again? 1954.

February 1966, the DJIA reaches 995.15. The next time it hit that peak, November 1972.

August 1987 – 2722.42. Two months later the DJIA had dropped by more than 40%. Not 40 points, 40 percent. This time it only took 2 1/2 years to make it back.

Good thing you didn’t retire at the beginning of any of those cycles.

But that’s all ancient history, right? How about this? January 14, 2000. 11722.98. Today’s closing DJIA was 12767.57.

Over the past seven years, your DJIA index fund, with NO deduction for fees or service charges, would have returned a total of 8.9%, or about 1.27% per year.

But, like you said, anything is better than nothing.

58

[QUOTE=RTFirefly]
You’re welcome to your own opinions, but not your own financial realities.
[/QUOTE]

I’m not going to respond to your content free, sneering post. I’m getting plenty of people making actual arguments that I’d rather trade posts with.

59

[QUOTE=Dinsdale]
As entertaining as your anecdotes might be, if you wished to look at publicly available data you might see that the actual incidence of fraud is pretty darned infinitesimal - tho isolated incidents are admittedly sexy to report and bitch about. Attorneys from both SS and DOJ exclusively charged with aggressively investigating and prosecuting SS fraud with (to me) impressive results.

[/quote]

If there is massive fraud, then looking at publicly available data would do nothing. Clearly, by definition, the government doesn’t know about all the people who are defrauding it. If they did, they wouldn’t be paying them, right?

I don’t get your meaning here. You mean just pay everyone, as if we were all disabled? Where would the money come from? We’d just be paying ourselves. (I apologize in advance if this is a joke and I don’t get it.)

60

[QUOTE=Voyager]
The more people learned, the less popular it got.
[/QUOTE]

I disagree with your analysis. Social Security reform had very little to do with Bush’s drop in popularity. It’s the war.

Bush’s plan, as we’ve been saying in this thread, wasn’t ever really put together. He never got specific. There wasn’t much to hate about it, since it was so vague. The Dems were firing away, though, with their own scare tactics and that combined with peoples vitrol towards Bush in general sunk his plans.