# What would have happened if Bush's SS privatization had passed? **URL:** \ **Category:** Great Debates\ **Created:** [June 10, 2011, 12:30pm UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966 "2011-06-10T12:30:09Z")\ **Posts on this page:** 17\ **Page:** 4
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 13, 2011, 4:57pm UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/61 "2011-06-13T16:57:33Z")
> [@Little\_Nemo](#): > > I am treating Social Security and the rest of the federal government as a single entity. That’s the whole point. But legally they must be considered as two entities, since the money in the Social Security fund is dedicated for one cause and one cause only. If SS had bought lower Slobbovian bonds instead of US bonds, would the debt be lower, higher, or the same? Or you can answer the question about trading with Canada. If SS had never existed, and the SS tax had never existed, would the total debt of the government be different? ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [June 13, 2011, 5:11pm UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/62 "2011-06-13T17:11:25Z")
For the sake of people who aren’t septimus (Canada?) I’ll explain this. Let’s say for hypothetical purposes, that social security spending in 2010 is $600,000,000,000. We have no surplus so the governments collects $600,000,000,000 in taxes in 2010 to pay for this. So the average American pays $2000. Looking ahead to the future and projecting current demographic trends, we can predict that social security in 2035 is going to cost $1,800,000,000,000. There are two possible ways to go. 1. Ignore it and do nothing. When 2035 rolls around, the government collects the entire $1,800,000,000,000 in taxes. It works out to about $6000 per person. 2. Create a “surplus”. Instead of collecting $2000 in 2010, the government collects $4000. They use $2000 to pay the 2010 social security budget ($600,000,000,000) and they use the other $2000 to buy 25 year treasury bills. With everyone paying $2000, the government buys $600,000,000,000 in t-bills. Now it’s 2035. The social security budget, as predicted, is $1,800,000,000,000. The government collects $4000 from everyone in social security taxes. That adds up to $1,200,000,000,000. The government then uses the $600,000,000,000 in t-bills to make up the rest of the social security budget. To have the money to pay off $600,000,000,000 in t-bills, the government collects another $2000 from everyone. It works out to about $6000 per person. So everyone in 2035 ends up paying the same $6000 they would have paid under the first plan. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [June 13, 2011, 5:16pm UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/63 "2011-06-13T17:16:39Z")
> [@Voyager](#): > > But legally they must be considered as two entities, since the money in the Social Security fund is dedicated for one cause and one cause only. If SS had bought lower Slobbovian bonds instead of US bonds, would the debt be lower, higher, or the same? Or you can answer the question about trading with Canada. > > If SS had never existed, and the SS tax had never existed, would the total debt of the government be different? To use my figures above, suppose the government took the extra $2000 it collected from everyone in 2010 and used it to buy $600,000,000,000 in Slobbovian/Canadian bonds. Now go ahead to 2035. The government collects $4000 from everyone in social security taxes. That adds up to $1,200,000,000,000. The government then uses the $600,000,000,000 in Slobbovian/Canadian bonds to make up the rest of the social security budget. And to pay off this amount, the governments of Slobbovia and Canada have to collect taxes from their citizens. We, as Americans, don’t have to pay taxes to pay off Slobbovian/Canadian bonds. ---
**Author:** ![shiftless](https://avatars.discourse-cdn.com/v4/letter/s/e9c0ed/32.png) [@shiftless](https://boards.straightdope.com/u/shiftless)\ **Post date:** [June 13, 2011, 5:48pm UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/64 "2011-06-13T17:48:46Z")
There is a lot more going on than your simple example suggests, like inflation and population growth, that I won’t address. You seem to feel like there is a great difference between SS buying US bonds vs. SS putting it’s money elsewhere (let’s say Slobanadian bonds.) You do realize I hope that the $600B in Slobanadian bonds we bought was a loan to that nation. They now have $600B to spend on tanks and food stamps and congressional junkets and we don’t. To get that $600B we would have borrowed from the SS system in 2010 we are going to have to borrow from someone else instead, say China, or maybe even Slobanada. When 2035 rolls around I’d rather be in debt to the Social Security system than to another country. Now, I’d really rather not be in debt at all but Uncle Sam has got to have his tanks and junkets. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 13, 2011, 7:40pm UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/65 "2011-06-13T19:40:01Z")
> [@Little\_Nemo](#): > > To use my figures above, suppose the government took the extra $2000 it collected from everyone in 2010 and used it to buy $600,000,000,000 in Slobbovian/Canadian bonds. > > Now go ahead to 2035. The government collects $4000 from everyone in social security taxes. That adds up to $1,200,000,000,000. The government then uses the $600,000,000,000 in Slobbovian/Canadian bonds to make up the rest of the social security budget. And to pay off this amount, the governments of Slobbovia and Canada have to collect taxes from their citizens. We, as Americans, don’t have to pay taxes to pay off Slobbovian/Canadian bonds. No, but since the borrowing the government does for its other expenses is exactly the same, the government would have to raise taxes to pay off China or whoever else bought the bonds today that Social Security bought instead. So we’d have to pay exactly the same amount in taxes. Let’s try something simpler: do you agree that the total non SS debt is the same whether or not SS exists? ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 13, 2011, 7:45pm UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/66 "2011-06-13T19:45:49Z")
> [@Little\_Nemo](#): > > For the sake of people who aren’t septimus (Canada?) I’ll explain this. > > Let’s say for hypothetical purposes, that social security spending in 2010 is $600,000,000,000. We have no surplus so the governments collects $600,000,000,000 in taxes in 2010 to pay for this. So the average American pays $2000. > > Looking ahead to the future and projecting current demographic trends, we can predict that social security in 2035 is going to cost $1,800,000,000,000. > > There are two possible ways to go. > > 1. Ignore it and do nothing. When 2035 rolls around, the government collects the entire $1,800,000,000,000 in taxes. It works out to about $6000 per person. If you consider no other factors, the outlay is exactly the same. However, this alternative gives people who will be retired in 2035 a free ride. It also ignores the demographics, in that if there is a wave of people now working who will be retiring then, and perhaps fewer workers in 2035, the per capita tax is lower if you tax the people who will be retiring then now. The surplus we have now comes from the fact that enough more people are working today than are retired today to make a surplus (or at least before this year) which allows us to stock up resources for when the situation inevitably reverses. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [June 13, 2011, 8:38pm UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/67 "2011-06-13T20:38:19Z")
> [@Little\_Nemo](#): > > I am treating Social Security and the rest of the federal government as a single entity. That’s the whole point. Maybe the following will help you understand. (Though I’m not overly hopeful. 🆒 ) If you stipulate that SocSec and the rest of government are a tightly-knit single entity, then the $3 trillion of debt the government owes itself could indeed be treated as meaningless paper, that paper burned up, and the “debt” canceled. In a sense SocSec would then have lost its “surplus.” \*\*But the Treasury will no longer be in debt that $3 trillion \*\* and you’ve stipulated that you’re coupling them. The Federal debt is now approaching a $14+ trillion limit. Accounting your way, the debt would now be only $11 trillion. The key point you need to focus on is that SocSec didn’t hand its trillions to Congress and say “Find a way to waste this money.” Congress’ budgeting and borrowing were independent of SocSec; if SocSec had bought Slobovian bonds instead of U.S. bonds, U.S. Treasury would have had to sell those bonds elsewhere, e.g. to Slobovia. Now, is there a danger to future SocSec funding due to demographics? Yes. Is government deficit spending a potential problem? Yes. But those are separate issues, unrelated to whether SocSec keeps its surplus in banknotes under the mattress, or buys Beanie Babies or bonds with it. **It’s just plain gibberish to refer to SocSec’s bond purchases as “financial chicanery.”** ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [June 13, 2011, 11:41pm UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/68 "2011-06-13T23:41:19Z")
> [@Voyager](#): > > No, but since the borrowing the government does for its other expenses is exactly the same, the government would have to raise taxes to pay off China or whoever else bought the bonds today that Social Security bought instead. So we’d have to pay exactly the same amount in taxes. > > Let’s try something simpler: do you agree that the total non SS debt is the same whether or not SS exists? I understand where the money is going. The government is collecting money, supposedly for future social security needs, and buying treasury bonds from itself. The money generated from the sale of these bonds is treated as general revenue. So the government is essentially turning the extra SS taxes into general revenue. Now if the government wasn’t doing this, it would lose this source of revenue. It would have to either raise other taxes, borrow money, or cut spending to reflect this difference. Which of these alternatives you find most appalling is based on your ideological persuasion but any of them would work. But the point is the money we are collecting in 2011 is being spent in 2011. There is no “trust fund”. The surplus is not being saved or invested or put aside - it’s being spent. So when we get to 2036 or whenever, we will not have this money waiting for us. It’s all gone and we’re going to have to collect the total sum again. So the government is collecting taxes today and telling people those taxes will be used for future expenses. Then it spends the money today and puts nothing aside for the future expense. That, to me, is financial chicanery. ---
**Author:** ![zamboniracer](https://avatars.discourse-cdn.com/v4/letter/z/e9a140/32.png) [@zamboniracer](https://boards.straightdope.com/u/zamboniracer)\ **Post date:** [June 14, 2011, 12:15am UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/69 "2011-06-14T00:15:17Z")
After the 2008 stock market crash, foreclosure crisis and real estate crash, what exactly are the people supposed to have left to invest in the stock market? After seeing the market drop so quickly and so far, who exactly are these people who are going to rush in an invest in the market? Because I don’t know any of these people. Sure the market prices are low, but its like saying that after the volcano dumps debris and ash that there’s now a lot of new available land to build on. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [June 14, 2011, 12:34am UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/70 "2011-06-14T00:34:56Z")
> [@Little\_Nemo](#): > > I understand where the money is going. The government is collecting money, supposedly for future social security needs, and buying treasury bonds from itself. The money generated from the sale of these bonds is treated as general revenue. So the government is essentially turning the extra SS taxes into general revenue. I am not an accountant, but I very much doubt this is considered general revenue, unless money we borrow through the sale of bonds is considered general revenue. It is debt, just like money borrowed from American citizens is debt. > [@](#): > > Now if the government wasn’t doing this, it would lose this source of revenue. It would have to either raise other taxes, borrow money, or cut spending to reflect this difference. Which of these alternatives you find most appalling is based on your ideological persuasion but any of them would work. > > But the point is the money we are collecting in 2011 is being spent in 2011. There is no “trust fund”. The surplus is not being saved or invested or put aside - it’s being spent. So when we get to 2036 or whenever, we will not have this money waiting for us. It’s all gone and we’re going to have to collect the total sum again. It takes the place of other debt that we’d have to repay other people in 2035. Period. Again, if we bought Slobbovian bonds, would the total US debt be any different? > [@](#): > > So the government is collecting taxes today and telling people those taxes will be used for future expenses. Then it spends the money today and puts nothing aside for the future expense. That, to me, is financial chicanery. Okay, we should be putting money aside. How to you propose to do it? Bury it in the Mall? Buy Google stock? Buy Slobbovian bonds? Or buy what seems to be the safest investment in the world today, US Government securities. If you think they are risky, you’ve been listening to the right wing loons way too long. Remember, the risk we are seeing today is only from Republican obstructionism, not from any real issues. Interest rates are still very low, showing the market as a whole is a lot more confident than the right wing loons. ---
**Author:** ![Little\_Nemo](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/little_nemo/32/3120_2.png) [@Little\_Nemo](https://boards.straightdope.com/u/Little_Nemo)\ **Post date:** [June 14, 2011, 12:54am UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/71 "2011-06-14T00:54:05Z")
> [@Voyager](#): > > If you think they are risky, you’ve been listening to the right wing loons way too long. Remember, the risk we are seeing today is only from Republican obstructionism, not from any real issues. Interest rates are still very low, showing the market as a whole is a lot more confident than the right wing loons. It’s not an issue of risk. If anything, it’s probably the lowest possible risk because you’re not really doing anything with your money. It’s an issue of investment. You can’t invest money by loaning it to yourself. Let me ask you this - when the United States buys American treasury bonds, what is the best interest rate on those bonds? Remember it’s the government, so it can set any interest rate on these bonds it wants (and this rate is only good for the bonds the goverment buys). Should it set the rate really high like ninety-nine percent, so it collects a lot of interest on them? Or should it set the rate really low like one percent. so it’s able to pay them off cheaply? Which rate makes more economic sense? ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [June 14, 2011, 4:40pm UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/72 "2011-06-14T16:40:51Z")
Wow… this turned into yet another Social Security is a ponzi scheme argument - who could have seen that coming? I refuse to get involved in that again. I stand by my proposal up-thread - adjust the tax rate and benefits (changing the growth formula is a good start) and SS is fine. It is, IMO, imperative to have an entirely public guaranteed-benefit pension as a safety net against bad investment, disability, and a whole host of issues that Social Security was created to protect against. If you want private investment vehicles beyond that, well, thank God we have them - invest to your hearts content and by happy that you will not be left facing the small tragedies that living from SS paycheck to paycheck entails. But don’t try to remove the net for everyone just so you can climb a bit higher. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [June 14, 2011, 4:50pm UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/73 "2011-06-14T16:50:22Z")
> [@zamboniracer](#): > > After the 2008 stock market crash, foreclosure crisis and real estate crash, what exactly are the people supposed to have left to invest in the stock market? After seeing the market drop so quickly and so far, who exactly are these people who are going to rush in an invest in the market? Because I don’t know any of these people. Sure the market prices are low, but its like saying that after the volcano dumps debris and ash that there’s now a lot of new available land to build on. You need to run with a more savvy investing crowd. There are always good investment opportunities for people who understand the market. Right now, I see a lot of people buying residential properties are rentals. Home prices have dropped a lot more than rents have, and if you have the cash, you can get some good deals out there. As for the stack market, stick with the value investment approach and go for the long term. Most people are in it for the quick gain and the latest trend. Also, look beyond the US borders. ---
**Author:** ![Smurfie](https://avatars.discourse-cdn.com/v4/letter/s/e9a140/32.png) [@Smurfie](https://boards.straightdope.com/u/Smurfie)\ **Post date:** [June 14, 2011, 7:32pm UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/74 "2011-06-14T19:32:01Z")
> [@Voyager](#): > > Indeed. I have heard that a good strategy is to get the hell out of an investment when Joe Blow from Peoria is buying it. > If you remember, we got told that the market has always, always,. gone up over 10 year periods. Until now. Karma is a bitch, isn’t it. One of the positive things about the great recession is I don’t have to read articles about how women are better investors than men anymore (short version - women buy and hold more). ---
**Author:** ![Le\_Jacquelope](https://avatars.discourse-cdn.com/v4/letter/l/e0b2c6/32.png) [@Le\_Jacquelope](https://boards.straightdope.com/u/Le_Jacquelope)\ **Post date:** [June 17, 2011, 6:00am UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/75 "2011-06-17T06:00:29Z")
> [@Little\_Nemo](#): > > While emacknight is being sarcastic, he’s actually raising some valid points. Most people are not informed investors. A large group of uninformed investors would almost certainly be a problem in the market. Some of them would be making uninformed investments for themselves and creating a disruptive force. But the majority of them would simply be a pool of targets for predators. The predators would convince the suckers to put their money in unsound investments, pocket their cut, and then walk away when the investments crashed. > > A libertarian might argue that anyone who lost their money deserved to lost it. But a realist would note that it’s difficult for an uninformed person to distinguish between a legitimate financial adviser and a conman who’s disguising himself as a legitimate financial adviser - being naive doesn’t mean you deserve to be victimized. > > And that realist would also note that the national economy affects everyone. A crash caused by predators and idiots will also hurt cautious and informed investors. Don’t forget the destructive power of elderly people cashing in their 401K’s to make ends meet - not because the market is going up or down, but because they need to pay for skyrocketing medical costs or to keep a roof over their heads and something in their bellies besides cat food. And I’m not just talking about one elderly person doing this. I’m talking about _millions_. And I haven’t even gotten into the hardship withdrawals. ---
**Author:** ![septimus](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/septimus/32/410_2.png) [@septimus](https://boards.straightdope.com/u/septimus)\ **Post date:** [June 17, 2011, 10:22am UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/76 "2011-06-17T10:22:02Z")
> [@Le\_Jacquelope](#): > > Don’t forget the destructive power of elderly people cashing in their 401K’s to make ends meet … > And I’m not just talking about one elderly person doing this. I’m talking about _millions_. Yes the “Herd” will generally underperform a random investor. The herd buys together, forcing prices up, and sells together, forcing prices down, and thus is playing the Buy High Sell Low strategy. :smack: In this case one can’t even blame the “herd” for naive reasoning – the herding effect is enforced by demographics. Privatization would have been a great boon for prior stockholders as the initial buying burst would force prices up and let existing holders sell at a top. ---
**Author:** ![Le\_Jacquelope](https://avatars.discourse-cdn.com/v4/letter/l/e0b2c6/32.png) [@Le\_Jacquelope](https://boards.straightdope.com/u/Le_Jacquelope)\ **Post date:** [June 17, 2011, 2:19pm UTC](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966/77 "2011-06-17T14:19:03Z")
> [@septimus](#): > > Yes the “Herd” will generally underperform a random investor. The herd buys together, forcing prices up, and sells together, forcing prices down, and thus is playing the Buy High Sell Low strategy. :smack: In this case one can’t even blame the “herd” for naive reasoning – the herding effect is enforced by demographics. > > Privatization would have been a great boon for prior stockholders as the initial buying burst would force prices up and let existing holders sell at a top. Sometimes I kind of wish they had done it that way. We could be done and done with this misguided idea of privatizing social security, and maybe even learn a lesson that privatizing retirements in general on the backs of the stock market is even WORSE than a Government-funded pension. Then again… nah. They would have blamed it on the Democrats somehow. Or unions. Or black people on welfare. Or Mexican-er, illegal immigrants. On a side note: Jay Gould is dancing quite a gig in hell. [Previous page](https://boards.straightdope.com/t/what-would-have-happened-if-bushs-ss-privatization-had-passed/584966.md?page=3)