Why Bush Will Blow Social Security Reform...

If yesterday's press event is any indication, the president and his team have a tin ear on the issue.

In The Seattle Post-Intelligencer's account, Bush appeared with 42-year-old father of two Scott Ballard as one of his main props. Not only is Ballard atypical since he owns his own business (an ambulance service), he's the son of the legendary GOP leader of the state legislature in Washington state.

Jesus, come on already! I am not a raving fan of Social Security "privatization" for a number of reasons. Among them: I don't like the idea of forced savings, period; to the extent that SS taxes go into the general fund and subsidize guaranteed state pensions/minimum incomes, they should be named as such; the amount of money under any plan that will be given back to the payer is minimal (likely 1 or 2 percent in my estimation) and possibly not worth the hassles; there's the possibility of socializing equities markets; etc.

The one powerful selling point to me about private accounts is that they might keep some money within families, to be passed down to kids or grandkids as an inheritance. I know from personal experience (or, rather, lack of personal experience) that an inheritance of even $5,000, $10,000, or $15,000 at the right time in a young person's life can make a huge difference in all sorts of ways, from clearing out debt to providing a car (and hence employment opportunities) to a down payment on a house, and more.

It seems to me the inheritance angle is the best way to sell any reform--and it should be, because that is the one that can actually change and improve people's lives, which is really the point of the reform effort. Nobody cares that the system is going "broke"--there are always ways to "fix" that (and we will, through pushing back benefits most likely). The whole government, despite any recent surpluses, is impervious to accounting rigor and standards. Nobody seems interested in attacking the morality of a mandatory savings system, either.

But what I think most people can get around is that a system that allows people, especially lower-middle- and lower-class people to conserve some capital over time is a good thing, regardless of any other ideological/political affiliation.

That means going easy on the well-connected, well-heeled sons of politicians in public presentations (I know Ballard wasn't the only human prop on the stage that day and that the PI highlighted him because he's from the paper's home state). It doesn't mean trotting out sad sacks like drunks at a revival show, but it does mean foregrounding that the people most likely to benefit from Bush's reform would be people unlike him; they'd be people whose retirements, like their finances, are always in doubt.

If Bush does that, he might persuade some of the 55 percent of Americans who think it "unwise" to allow people to invest some of their SS in stocks (according to the PI) over to his side.

Oh, and it would help to offer some specifics.

Whole PI story here.

Comments

Ran | January 12, 2005, 8:25am | #

Perhaps we should begin with renaming the program... Clearly, the security of society ain't in it.

Matt | January 12, 2005, 8:25am | #

"It seems to me the inheritance angle is the best way to sell any reform--and it should be, because that is the one that can actually change and improve people's lives, which is really the point of the reform effort."

While I agree with your principle, the Democrats long ago hijacked the whole notion of inheritance, since, you know, only plutocrats and their spoiled little princeling sons actually care about transferring money between generations.

Unfortunately, here's a broad consensus among liberals that once you die, your wealth belongs to the state. It's why the inheritance tax cut is always cited by the E.J. Dionnes of the world as the most egregious and unpardonable example of Bush's economic plan, and the one that all good-hearted people ought to oppose.

crimethink | January 12, 2005, 8:32am | #

Matt,

You're absolutely right about the Dems. Which is silly, since while parents are alive, they are obviously expected to financially support their children; why can they not do so after their death?

Of course, I'm sure joe will arrive soon with an answer that shows I'm a liar, a thief, and a boy-lover.

Warren | January 12, 2005, 8:35am | #

"… the people most likely to benefit from Bush's reform would be people unlike him"

Forget it Nick. As far as GWB's concerned, anyone who isn't a white God-fearing, Bible-believing, Born-again, Texas-loving, Republican deserves to be thrown into a hole and forgotten about.

c | January 12, 2005, 9:20am | #

I don't know how a discussion about soc. security reform has turned to esate tax, but since matt brought it up, let's go. I'm a good-hearted person, and I feel I have to represent.

The estate tax was the best tax in america. Taxes are successful when they distort economic activity as little as possible - sales taxes discourage buying and selling, income taxes discourage work for pay. Estate taxes discourage ... what, dying?

True, the estate tax was easy to game, through pre-death gifts, etc. (Other taxes can be gamed too...) But dollar for dollar, the estate tax was more just than any of the others we rely on. You support its revocation insomuch as you support hereditary aristocracy. Period.

gaius marius | January 12, 2005, 9:20am | #

before this thing descends into (yet more) degenerate political name-tossing, why don't we accept that any championing of tax reform on the elephant side is simply a target of political convenience. neither side gives a flying fuck about tax limitation. bush is proving it by spending hundreds of billions he doesn't collect but someone will have to -- taxes, but with collection deferred.

as i understand it, estate are exempt on all less than $675,000 -- which affects only 2% of the estates -- and the cap is increasing to $1mm by 2006 -- not to mention the $10,000 gift exemptions.

back to topic: i think there's a fundamental misperception of what social security is that keeps people from seeing it similarly.

individualists, who see everything in the perspective of what is theirs, see their contributions as theirs and see any way of getting control of it back as good. to these people, SS is an "investment".

communitarians, however, see social security as a safety net designed to protect those whom fall ill of life's vagaries -- desinged to provide a minimal existence. few middle-classers should, in this view, exclusively rely on for a comfortable retirement. to these people, SS is a welfare program.

i find it hard not to see SS in something other than its communitarian, welfare sense. i don't expect to get a dime out of SS, but i feel a social responsibility to support the old and the unlucky -- and, while i wish family bonds were stronger, individualism has largely killed the idea that people will drop their lives and take care of their own if something goes wrong. (which we see in statements like Children should not be seen as insurance policies.) not wanting the streets filled with the penniless elderly, SS is a solution.

however, even putting holy pirnciple aside, what bush is talking about putting up to half your accrued payroll tax contributions at risk. anyone who invests in the market for a living understands that loss is a constant companion. one has to understand how markets work to understand the peril of this idea: bear markets function primarily to utterly destroy small and/or weak investors caught out in the rain. bears turn into bulls only when every possible seller has been traumatized into capitulation; this will inevitably include all participants with sensitive (read: i-can't-sustain-more-losses) capital, which will necessarily include all the people who really need SS.

bear bottoms are defined, in fact, by a complete societal aversion to risk. in japan today, nearly no one in the general population trusts the japanese stock market, and subsequently no one invests in it. this is where america will eventually get with the nasdaq. consider that -- and then consider that we are putting people's real safety nets into that maw.

truly, imo, it is only possible to consider this idea as sane when one is insane with the elegiac hubris of an exorbitant financial mania -- which is exactly where americans are today.

all this besides what the effect on the finances of the nation -- as it called for explicitly borrowing and servicing trillions in new treasury debt in just a few years, whereas we had only before implicit promises what could be reduced -- and it seems devoid of value sufficient to counter the risks.

joe | January 12, 2005, 9:21am | #

"Oh, and it would help to offer some specifics."

No, actually. The more people hear about the specifics of what privatization would mean, the less likely they are to support it.

Present company (especially the boy lover)
excluded.

"...people most likely to benefit from Bush's reform would be people unlike him"

Bwah haw haw haw haw haw haw! As if this is going to be anything more than yet another Bush exercise in crony capitalism.

Look:

Bush Social Security Reform:Libertoid-Approved Social Security Reform::Operation Iraqi Freedom:the Iraq Invasion Andrew Sullivan thought was going to happen

gaius marius | January 12, 2005, 9:23am | #

sigh -- "i find it hard *to* see SS in something other than its communitarian, welfare sense"... apologies.

digamma | January 12, 2005, 9:30am | #

My other big problem with Bush's non-plan is the fake "crisis" they've dreamed up with which to sell it.

c | January 12, 2005, 9:39am | #

gaius has never once typed a capital letter, but one bare infinitive and he runs a correction post.

joe | January 12, 2005, 9:43am | #

BTW, that "single mother of two" Bush named to the panel spent the last few years fronting an astroturf privatization group.

jc | January 12, 2005, 9:44am | #

I find it hard to see SS as anything other than the "We're sorry for stealing your money, here's some we stole from other people" short-term fix it was designed to be from the outset; a way to rid the feds of their guilt for increasing the number of bank failures through the whole "depression" debacle. If you want to believe it was designed to be communitarian, I won't question your religious faith.

gaius marius | January 12, 2005, 9:51am | #

one bare infinitive and he runs a correction post.

lol -- sorry, mr c. i resisted the misspellings, fwiw. that one unfortuantely and accidentally got the button before a cursory proofread.

digamma | January 12, 2005, 10:01am | #

The program we call Social Security today is essentially three programs in one. Any combination of these three programs could survive independently:

1. The requirement that workers save for retirement.
2. A government-run retirement savings program.
3. Redistributive welfare for the elderly.

Because of demographics, we aren't getting rid of #3. Once you acknowledge that, the question becomes how we can provide #3 in the most simple and efficient way. The current system isn't it, but the Bush non-plan is worse.

blah | January 12, 2005, 10:11am | #

it is also a disability program in SSI, and also a death and support payment system for children who lose their parents to death before the child turns 18.

how do those programs fare under the reform plan, people seem to forget they exist, but I think its part of the same system.

digamma | January 12, 2005, 10:13am | #

it is also a disability program in SSI, and also a death and support payment system for children who lose their parents to death before the child turns 18.

Yeah, when I wrote "the program we call social security", I meant to exclude those other functions of the SSA.

Twba | January 12, 2005, 10:14am | #

SS was a way to compensate oldsters for having their life savings destroyed by political malfeasance. It is now just a shameless vote-buying program. It is not a safety net. It is not giving money to a few oldsters who have no savings, but giving money to all oldsters.

SS will eventually become just a safety net. With more boomers retiring and living longer, means testing will be instituted. Congress will make changes only when it has no other choice. To attempt change sooner is to risk losing reelection to the federal gravy train. SS reform is dead for now.

to verbose maximus, do you think i am stupid for investing in stocks? my portfolio is relatively diversified. should i spend every penny i earn and hope to be saved by a communitarian safety net?

c | January 12, 2005, 10:18am | #

jc, I'm going to posit that you're a person who would agree with the statement:

If the elderly hadn't been taxed their whole lives, they wouldn't be penniless.

Call me paternalistic, but I'd more readily agree with the following statement:

If the elderly hadn't been taxed their whole lives, they would be just as penniless but they'd all have boats.

In an unrelated note, does anyone else find gaius's tendency to address everyone as "mr." vaguely "Engrish?"

jc | January 12, 2005, 10:48am | #

but that was also in a day and age when kids rarely moved away from home.

gaius, now you're just making stuff up. Unless you are making a statement about the shrinking numbers of agricultural families, there's little basis for your statement.

If I can make up a trend, I'd say people were more thrifty back in the day. And thanks to federal banking policy destroying savings along with the permanent imposition of income tax and other payroll taxes, people have less money to be thrifty with.

We've gone from a nation of savers to a nation where the President urges people to spend money for the good of the economy. The people who continue to save wind up being the suckers in the current system, perpetuating more spending and less saving and more reliance on governemnt programs. The trend isn't toward individualism, it's away from it.

jbk | January 12, 2005, 10:56am | #

As a group, the elderly are not penniless. In fact, this chart (about a third of the way down the page) indicates that the elderly are in general the wealthiest segment of the population. If Social Security is going to be talked about as if it were a social welfare program, it must be noted that most of the money in the system is going to support the wealthiest segment of society.

jbk | January 12, 2005, 10:59am | #

I mean, this chart.

gaius marius | January 12, 2005, 11:02am | #

It is not a safety net. It is not giving money to a few oldsters who have no savings, but giving money to all oldsters.

an imperfect safety net, then, mr twba. i agree that means-testing could be instituted, hopefully as a means of reducing payouts rather than biasing payouts to the most unfortunate.

do you think i am stupid for investing in stocks? my portfolio is relatively diversified. should i spend every penny i earn and hope to be saved by a communitarian safety net?

right now, and fwiw, i think all dedicated american stockholders with a timeframe of less than twenty years are a bit crazy. but that's besides the point.

you have a stock portfolio. great. you're contributing some part of your income to increasing it? yet better. so why do you need to put your safety net at risk?

i am in this same situation. and i would never consider giving up a guaranteed minimal safety net (if i thought i had one). a comfortable retirement is why i'm saving money. a guaranteed spartan retirement allows me to take risks with those savings that i would not otherwise. if i were handed more capital and deprived the guarantee, i would use the funds in as low-risk a manner as possible in an attempt to buy the guarantee back. my retirement is *already* privatized to the extent it should be.

i fear that many people don't exhibit this kind of prudence. they see investing for retirement not as a means of provision but as a shot to get rich. they will take as much capital as they can and put it at maximum risk in search of the brass ring. many of them will lose scads of money they cannot afford to lose in doing so.

what happens to them in the end? we put them on the streets to die, telling them it was all their own fault? i cannot morally subscribe to that in a society as wealthy as ours is -- and as a pragmatic matter, they would form an angry plebiscitarian mob-militia.

at the end of the day, most pro-privatization folks seem to be unable to consider their own fallibility. the assumption is that, given more risk, sequitur they will make more money. i assure you that this is not always so. many -- a larger fraction than any would like to consider -- will lose a lot because they made choices which seemed very sensible. the world is full of decent but fallible people who squandered inheritances and windfalls in the market; so it would be with SS accounts.

Wild Pegasus | January 12, 2005, 11:03am | #

joe hits on an important point. SS privatisation will not be people making choices on the open capital markets. It will channel monies to the politically-connected and suffer many of the same problems as all political "investments". Japan's Postal Savings System is instructive.

- Josh

gaius marius | January 12, 2005, 11:24am | #

Unless you are making a statement about the shrinking numbers of agricultural families, there's little basis for your statement.

that is a big part of it, mr jc. i'd like to see the census statistics regarding the average american's residential proximity to one's parents over the last century. i submit to you that explosive growth in nursing homes and home care since 1900 is not without a driving dynamic.

from personal experience, i know that i am the first member of my immediate family to move more than ten miles from where my ancestors got off the boat. my wife is the first in her immediate lineage to move more than three miles from the ancestral homestead farm. i don't think we're terribly unusual in this respect, especially in the midwest.

In fact, this chart (about a third of the way down the page) indicates that the elderly are in general the wealthiest segment of the population.

mr jbk, the chart shows averages, not a distribution. indeed, in this survey of britons (see chart 4.2), 40% of the those approaching retirement hold nearly none of the wealth.

it is those 40% that SS has come to be designed for. clearly, the wealthiest 20% don't need it.

Soda | January 12, 2005, 11:28am | #

and as a pragmatic matter, they would form an angry plebiscitarian mob-militia.

Yeah, but they would be old and weak.

I think we can take them.

Karl | January 12, 2005, 11:32am | #

gaius said:
"at the end of the day, most pro-privatization folks seem to be unable to consider their own fallibility. the assumption is that, given more risk, sequitur they will make more money."

That's not it at all. Right now, I believe I'm paying 14% of my paycheck that *I will never see again*. It's essentially a wealth transfer. I have my own private retirement acounts. If I can keep a few percent of the current FICA tax and put it into those retirement accounts, even if I loose it all, I'm still in the same situation I was with FICA. More than likely, over time, I'll maintain the same modest to decent rate of return I'm currently getting and have something, rather than nothing, to show for that 14%.
-Karl

joe | January 12, 2005, 11:43am | #

Karl, the only way you might not get Social Security payments when you retire is if the politicians in Washington decide not to send them to you.

If you want to make sure the Social Security Administration will still be sending our retirement checks when your turn comes, you have a simple course of action available to you; vote and campaign for politicians that will support the continuation of the Social Security Program.

Jacob T. Levy | January 12, 2005, 11:46am | #

Meanwhile there's considerable talk of forced conversion of the accounts into lifetime annuities at retirement-- killing off the potential inheritance.

sulla | January 12, 2005, 11:53am | #

I agree that SS should be a safety net, and nothing more. How about this: let the government come clean, and explain the necessary means testing rules, etc. in the present, rather than kick the can down the road, which is the only thing that all the talk of privitization accomplishes. People like joe are correct to attack the privitization plans. I'm just not sure they also recognize that the fact that privitization is a bad idea does not change the other fact that SS has big systemic problems that need to be fixed.

Karl | January 12, 2005, 11:55am | #

well joe, 1) I don't have the faith in politicians or their promises that you seem to have. 2) politicians who strongly support the continuation of SS generally have so many other failures in economic reasoning that I can't support them. 3) SS can't be continued indefinitely given the demographic changes (hence this whole debate). 4) I don't want my well-being predicated on the ability of the government to steal money from others to give to me; hence my personal retirement accounts.

More on 3): to keep SS solvent, you need to 'reduce' benefits (slow rate of growth thereof) and bump up the retirement age; given those constraints, even if SS continued until I retire, it's hardly a bargain.

-K

Twba | January 12, 2005, 11:55am | #

Karl, the only way you might not get Social Security payments when you retire is if the politicians in Washington decide not to send them to you.

They will make that decision when they have no money for Karl's check. That time will arrive much sooner than you think joe.

jc | January 12, 2005, 11:55am | #

i submit to you that explosive growth in nursing homes and home care since 1900 is not without a driving dynamic.

That dynamic is probably the growth in medical technology and the idea that the elderly person just might get better care in a facility with a 24-hour nursing and physician staff.

Purely anecdotal, but when my father became too ill to work, each of his 6 children offered their homes for my mom and dad to live and my parents refused each offer. Don't make the assumption that children move from home to shirk all future responsibility of their parents. Sure it
happens, and it also happens the other way.

what happens to them in the end? we put them on the streets to die, telling them it was all their own fault? i cannot morally subscribe to that in a society as wealthy as ours is -- and as a pragmatic matter, they would form an angry plebiscitarian mob-militia.

Anyone healthy enough to become part of a mob-militia is probably healthy enough to hold down some kind of job. Pragmatically speaking. This whole notion of healthy people being thrown into the streets to waste away and die is nothing short of stupidity. People who retired and went broke but are still capable of performing labor have to go back to work. It's called "means testing".

Luisa | January 12, 2005, 12:03pm | #

Folks should understand something--SS is far more than a retirement program. Many beneficiaries are folks who become disabled or young kids/parents who lose a parent/spouse at a time when they could not get by without assistance.

Like it or not, it's not merely a retirement program. having known two people who would have been in deep shit after personal tragedies, I like it, despite my earlier leanings against it on libertatrian notions.

Gilbert Martin | January 12, 2005, 12:06pm | #

i Meanwhile there's considerable talk of forced conversion of the accounts into lifetime annuities at retirement-- killing off the potential inheritance.

People engage in "considerable talk" about lots of things. That requirement is not in Bush's plan.

joe | January 12, 2005, 12:07pm | #

Twba, Karl, didn't the invasion of Iraq teach you anything about taking George Bush at his word when he asserts that there is a crisis, one that needs to be addressed immediately, with a dramatic, expensive solution that just happens to mirror exactly the long-wished-for policy of conservative ideologues?

gaius marius | January 12, 2005, 12:12pm | #

I'm paying 14% of my paycheck that *I will never see again*. It's essentially a wealth transfer.

right, mr karl -- i totally agree. and this is the price you pay to keep many thousands of old people from living and dying in the streets of the world's wealthiest nation.

i submit that, if you see everything as an individualist, and you perceive that you have no social responsibility at all, there is no way to justify SS.

i would happily put in means-testing and scrap the exorbitancies of SS/medicare in an effort to keep the cost of the transfer down -- as mr sulla rightly notes. but the utility of the safety net in the age of individualism is obvious, imo.

if this is done, then

SS can't be continued indefinitely given the demographic changes (hence this whole debate).

is a fallacy. we obviously can continue these programs. we simply have to be willing to pay the cost in taxes.

Gilbert Martin | January 12, 2005, 12:15pm | #

"I don't have the faith in politicians or their promises that you seem to have."

Me either.

Indeed the rate of return on investment for their FICA dollars for younger workers even based on current promised benefits is practically nil at best or negative. The odds that the current level of promised benefits will be realized over time are low.

For younger workers, an analysis of the comparative risk of continuing to pay into such a system vs keeping and investing one's money in something like a stock index fund (or funds) comes down on the side of keeping it and investing it.

gaius marius | January 12, 2005, 12:15pm | #

having known two people who would have been in deep shit after personal tragedies

precisely, ms luisa. SS is a safety net, and people -- by chance alone -- often need one. in a society as wealthy as this, there's little reason not to maintain one except abject individualist greed and a lack of both human sympathy and a recognition of the tenuous nature of success in one's own life, imo.

gaius marius | January 12, 2005, 12:30pm | #

taking George Bush at his word when he asserts that there is a crisis, one that needs to be addressed immediately, with a dramatic, expensive solution that just happens to mirror exactly the long-wished-for policy of conservative ideologues?

indeed, if there's anything to being completely cycnical about politics, there is *zero* reason to think bush is doing anything but lining the pockets (financial and ideological) of his cronies here.

Captain Awesome | January 12, 2005, 12:32pm | #

As for a single slogan for social security reform, I propose, "because stealing from our children isn't the answer either." As a young person, I doubt the returns on a government program for my retirement. Also, government insurence has a crowding out effect on private insurance that could do the same job without mandatory theft. Further, social security could fall out of popularity as the much smaller, less vote heavy gen-x approaches retirement. And further, current systems discourage responsable planning. I think it would be nicer if government provided only a default set of contributions to insurance/saving, but we could log on to our accounts and change funds disbursement. And as for the death/inheritance thing, no one has mentioned that as wealth increases, charitable allocation of funds a death dramatically increases.

joe | January 12, 2005, 12:32pm | #

"I don't have the faith in politicians or their promises that you seem to have."

I don't have the faith in politicians' promises that you assume I have, either. That's why it's important to look at candidates' records, and not merely their speeches on the stump.

For example, right now, it is popular for supporters of privatization to claim that they support Social Security and want to save it, when in fact, many of them have an entire career of opposing similar programs behind them.

"Indeed the rate of return on investment for their FICA dollars for younger workers even based on current promised benefits is practically nil at best or negative." Gilbert, please define the word "median" for me.

joe | January 12, 2005, 12:33pm | #

Oops, wrong quote. "For younger workers, an analysis of the comparative risk of continuing to pay into such a system vs keeping and investing one's money in something like a stock index fund (or funds) comes down on the side of keeping it and investing it." Gilbert, please define the word "median" for me.

Gilbert Martin | January 12, 2005, 12:36pm | #

Median?

What are you talking about Joe?

gaius marius | January 12, 2005, 12:38pm | #

Sure it happens, and it also happens the other way.

i agree, mr jc. when it happens, SS is the reprieve.

People who retired and went broke but are still capable of performing labor have to go back to work.

get old, then talk to me about your employability. employers look for ways to cull you, sir, in fulfilling their self-interest. i've seen it happen, and i suspect so have you.

i fully agree with means testing. makes perfect sense to me. but provide SS for those who meet the criteria.

Twba | January 12, 2005, 12:40pm | #

A safety net is only a small component of SS. I support helping those who cannot make it on their own and think we can do it better with less government. I do not support taking 14% of the earnings of a hardworking contractor who is struggling to get by in order to give that money to a man who is well off enough to purchase a half-million dollar motorhome and tour the nation in luxury.

Joe, I don't trust anything George Bush says. I suspect his plan will not pass through Congress in its present form. Any reform that passes will be as bad as the current Ponzi scheme.

joe | January 12, 2005, 12:43pm | #

"Median?

What are you talking about Joe?"

I'm talking about the fact that the greater benefits alleged to accrue from privatization and stock investment are averages, and that by definition, half the population will be below the average. Even if your assumptions about stock market performance are true, and fully 2/3 of the population ends up getting more from private investment than they would have in SS benefits, that's still millions of old people getting less than they would have otherwise.

The goal of Social Security is to provide a guaranteed minimum for retirement. Any "solution" that reduces the wealth of some retirees is, by this measure, a failure - even if some other group of retirees is getting more.

gaius marius | January 12, 2005, 12:44pm | #

government insurence has a crowding out effect on private insurance that could do the same job without mandatory theft.

i dispute this, mr awesome. have you ever been dropped from your car insurance?

insurers have a motive of profit, not of social benefit. as such, you can't expect them to behave in ways that are unprofitable. such insurance would be unaffordably expensive for a large section of the population, and insurers would look to cull risk from their policyholders as ruthlessly as they do health and car.

and then get cancer and try to get or stay insured.

sorry. this is an obvious nonstarter if you've done any work with insuring older employees.

karl | January 12, 2005, 12:45pm | #

gaius - why do you have to screw everyone to 'keep thousands from dying on the street' (not even questioning your number...)? If you want a safety net, have a safety net. Don't call it a retirement plan. Let us plan for our own retirement (the vast majority of people will be *much* better off for it), and then pursue a real welfare, handout, charity plan (whether financed through taxes or voluntarily) for the few who will not be able to take care of themselves. Why do you have to screw most everyone out of a better life by holding up the few?
-K

andy | January 12, 2005, 12:49pm | #

Gaius,

""I'm paying 14% of my paycheck that *I will never see again*. It's essentially a wealth transfer."

right, mr karl -- i totally agree. and this is the price you pay to keep many thousands of old people from living and dying in the streets of the world's wealthiest nation.""

Why do you and other communitarian/liberal/asshats seem to think that without SS there would be a mass epidemic of dead old people? Ever heard of "private charity"? Most people have a natural inclination to help out those less fortunate as it is. Even if they don't, at least they're not getting robbed by the government, which is essentially what SS is- a robbery.

Do us all a favor and move to Sweden, please.

gaius marius | January 12, 2005, 12:49pm | #

Even if your assumptions about stock market performance are true, and fully 2/3 of the population ends up getting more from private investment than they would have in SS benefits, that's still millions of old people getting less than they would have otherwise.

furthermore, it confuses market performance with a certain kind of return on capital. the correlation is often only minor. as i said above, extremely few investors beat the market, and many more than that lose their ass.

bush's plan will invite them to lose their safety net.

angry yout | January 12, 2005, 12:52pm | #

Wild Pegasus,

Since the SS funds are already used to purchase Fed paper, I think the least-disruptive policy would be to simply have FICA donations used to generate private ownership of the public debt. Enough with the dispersion of funds for purchase of equities! (You called it, after the sheeple get fleeced at the NYSE, they'll back at the teat for more.) Far better to fill in someone's name on the T-Bill today. Owners can choose to spread out into TIPS and STRIPs and choose the bond lifetime. Maybe state munis too?

Otherwise on topic with c and matt, I've often thought that a 100% inheritance tax would be the most individualistic policy. Probate requires the state to administer! And screw wills anyway - I'm seeing what Pennsylvania is doing to the will of Alfred Barnes! Get the state out of the business of attempting to enforce dead people's intents. Let'em do it while alive or "suck it", frankly. Of course, the older generation should be able to divest to their kids while living without causing estate taxes. Call it "gaming" if you like, but it would force dynamicism and also generate communication and hopefully trust between the generations. They should lease-back houses with the kids; and hand over control of family businesses way ahead of time. Maybe family businesses need to be organized as partnerships such that the death of a partner results in simple transfer to the rest of the partnership. I'm all for 100% inheritance by spouses or dependents. And life insurance paid to spouses/dependents. But if the oldie dies with positive funds, too bad. Plan ahead, use it or lose it.

Ultimate Fitness Program | January 12, 2005, 12:56pm | #

I'm willing to have a means-tested security net available to protect those too stupid/lazy/incompetant to provide for their own retirement. I'm not very happy with a non-means tested system that gives more in benefits to rich white folks than they put in, and less to poor black folks than they put in (on average, and I'm probably exagerating here, but hopefully you get the point). Means-test the system, uncap the FICA taxes, collect FICA on all earned income (capital gains, dividends, etc.), and then lower the rate slightly so as to not completely encourage hiding of income.

The more I think about Bush's plan, the more I see what a huge mistake it would be. In hindsight, that shouldn't be so surprising, since I've been suckered in by some of his other plans that haven't turned out very good, and I doubt SS privatization will work any better than Iraq, NCLB, or Bernard Kerik.

gaius marius | January 12, 2005, 1:07pm | #

Let us plan for our own retirement (the vast majority of people will be *much* better off for it),

mr karl, no one keeps you from doing this *now*. you want the 14% because you're convinced you can't fuck it up.

the point is admitting fallibility. i am planning; there is a chance i'll fuck it up royally. if i do -- as a percentage inevitably will, a percentage larger than either of us is probably comfortable with -- there is SS.

the vast majority of people out there have trouble balancing their checkbook. now they're all cornelius vanderbilts? no. many will fuck it up -- even in making what seem good choices from their perspective.

one has to admit that while the opportunity to succeed is helped by hard work, success itself has largely to do with luck. SS is the hedge against that.

Gilbert Martin | January 12, 2005, 1:15pm | #

"I'm talking about the fact that the greater benefits alleged to accrue from privatization and stock investment are averages, and that by definition, half the population will be below the average"

You're still not making any sense to me. The only averages I've heard discussed regarding private invesmtments is the average rate of return on an investment over long periods like 30 years or more. Studies I've seen have calculated the long term rate of return on equities at around 10%. Depending on one's actual investment time horizon it may be higher or lower than that.

It has nothing to do with percentages of the population.

Tim Higgins | January 12, 2005, 1:17pm | #

"as i said above, extremely few investors beat the market, and many more than that lose their ass"

But let's not pretend that one needs to beat, or even match market performance in order to come out ahead of SS. Take a hypothetical person who (1) starts working at 22, (2) earning $25,000 per year, (3) recieves 4% annual pay increases, and(4) works to SS normal retirement age. Even if we pretend that none of the employer's share of the SS contribution would go the the employee as a salary increase in the case that SS withholding were eliminated, this employee would only have to achieve a 4.25% annualized return on investment to beat SS. Considering the progressive nature of SS benefits, and the likelihood that at least some of the employer's share of the contribution would be transferred to the employee as a pay increase if withholding were eliminated, the actual return needed to match SS benefits would be even lower than this for virtually everyone.

Gilbert Martin | January 12, 2005, 1:24pm | #

"The goal of Social Security is to provide a guaranteed minimum for retirement. Any "solution" that reduces the wealth of some retirees is, by this measure, a failure - even if some other group of retirees is getting more."

That's your characterization of it's goals.

I could jsut as accurately state that it's goal is to steal money from people it belongs to in order to give it to people it doesn't belong to to induce the latter group to vote for the politicians promising them the handouts so that said politicians may maintain and increase their own power.

Any change that breaks that cycle is a success in my book.

karl | January 12, 2005, 1:27pm | #

mr gaius - I have limited resources. Taking 14% from me limits my ability to plan for myself and goes along way towards encouraging me to be a ward of the state when I retire, dependent on their ability to tax future generations. And no-where have I claimed infalability - those are your words. Do I think I can do better than depending on politicians having more of an interest in my vote than someone elses? Yes, I do. Do I think those few that slip through the cracks can be better cared for with a non-retirement ponzi scheme? Yes I do. You are presenting a false dichotomy. Either I and everyone else have to be infalible, or we'll starve like dogs, or we turn over huge tracts of our income to fucking beauracrats in the hope that they'll see fit to throw us a few scraps when the time comes. Fankly I'll take my chances with my 'infalibility' rather than Frists or Boxers.
-K

Tim Higgins | January 12, 2005, 1:42pm | #

Correction:

I found an error in my earlier calculations - I forgot to take into account post-retirement COLA adjustments to the SS benefit. The employee described in my previous comment would have to earn 6.85% to beat SS. The same comments about a lower return actually being needed for virtually everyone still apply.

gaius marius | January 12, 2005, 1:43pm | #

But let's not pretend that one needs to beat, or even match market performance in order to come out ahead of SS.

agreed, mr higgins, but this is again ultimately to substitute the reductive "average" return -- in this case, 4.25% annualized -- for the distribution of returns.

if you have $390, and you get an average annual return of 4.25%, you get $6,600 after 68 years.

why is that important? 390 was the dow top in 1929. it took until 1997 -- 68 years -- to see 4.25% average annualized in the dow from that point.

how many small investors made it even to 1931?

in 1965, the dow hit 1000. it didn't exceed 1000 until 1982 -- and didn't work up to 4.25% annualized until 1991. that period includes the 1987 crash, the 1972-74 bear, the 1968 "-onics" crash and the 1981-82 bear.

how many small investors made it even to 1975?

i'm telling you, millions of good, sensible folks will get wiped out.

are there any posters here who were of investing age in 1965? i'd like them to tell us what they think about 4.25% annualized.

Captain Awesome | January 12, 2005, 1:50pm | #

All this seems to carefully avoid the immorality of forced givings. Also, if one is a true collectivist they should join the libs in identifying that forced re-allocation of income is detrimental to aggregate wealth, i.e. the wealth of the immaginary collective.

Captain Awesome | January 12, 2005, 1:51pm | #

Not to mention that less than 50 cents on the dollar of federal health and human services makes it's way to an end user. The business model of government is flawed. Why do we put up with it?

Jennifer | January 12, 2005, 1:58pm | #

Captain Awesome-
We put up with it because starting a revolution would eat up valuable TV time.

Twba | January 12, 2005, 1:59pm | #

Joe, there is no looming SS crisis. There is a looming surprise for all who believe that SS in its present guise can be maintained in perpetuity.

gaius marius | January 12, 2005, 1:59pm | #

Do I think I can do better than depending on politicians having more of an interest in my vote than someone elses? Yes, I do.

i'm not sure i'd agree with that, frankly, mr karl.

beyond what i said about market returns --

faced with the choice of govt taking 14% and you saving 5% with a minimum guarantee, vs you saving 8% and spending the other 11% (not you specifically, of course, but many millions who are up to their eyeballs in debt) with no guarantee, i'll take the former. at least that one offers minimal insurance against failure, either personal or systemic.

i know bush's plan doesn't call for the total release of forced savings.

Do I think those few that slip through the cracks can be better cared for with a non-retirement ponzi scheme? Yes I do.

as i cited above, this "through the cracks" number without *any* investable liquid assets is something like 40% of 50-59 y/os -- 4 in 10.

Karl | January 12, 2005, 2:02pm | #

Cpt. Awesome - I'm trying to avoid the morality of the issue since it's very clear that gaius and joe have a different view of what is and is not moral, so arguing about that does little good. Your second point regarding less than 50 cents on the dollar going into the federal system gets to the 'intended' use is a cost that has to be factored into any questions regarding federal administration of charity programs. Maybe that's just the cost of a 'moral' system.
-K

Gilbert Martin | January 12, 2005, 2:03pm | #

"Not to mention that less than 50 cents on the dollar of federal health and human services makes it's way to an end user."

Good point.

The greatest benfeciary of all the transfer payments from the "war on poverty" has been the middle class paper shufflers with makework government "administrative" jobs.

karl | January 12, 2005, 2:07pm | #

gaius - you're taking a number (40% of 50-59yo) based on the current system where there is no incentive for people to manage for their own retirement. That's not kosher. And as to "i'll take the former"... Feel free! Let me choose the latter. It seems that you are assuming that people are too rock dumb to respond to incentives and think ahead. You've (the generic you) have put a system in place that encourages (nay demands) the exact behavior you're pointing to as an argument to keep the current system in place.
-K

Captain Awesome | January 12, 2005, 2:10pm | #

Jenn.
I know how that must have sounded, all revolutionary and such. I still am a pacifist though, I was thinking more allong the lines of how can a majority continually vote to screw itself over? So very sad.

On a different note, the other day I pointed the bizzar twisted sort of justice in school funding 30-year bonds, we're making the children pay for the shitty education they recieve (teachers love this one).

Karl | January 12, 2005, 2:12pm | #

PS: gaius - I left un-challenged your assumption regarding 14% and me saving 5% with a minimum guaruntee vs. 8% with no guaruntee. I have absolutely zero guaruntee on that 14% - none, nada, zip. You (generic again) will probably decide that 85 is a good retirement age and since I was taking good care of MY 5%+, I'm too rich to get any of that 14% anyway.
-Karl

gaius marius | January 12, 2005, 2:19pm | #

Feel free! Let me choose the latter.

except that i end up having to pay for you anyway in the end, mr karl, if you're one of the lot who fritters it away.

It seems that you are assuming that people are too rock dumb to respond to incentives and think ahead.

i'd agree that most are -- or rather, that people do not respond to stimuli in a "rational" manner. we're emotional animals.

but beyond that, many people trying to be rational and do good will get fleeced anyway! that's the point of what i'm trying to say in the analysis of what 4.25% annualized really means -- you have to be able to endure heavy losses, and that is not the situation marginally-solvent retirees are in with their SS insurance. and yet, many of them will risk it all in a shot at a more comfortable retirement. stu-pid -- and entirely human.

Twba | January 12, 2005, 2:20pm | #

Jennifer, it is so much easier to bathe in the glow of the idiot box than address the shortcomings of our government.

gaius marius | January 12, 2005, 2:22pm | #

I'm too rich to get any of that 14% anyway.

lol -- i would never infer anything about the means of a gentleman, mr karl. :)

Gilbert Martin | January 12, 2005, 2:31pm | #

"except that i end up having to pay for you anyway in the end, mr karl, if you're one of the lot who fritters it away."

Who says that's a given?

Who had to pay for other's who frittered away their savings in the country's history before social security was created?

No one.

kevrob | January 12, 2005, 2:32pm | #

SS screws one group in our society above all others: anybody who dies before retirement age. This group is disproportionately male, poor and African-American. That sure sucks.

Bush's plan, such as it is, proposes taking one sliver of the generous pie-slice stolen from your paycheck and putting it under your limited control. As stated above, one could be very timid and just allocate it to T-Bills or a government bond fund. Even a "widows and orphans" approach would do as well or better than the majority of the FICA they swipe from you.

As for the annoying gm, one reason I support a personal investing approach is because it is consonant with individualism. No one will be outlawing any voluntary communitarianism, in any case. Let gaius join the third order Franciscans or the Moose or the Sons of Canute, and he can look out for the welfare of all to his heart's content.

Come to think of it, does anyone wonder if gm is leery of dumping SS because he has a problem with capital(s)? :)

Kevin

Karl | January 12, 2005, 2:35pm | #

gaius - Oh, but you will infer something about the means of a gentleman (not that I claim to be one) since you support means testing (January 12, 2005 12:38 PM). ie - those who do plan and are careful can kiss their 14% over the years goodbye. And I dispute your statement that people don't respond to stimuli in a rational manner. Everything I know of economics, history, and my own personal observations indicate that yes, they do, even though we are indeed, emotional creatures. And then you change gears and say even if we do respond rationally, we'll get fleeced anyway. That's certainly true. Some people will, regardless of good and careful decision making, end up in a bad situation. But it won't be 40% of 50-59yo and the small number that will be can be cared for either through voluntary charity, families, or a small welfare program that can be instituted without screwing everyone else out of 14% of their lifetime income and denying them a very comfortable retirement.
-K

Gilbert Martin | January 12, 2005, 2:42pm | #

But Karl if people are allowed to achieve more individual independence via keeping and investing their own money, that's moving in the opposite direction of peopele becoming more and more dependent on government programs - which is the source of the Democrat party's power.

And we can't have that, now can we :-)

TJIT | January 12, 2005, 2:43pm | #

Joe and gaius,

Your main argument seems to be trust the government, it is a government guarantee. I don't see how a government promise can ever overcome demographic reality.

Furthermore, a government promise is not a guarantee. Kyoto was a government agreement (not ratified), so was the ABM treaty, and so were numerous Indian treaties. All of these were changed or abandoned why do you think social security is any different.

With a private account at least you know the money you put there will be there. Currently your social security tax is paying for current retirees benefits and the balance is spent on other programs.

Ultimate Fitness Program | January 12, 2005, 2:50pm | #

Our government never agreed on Kyoto with anyone. As for the other examples, there would be far more fallout from the government defaulting on Social Security, as opposed to raping the red man of their lands.

joe | January 12, 2005, 3:18pm | #

"Who had to pay for other's who frittered away their savings in the country's history before social security was created?

No one."

There were systems of taxpayer-funded poor houses and poor farms throughout the colonies/states as far back as the 1700s. Let's file that one next to "No one told you what you could do with your land before modern zoning" in the Hall of Cherished Myths.

TJIT, the demographic "reality" is not as real as you have been lead to believe. The projections of Social Security's shortfall are based on assumptions about immigration levels and productivity increases that are far below what has actually happened in this country over the past 60 years. It's a phony crisis, and you shouldn't be so trusting of the politicians attempting to scare you. (See how neat that charge "you trust politicians" can be? You can use, literally, for everything).

"why do you think social security is any different." Because Social Security is wildly popular, and the self-interest of politicians militate's for its preservation, not its elimination.

"With a private account at least you know the money you put there will be there." Unless, of course, it's lost. There are no guaranteed payouts from stock purchases.

Gilbert Martin | January 12, 2005, 3:37pm | #

"There were systems of taxpayer-funded poor houses and poor farms throughout the colonies/states as far back as the 1700s. Let's file that one next to "No one told you what you could do with your land before modern zoning" in the Hall of Cherished Myths."

The "systems" that existed in times past were debtors prisons where people had to work off their debts to other people and indentured servitude for the same purpose.

Gilbert Martin | January 12, 2005, 3:39pm | #

"There are no guaranteed payouts from stock purchases"

There are no guaranteed payouts from social security either. The courts have already ruled that the government has no legal obligation to provide benefits to anyone just because they previously paid into the system.

gaius marius | January 12, 2005, 3:51pm | #

ie - those who do plan and are careful can kiss their 14% over the years goodbye.

mr karl, if you look at it only individualistically, i don't know what to say. if you don't believe we have any social responsibility to the unfortunate, you'll never be able to justify SS on any level.

i simply hope that we haven't abandoned each other to that extent.

if i end up on losing SS benefits on a means test, i will be *happy* because it means i'm better off than many. it seems to me that's all really one can hope for. the only way to be upset about that, it seems to me, is if you're abjectly greedy (as opposed to simply self-interested) and ungrateful at your good fortune in testing out of subsistence-level living. it means your hard work paid off -- when for many, it didn't.

if you don't need it, why do you want it when it could support others in need or reduce the overall tax burden? let's introduce a sliding scale, for example, that gives you less the more you have.

And I dispute your statement that people don't respond to stimuli in a rational manner.

two words: nasdaq 5000. or: tulip bubble. or nikkei 39000. or: WMD. we quite recently had a run on duct tape and plastic sheeting because people thought they were going to be chemically attacked in places like kansas and utah. people are animals, mr karl. that much should be self-evident. no shame in it.

fwiw, i think the ideology of efficient markets can be safely put to rest as the delusion it is.

it won't be 40% of 50-59yo

i'm willing to entertain other figures if you can otherwise explain chart 4.2 to me.

in any case, i think we have to agree it isn't one in a million. it could be one in ten, at best. it's a *lot* of oldsters. and many will find a way -- but many won't.

a small welfare program that can be instituted without screwing everyone else out of 14% of their lifetime income and denying them a very comfortable retirement.

it seems to me, mr karl, that you aren't opposed to the idea of a safety net so much as the notion of paying taxes. is this so?

gaius marius | January 12, 2005, 4:04pm | #

on debtors prison:

Samuel Johnson wrote in 1758, "It is vain to continue an institution which experience shows to be ineffectual. We have now imprisoned one generation of debtors after another, but we do not find that their numbers lessen. We have now learned, that rashness and imprudence will not be deterred from taking credit; let us try whether fraud and avarice may be more easily restrained from giving it."

there's a popular delusion among individualists that financial crisis is earned through laziness or irrectitude or something.

part of what i'm trying to convey is that financial disaster is largely random as a result of decent, responsible decisions made in a chaotic world that can destroy you at any time. this is why debtors prison never emptied -- not because people are bad (though some are) but because shit happens.

SS is a way of insuring people in a minimal way from the vagaries of a random life. in a nation of great wealth, this is a decent thing to do.

gaius marius | January 12, 2005, 4:16pm | #

There were systems of taxpayer-funded poor houses and poor farms throughout the colonies/states as far back as the 1700s.

i'll do you one better, mr joe, and note that tithing was an enforcable canon law going back to the dark ages -- 10% of your income, if you please. in return for that, the church provided many social functions, one of which was caring for the poor and unfortunate.

Gilbert Martin | January 12, 2005, 4:17pm | #

"there's a popular delusion among individualists that financial crisis is earned through laziness or irrectitude or something."

I could just as easily say that there is a popular delusion among collectivists that those who've acheived success did so primiarily because of dumb luck rather than effort, perserverence, prudence or intelligence.

joe | January 12, 2005, 4:19pm | #

"The "systems" that existed in times past were debtors prisons where people had to work off their debts to other people and indentured servitude for the same purpose."

Breaking news - Gil doesn't know what he's talking about. As shocking as that might be.

Read a book that isn't published by Regnery, would you?

TJIT | January 12, 2005, 4:24pm | #

Gaius, You said

"mr karl, if you look at it only individualistically, i don't know what to say. if you don't believe we have any social responsibility to the unfortunate, you'll never be able to justify SS on any level."

Social security takes from the the generally less well off (the young and working) and gives to the generally more well off (the elderly and retired) and you justify the whole unjust system based on the idea that it helps a few truly unfortunate.

It would be nice to have a program to help the poor and destitute. What you are doing is using the poor and the destitue to justify a middle class entitlement. An entitlement that gives more to the well off then it does to the poor and destitute

Gilbert Martin | January 12, 2005, 4:27pm | #

"Breaking news - Gil doesn't know what he's talking about. "

Not on your say so.

gaius marius | January 12, 2005, 4:30pm | #

Your main argument seems to be trust the government, it is a government guarantee. I don't see how a government promise can ever overcome demographic reality.

i -- unlike mr joe :) -- do think SS has major issues to the extent that the american government finances are in desperate need of attention. mr joe is right to some extent -- that the SS crisis in isolation is phony, or at least overplayed, which can be remediated by directing general funds into SS instead of the other way round.

but the broader government problem is not, and SS is only a government entitlement. if runaway inflation renders your dollar savings worthless, that is a real problem.

the united states needs to spend less, collect more taxes and quit incentivizing consumer debt (in homeownership). the alternative is the destruction of the dollar and ultimately a violent real credit contraction.

jc | January 12, 2005, 4:36pm | #

the point is admitting fallibility. i am planning; there is a chance i'll fuck it up royally. if i do... there is SS.

To rephrase karl, since you have somebody else's money to be your safety net, you are more apt to invest your own money in risky plans. If you had no one else's money as a safety net, you'd be more apt to spread your risk wisely. Most people who call themselves investors already do this.

SS had means testing from day one. All the other means testing ideas for SS are just an admission that the math really doesn't work out in a pyramid scheme.

c | January 12, 2005, 4:41pm | #

What you are doing is using the poor and the destitue to justify a middle class entitlement. An entitlement that gives more to the well off then it does to the poor and destitute

actually, I saw gaius come out in favor of means-testing SS so that this wouldn't happen. With the means test in place, your opinion about SS would change, presumably, TJIT?

gaius marius | January 12, 2005, 4:42pm | #

I could just as easily say that there is a popular delusion among collectivists that those who've acheived success did so primiarily because of dumb luck rather than effort, perserverence, prudence or intelligence.

sigh...

mr martin, the difference between your statement and mine is that mine has the virtue of being true.

effort, perserverence, prudence and intelligence do you no good if you get hit by a bus. these things can work against you if you abandon them; surely, pursuing them can maximize your chances of seeing certain outcomes sometimes -- though there is often surprisingly little correlation between the outcome you want and the outcome you're working toward because life is complex and easily misread.

they cannot, however, stand for anything against simple bad luck. and the refutation of all those principles means nothing with the intervention of good luck.

Q: why was napoleon a great general?

A: for all his strengths, he wasn't. he was, however, remarkably lucky.

Gilbert Martin | January 12, 2005, 4:46pm | #

"mr martin, the difference between your statement and mine is that mine has the virtue of being true."

Nope.

It's nothing more than your opinion.

You aren't the arbiter of truth in here or anywhere else.

Lee | January 12, 2005, 4:47pm | #

Late to the debate, but how about a simpler solution?

Instead of the government spending away the money we put in (as they do now), they actually flag the money you put in as YOURS. The more you put in, the more you can get out. Any remaining at death can be distributed to survivors. If you live longer than you thought and run out of money, ooops. McDonalds is always hiring ;)

Those on SS now get funded by the government until they die off. Granted there will still be transition costs and it will still be a 'forced savings account' but I think in this case simpler is better.

c | January 12, 2005, 4:53pm | #

Lee, just don't say the word "lockbox."

gaius marius | January 12, 2005, 5:00pm | #

To rephrase karl, since you have somebody else's money to be your safety net, you are more apt to invest your own money in risky plans.

i agree completely -- i do this now -- which is why i am uncertain as to why anyone already saving for their retirement wants the net taken away. as i said before, my retirement plan is already privatized. SS is simply an insurance plan against messing that up terribly -- as many invariably must.

again, SS is NOT an investment -- it is insurance against investing, because investing invaribly includes the risk of disaster.

people who dream of getting their hands on the money don't seem to realize that, if they are victims of the unforeseen -- say their diversification turns out to be mistaken and unexpected correlated -- they now have no net. that is not social security; that is just a particularly catastrophic loss.

If you had no one else's money as a safety net, you'd be more apt to spread your risk wisely. Most people who call themselves investors already do this.

there is a fallacy in your supposition, mr jc, which is that people are rational risk disseminators. they are not. if they were, they would have been fleeing american stocks since the middle 1990s, when they became grossly overpriced and prompted greenspan's 'irrational exuberance' comment.

most americans today are grossly overinvested in stocks because they do not evaluate risk well. at some point in the future, they will be grossly underinvested in stocks for the same reason. this is not because they're american, but because they're people -- and not rational monads.

people have NEVER evaluated risk well and never will so long as they are human. at core is the inescapable human tendencies to take recent past events and extrapolate them into distant future prophecy and an inability to risk only survivable losses. eg, "banks haven't failed in living memory, so they won't -- and i can bet the mortgage on banks." Big Mistake.

gaius marius | January 12, 2005, 5:01pm | #

You aren't the arbiter of truth in here or anywhere else.

mr martin, i don't have to be the arbiter of truth for so long as you are the arbiter of blithe stupidity.

Gilbert Martin | January 12, 2005, 5:07pm | #

"mr martin, i don't have to be the arbiter of truth for so long as you are the arbiter of blithe stupidity."

And yet again, that's nothing more than your opinion you big bag of hot air.

sulla | January 12, 2005, 5:09pm | #

"spread your risk wisely"

What does this mean? Or, more accurately, what do you think this means?

Any low-yielding investment (pass book savings, etc.) is unlikely to keep you up with inflation.
Not everyone can own government bonds (a very inefficient allocation of capital, I'd argue).

Even the best risk management practices are based on probabilities. The probability distributions involved have tails. It's still possible to get beat up while using prudent risk management measures.

My job exists because the markets are inefficient, i.e. some (all?) investors are irrational. Mr. gaius mentioned correlation. A concept which is completely foreign to most individual investors, I reckon.

gaius marius | January 12, 2005, 5:18pm | #

It's still possible to get beat up while using prudent risk management measures.

exactly, mr sulla -- i'm sure you're familiar with fat tails.

the current concern running around my block is the uniformity of VAR modeling, which is of course just a new vocabulary for a very old story of everyone heading to the door at the same time.

Russ D | January 12, 2005, 5:21pm | #

If you don't want the risks of the stock market, then put your investments in the bond market.

If the government really and truly gave a shit about making sure you have money for your old age, they'd at least transfer a percentage of your FICA contributions into US Gov't savings bonds and hand those bonds to you immediately. Instead they send you a yearly statement of wishful thinking, most of that wish being that they won't change the rules of the game (the means testing) on you. Thinking that this system was ever on the up-and-up is revereing a false god.

The stupidest individual investor on the planet is still a smarter investor than the government. There isn't one investor that lost his shirt that didn't know about it fairly soon; the biggest stock market loser never said "You mean I lost all my money in the stock market 30 years ago?" Everyone has to file taxes yearly, and you report losses as well as gains.

gaius marius | January 12, 2005, 5:33pm | #

If you don't want the risks of the stock market, then put your investments in the bond market.

ah, but it is not that simple, mr d, even though it appears to many to be. these two markets are highly correlated under certain circumstances which 90% of small investors (and many large investors) don't understand at all and are not prepared for -- and would be destroyed by.

If the government really and truly gave a shit about making sure you have money for your old age, they'd at least transfer a percentage of your FICA contributions into US Gov't savings bonds and hand those bonds to you immediately

again -- SS is not an investment, it is insurance against investing. that *cannot* be emphasized enough. making you rich is not the important component; putting a floor under you is.

on the whole, this dialogue only reinforces my thought that americans are far too hubristic and self-empowered for their own good (as investors and otherwise). they are happy to throw away social safe harbor if it means ekeing out another couple points on their own. amazing -- really the best possible argument against men as rational beings.

Russ D | January 12, 2005, 5:45pm | #

gaius,

Of course bonds aren't risk-free. I never claimed they were. But all your railing in favor of SS seems to be that it is the lowest possible risk of losing everything. That sounds irrational to me since the government can change the means testing on you at any time.

"You lost everything at age 63? Well, too bad, we changed the minimum age to 70, so I guess you're fucked for 7 years. If you can live long enough, we'll be here for you. If you don't, thanks for your FICA contributions anyway."

jc | January 12, 2005, 5:54pm | #

gaius, seems to me you are banking on people's irrationality. Rational or not, you know that if people weren't forced to pay into FICA they wouldn't. And that would kill YOUR safety net. I love how people can spin their own selfishness as caring for others. Funny how your abundance of caring requires MY money.

Gilbert Martin | January 12, 2005, 6:01pm | #

Gabbius Maximus has the irrational beleif that he's smart enough and more qualified to make other people's decisions for them than they are for themselves.

This of course is not an uncommon trait among lefty types.

Another thing those characters have in common is that not a single one of the who has ever lived on this earth in the entire span of history has ever actually done anything in their entire lives to actually demonstrate that they are, in fact smart enough to make other people's decisions for them.

Jennifer | January 12, 2005, 6:26pm | #

Gilbert-
Gabbius, as you say, is certainly right about at least ONE thing which you seem to deliberately overlook--it is indeed possible for a person to make all the right choices and do all the right things and STILL end up screwed, through no fault of their own.

matt | January 12, 2005, 6:49pm | #

Gaius Marius:

Why should I be forced to hand over x% of MY income simply because you and others feel I should be "socially responsible?" Why do you feel that individuals have have some sort of forced responsibility for other people?

Captain Awesome | January 12, 2005, 6:56pm | #

And since when do politicians have the intelligence of gods, the planner is only human. And when the plan is to rob Peter to pay Paul it is also amoral in every sense of the term. I think it would be fine if direct deposit came with a recomended giving table, and that table adjustable to the individual, Peter doesn't have to give to Pauls chuch and Paul doesn't have to donate to Peters low-income birth control clinic. But to coercively force donations is not a sign of highly developed social concience, it a paltry attemp to feel better by giving others money.

Tim Higgins | January 12, 2005, 7:57pm | #

gaius marius,

Isn't SS more like insurance against survival? I mean, we pay "premiums" in the form of SS withholding from each paycheck, and for each month that we survive past retirement, SS pays out a claim in the form of an SS benefit. As the program is currently designed, the claim is paid without regarding to the existence or performance of "third leg" investments, so characterizing it as "insurance against investing" seems inappropriate to me. Of course, if it was means-tested (which I think you have previously come out in support of), your description would be more apt.

madhatter | January 12, 2005, 9:30pm | #

you think the bush administration would highlight the racial disparity in SS payouts. Black men, because of lower life expectancy, actually pay more into the system then what they get out.

michael | January 12, 2005, 9:40pm | #

The mandated 7% contribution on the part of the employer means a built-in 7% disadvantage versus overseas labor. Anyone run the numbers to figure out how many jobs this costs the USA?

Ayn Rant | January 12, 2005, 10:20pm | #

Nick, Nick, Nick, Nick,

Well, I actaully agree with you here. Amazing.

Drooling Richard | January 12, 2005, 10:57pm | #

Michael, you're on the track.

The CATO institute has an article titled "The 6.2 Solution: A Plan for Reforming Social Security".

http://www.cato.org/pubs/ssps/ssp-32es.html

I'm very dissappointed that a so-called think-tank like CATA would publish such rubbish. The payroll contribution made by working Americans toward Social Security is 12.4%, not 6.2%.

I do not intend to discourage reform, but its best to start with facts. Here's the monthly break-down on payroll check in the State of California for single person earning $60,000 per year.

Payroll: $5000
State Personal Income Tax: 274.00
State Disability Insurace: 59.00
Federal Income Tax: 871.00
FICA ( by employee ): 310.00
Medicare ( by employee ): 72.00
FICA ( by employer ) : 310.00
Medicare ( by employer ) : 72.00

Notice the matching employer contributions. I am not the least bit confused about this, but most people, including CATO are.

The actual employee's earnings == $5000 + %6.2% of $5000 + %1.45% of $5000. That would be $5382.

Let's run the numbers again:

Income: $5382 (100%)
State PIT: $274 (5%)
State SDI: $59 (1%)
Federal Income Tax: $871 (16%)
FICA: $667 (12.4%)
Federal Medicare: $145 (3%)

When anyone uses the 6.2% number with regard to Social Security my left hand types away and my right hand reaches for my gun.





State Personal Income Tax: 5%
State Disablitiy Insurance: 1%
Federal Income Tax: 17%
FICA (social security): 12.4%
Federal Medicare: 3%

The screwing thing is my arimithic won't work.

drscroogemcduck | January 13, 2005, 3:32am | #

I'm surprised no-one has looked at other forced saving systems from other countries. Here in Australia we have superannuation. Employees and employers are both forced to make a minimum contribution to an employees account. The government also tops up contributions.

I think the minimum amount that is required to be put in superannuation is not enough for people to retire on. But if you add property that is acquired during a persons lifetime and other investments I think most people would be able to retire comfortably.

Also, most people seem to make decisions under the pretense that the old age pension will not exist in the future. Or at least that's the angle that is constantly pushed to try and get people to save for their retirement.

Jim | January 13, 2005, 7:56am | #

Just a few thoughts about reform:
1) Lay out all the details of how it would work. At least those who read blogs could see the links and see what all the paperwork, forms and economic projections would look like. If necessary or appropriate, W should have one or more of his Fortune 400 buddies who believes in privatization underwrite this through a generous gift to a like-minded foundation.
2) Make sure particiaipation in the "opt out" priviatization is voluntary, and all the geezers understand that.
3) The simplist and fairest way to pay for any SS shortfall is to keep track of all transfer payments, including SS, SSI, AFDC, Medicare, etc., and all payments made by individuals, and if an individual has received more from the government than he or she has paid in, recover that excess payment when the receipient dies. This is essentially what is done with Medicaid recipients now through the liens that are placed on the real estate (personal residence) they may continue to own until they die. Their heirs get nothing until the govvernment is repaid. Afterall, why should the heirs of some Social Security beneficiary get his inheritance untouched when that person drew $75,000 more than he or she ever paid in? That $75,000 came from somewhere, probably low-skilled low income young workers.

Gilbert Martin | January 13, 2005, 8:25am | #

"Gilbert-
Gabbius, as you say, is certainly right about at least ONE thing which you seem to deliberately overlook--it is indeed possible for a person to make all the right choices and do all the right things and STILL end up screwed, through no fault of their own."

I never said that it wasn't possible. What it is, is irrelevant as a justification for forcing people to participate in social security as there IS no possible justification for it. Charity is supposed to be voluntary - not mandatory and government has no authority to mandate it.

What Gabbius said that is patently untrue is that all the people who have achieved success owe it primarily to plain luck.

Gilbert Martin | January 13, 2005, 8:28am | #

"3) The simplist and fairest way to pay for any SS shortfall is to keep track of all transfer payments, including SS, SSI, AFDC, Medicare, etc., and all payments made by individuals, and if an individual has received more from the government than he or she has paid in, recover that excess payment when the receipient dies. This is essentially what is done with Medicaid recipients now through the liens that are placed on the real estate (personal residence) they may continue to own until they die. Their heirs get nothing until the govvernment is repaid. Afterall, why should the heirs of some Social Security beneficiary get his inheritance untouched when that person drew $75,000 more than he or she ever paid in? That $75,000 came from somewhere, probably low-skilled low income young workers."

That's not a bad idea although I'm not sure how much could actually be recovered by that process.
There are probably quite a few people who've drawn out more than they ever put in who don't have any apprecaible estate to recover any of it from.

Gilbert Martin | January 13, 2005, 8:51am | #

For all you "New Deal" dinosaurs out there who claim there is no social security crisis, here is an article in today's National Review Online that lays out exactly why there is a crisis




http://www.nationalreview.com/nrof_luskin/luskin200501110842.asp

gaius marius | January 13, 2005, 9:44am | #

But all your railing in favor of SS seems to be that it is the lowest possible risk of losing everything.

what i mean to say, mr russ d, is that it is the safest and most comprehensive insurance policy available to any of us. fwiw, it doesn't get safer than government-backed in the marketplace -- no matter your ideological opinion about government (which is rightfully quite low).

by all means, invest for yourself as well! don't rely on insurance alone -- but take the insurance. you may be extremely grateful that you did.

gaius marius | January 13, 2005, 9:58am | #

gaius, seems to me you are banking on people's irrationality.

me and all of wall street.

Rational or not, you know that if people weren't forced to pay into FICA they wouldn't. And that would kill YOUR safety net. I love how people can spin their own selfishness as caring for others. Funny how your abundance of caring requires MY money.

fwiw, it probably isn't for me. i don't want SS. i'm well enough off and don't *expect* to need it -- if all goes well, which it may not.

have you considered that i'm making the argument for your insurance as well?

again, if you're an incorrigible antisocial individualist who really thinks they'd be better off isolated in the yukon wilderness, SS will never appeal. all this "YOUR" and "MY" indicates you can't grapple with your (unrealized?) vast dependency on others in civilization. you may not have noticed, but under the lockean conception, we force ourselves. and why? because we humbly realize our fallibility and smallness in this world.

some people are just stupid enough to think that they don't need any help -- or that, if they need any, they'll always know that they do and call for it. i don't know if you are one of those, but your argument sounds like it.

joe | January 13, 2005, 10:00am | #

Hail, gaius, I see you're received the Martinite "Nope." I've come to recognize this nullification for what it is - a capitulation. When you base a position on facts you know to be true, and the opposition is reduced to denying those demonstrable facts, it amounts to an unwitting admission that your position is unassailable.

Hey, man, that's just your opinion, dig?

I mean, who knows what's real and what's not in this crazy, mixed up world.

Gil, I don't expect you to attain a better grasp of the facts based on my word. I don't expect you to attain a better grapst of the facts in other manner, though, so I won't take it personally.

TJIT | January 13, 2005, 10:26am | #

Gaius,

If it is an insurance plan why all the heartburn over the so called "lockbox".

The heartburn exists because people have been sold on the idea that their fica money is going for their retirement when it is actually being used to pay current retirees benefits and current government spending.

Taking fica "retirement" money and spending it for other purposes would be fraud if a private company did it.

gaius marius | January 13, 2005, 10:51am | #

Why should I be forced to hand over x% of MY income simply because you and others feel I should be "socially responsible?" Why do you feel that individuals have have some sort of forced responsibility for other people?

mr matt, first off, acknowledge our debt to each other under law. we have "incomes" because we work, yes -- but also because we are very lucky, and because we rely on many others to do their part as well. specialization is the result of tight social interdependence, and this allows the division of labor which gives any of us any income in excess of starvation (much less leisure). and nothing of our small corner of civility would stand against a single masterstroke of bad luck. under such circumstances, humility becomes us. "there, but for the grace of god, goes john bradford."

it will be seen that people are not always so humble as john bradford. when they are not, it is for the good of society -- to the benefit of us all -- to compel them to realize their humility. this is not "slavery", as nietzsche would have said, but society -- a simple acknowledgement of our interdependence. be free in its measure -- but be humble in proportion.

this is decidedly against the common postromantic mindset, in which we are all artists, all individualists, all heroic. this mindset has overwhelmed the institutions -- law, church, peers -- designed to check individualism for common good and rendered them either powerless or perverted. and many foolishly believe this is good, not realizing that it constitutes the decline of civilization.

that's why it is necessary to compel people to contribute both time and effort, not only to SS but to government. it is -- in no abstract way -- an acknowledgement of the value of civility.

Gilbert Martin | January 13, 2005, 10:58am | #

"Gil, I don't expect you to attain a better grasp of the facts based on my word"

I don't expect anyone stupid enough to think that the social security "trust fund" contains anything of actual value to be any sort of judge of who has a "grasp" on the facts about anything.

gaius marius | January 13, 2005, 11:03am | #

I'm surprised no-one has looked at other forced saving systems from other countries.

in america these days, mr mcduck, it is "impolitic" to take a cue from anyone who is not american. many here will tell you the we are Superior, and therefore must teach you all as opposed to learn from you. :/

gaius marius | January 13, 2005, 11:08am | #

it amounts to an unwitting admission that your position is unassailable.

indeed, mr joe. when i read that bit, i thought immediately of the na-na-na-i-can't-hear-you defense.

Gilbert Martin | January 13, 2005, 11:18am | #

"I've come to recognize this nullification for what it is - a capitulation. When you base a position on facts you know to be true, and the opposition is reduced to denying those demonstrable facts, it amounts to an unwitting admission that your position is unassailable."

You can claim anything you want. Nothing is a "demostrable fact" on your say so.

It certainly isn't a "demonstrable fact" as Gabbius claimed that those who've achieved success owe it all to luck. That's nothing more than his personal opinion.

Gilbert Martin | January 13, 2005, 11:21am | #

" we have "incomes" because we work, yes -- but also because we are very lucky, and because we rely on many others to do their part as well."

... For which part they've ALREADY been fully compensated via the income THEY were paid so no additional consideration is due from one to the other.

gaius marius | January 13, 2005, 11:35am | #

But to coercively force donations is not a sign of highly developed social concience, it a paltry attemp to feel better by giving others money.

i submit, mr awesome, that compulsion is for those of us who, for whatever reason, have forgotten what we should be doing and why we should feel good about it.

that's not to say all government policies are "what we should be doing" -- far, far from it. i have major issues with the welfare state, and would like to see it rolled back in many respects. i personally feel the dubya's comprehensive prescription coverage was a stupid idea.

but SS is not welfare at all in the sense of transfer payments (despite what some want to imagine) -- it is a mandatory-participation insurance plan.

gaius marius | January 13, 2005, 11:42am | #

Of course, if it was means-tested (which I think you have previously come out in support of), your description would be more apt.

i think it should be means-tested, mr higgins, yes, and that would make the insurance more obvious.

but if one views SS benefits as a percentage of individual income instead of in the absolute, this aspect is already somewhat evident. a person who gets 100% of their income from SS is getting maximum utility of their insurance; one who gets 1% of their income by SS is effectively not receiving any benefit. a debatable perspective, i know.

gaius marius | January 13, 2005, 11:53am | #

The [lockbox] heartburn exists because people have been sold on the idea that their fica money is going for their retirement when it is actually being used to pay current retirees benefits and current government spending.

Taking fica "retirement" money and spending it for other purposes would be fraud if a private company did it.

but it's actually exactly what insurance companies do, not to mention banks.

people naively conceive of their money being "in" the bank or "in" the insurance company; of course it isn't. it's been lent out for return on capital, which the bank or insurer takes as profit (or loss).

similarly, people naively conceive of their payroll taxes as being "in" the trust fund. it isn't. that's no reason to panic, so long as the fund is properly managed.

government insurance under a fiat currency regime has the advantage of never being underfunded -- they can simply direct more dollars over there at any time, even if they have to print them. it's the safest insurance around, actually.

if they do have to print them, that's not a problem with SS but with government finances on a much larger scale -- including tax collection, imperial wars and special-interest subsidies.

all the concern about political caprice (of which there should be some) pales in comparison to the capriciousness of private insurance -- in which companies go bankrupt, reneg on promises, drop policyholders disingenuously.

jc | January 13, 2005, 1:22pm | #

reneg on promises, drop policyholders

When an insurance company changes the means testing its bad, when the government does it its prudent? No company would go bankrupt if it could print its own money. Increasing the money supply by fiat is inflation, in essence a tax. At least when a private company screws me, I can opt out of their program.

all this "YOUR" and "MY" indicates you can't grapple with your (unrealized?) vast dependency on others in civilization.

You're simply high on your own righteousness. As an investor, I know that my returns are predicated on a company paying workers and fulfilling customers; there is no way anyone who thought about it could possibly deny the dependency on others.

gaius marius | January 13, 2005, 2:48pm | #

When an insurance company changes the means testing its bad, when the government does it its prudent?

not at all -- no value judgement involved. it can be prudent and "bad"(?) in both cases. it's simply less likely under public administration than private. the privates have to think profitably; the government, socially.

there is no way anyone who thought about it could possibly deny the dependency on others.

do people think about it? imo, not nearly as much as they should. if they did, the humility of john bradford would be easier to find.

jc | January 13, 2005, 5:13pm | #

do people think about it? imo, not nearly as much as they should. if they did, the humility of john bradford would be easier to find.


I dunno gm, I think it's pretty common if you're willing to look for it. IMO it's easier to see in individuals than it is in organizations and institutions. Individuals generally behave more humanely to other people when they act as individuals than they do when acting as part of a group. That's not to say that there aren't heinous individuals and that's not to say that there aren't genuinely humanitarian groups. But only an individual is capable of love. People are people, groups are things, systems are things. Love people and use things, not the other way round (to steal a phrase). I think people eventually get there, but we're all at different points in our progress. And that is by the grace of god, too.

matt | January 13, 2005, 5:42pm | #

Gaius Marius:

"mr matt, first off, acknowledge our debt to each other under law. we have "incomes" because we work, yes -- but also because we are very lucky, and because we rely on many others to do their part as well. specialization is the result of tight social interdependence, and this allows the division of labor which gives any of us any income in excess of starvation (much less leisure)."

I have no debt to anyone, other than to respect their right to be left alone and live their life as they see fit.

And as Gilbert Martin said:

"...they've ALREADY been fully compensated via the income THEY were paid so no additional consideration is due from one to the other."

"that's why it is necessary to compel people to contribute both time and effort, not only to SS but to government. it is -- in no abstract way -- an acknowledgement of the value of civility."

How is forcing someone into a program that they want nothing to with in any way "civil?"

Government is inherently uncivil. It must use force to compel individuals into certain actions. The free-market ecourages civility and cooperation through voluntary exchanges that benefit both parties.

gaius marius | January 13, 2005, 9:09pm | #

I think it's pretty common if you're willing to look for it.

mr jc, i look for it almost constantly now. and i don't see it much. people usually conflate humility with explicit self-gratification -- if i behave, i'll get something -- as opposed to humility as its own reward -- if i behave, the world i am a part of will be better.

people very rarely are capable of seeing the world as a whole of which they are a very small part. most often, they see the world in terms of what is theirs and what is not, and concern themselves about making theirs more of what is not. the truly social perspective has been supplanted on a very basic level by the individualistic.

mr matt affords an excellent example in saying a bizarrely arrogant thing like

I have no debt to anyone

whne he clearly, like all of us, owes 95% of his existence to luck and the benevolence of others.

that is not to say that there is not love in the world. but i think it is to say that we see ourselves in relation to each other differently -- as monads not of a whole -- so that love manifests itself differently. love is now often heroic, tragic, bold, dramatic -- not the utilitarian social affirmation it once was. if you're interested, denis de rougemont's "love in the western world" is the definitive text.

matt | January 13, 2005, 11:00pm | #

"whne he clearly, like all of us, owes 95% of his existence to luck and the benevolence of others."

No. I owe my existence to my parents. I owe my continued life after childhood to my own sense of self preservation.

gaius marius | January 14, 2005, 11:43am | #

No. I owe my existence to my parents. I owe my continued life after childhood to my own sense of self preservation.

that is your sad delusion, mr matt.

Warren Celli | January 14, 2005, 5:26pm | #

Fifty million votes without a paper trail and you expect an honest debate and fair deal from your government in the social security "crisis"?

1. It is NOT a crisis, it is a problem that could be easily and fairly resolved with an honest government that is truly responsive to the people.

2. It's not about privatizing ss accounts -- that's the 'divide and conquer' issue, and it is working well as this thread attests.

3. What will really happen is that the indexing system to determine benefit amounts (now on wages, initiated by Ford and passed into law by Carter) will be changed to an index that will greatly reduce the promised payout.

4. Bush looks the sheeple in the eyes and says, "People that are retired and those close to retiring will get their checks!", all the while knowing in his immoral and devious heart that they will indeed get those those checks -- but they will be of much smaller amounts than promised!

5. The haves are firmly in control, the have nots are bent WAY over.

6. Fear rules the day and it will not change until the electoral system is fixed (maybe its time to burn voter registration cards)!

7. Politics is more fake than wrestling!

matt | January 14, 2005, 6:43pm | #

"that is your sad delusion, mr matt."

Ha. Well obviously you know me better than I know myself. So how 'bout answering my earlier question:

How is forcing someone into a program that they want nothing to with in any way "civil?"

Aaron | January 17, 2005, 5:23am | #

MYTH: "SSN keeps elderly people from dying in the streets."

If it did that, why do homeles bums exist? Bag ladies.

Not only this, you have to WORK to get SS.