Bush’s Social Security plan?

[Bjorn]

Although 2% may not sound like that much of a differential when the market is returning roughly 20% per year as it has from 1995 through 1998, the standard returns for the stock market historically are closer to 10%. Consider whether this is severe enough for you: over 50 years, a $10,000 investment will compound to $1,170,000 at 10% returns per year, but to only $470,000 at 8% per year.

http://www.fool.com/school/mutualfunds/performance/record.htm

So pooling a bunch of people's money together in private accounts and managing them is not the panacea to Social Security problems. The government managers will underperform the stock market, and will charge so many fees that it will push any profits down.

I have no objections to your numbers, but shouldn't we (if I forget my doubts about privatization for a moment) compare what we get in return from the government to what the stockmarket (index funds, fine) would give us, even after those bloodsuckers took their share?

 

[Elind]

If procrastination/losses can't happen because we have little choice as to investing or not, or on what to invest in, I’m back to square one: Why do it on our own if the rules are so strict that the government could just transfer the money to the approved mutual funds anyhow?

Exactly!!

As to all the rest of your post (deleted for efficiency), it seems to say the obvious, that if you don't make as much as you spend, you can't spend it, and it doesn't matter if it's privatized or not.

It seems to me that a lot can happen in 30 or 40 years from now (The Wright brothers flew when?), but that in the end we have to figure out how 1 or 2 young people can support 1 old person, as opposed to the 6 (?) today. We can do it by being healthier and working longer (not a bad solution after all) and producing more per person (once we take some manufacturing back from China) and we can do it by educating people better to plan for their future, and probably a number of other things. However we are not going to do it by sleigh of hand, so I'm still looking for an explanation that really makes sense to me, but I'll give them (Bush) the benefit of the doubt, for a little while.

On the other hand of course, I (probably) won't be here in 40 years, so if I didn't have kids I could say I don't give a damn. There go the genes again.

 

[Frank Newgent]

If that's what it costs to put that relic in the grave, so be it. Money well spent, far less than what it will cost later.

This is a skeptic's forum. That's why I'm still here.

Cost far less? Show me. Hope you don't mean this.

Know I've posted this link before but believe it illustrates what we'll soon be hearing from the administration.

 

[SezMe]

Krugman had an excellent article in the NYT today. I think this link will take you there, but it may require a registration - didn't for me.

 

[Frank Newgent]

Krugman had an excellent article in the NYT today. I think this link will take you there, but it may require a registration - didn't for me.

Same article Brown quoted earlier in this thread... but I'm with you.

At least nobody has called US Treasury bonds IOUs yet.

 

[SezMe]

Same article Brown quoted earlier in this thread... but I'm with you.

Ooops, sorry.

 

[WildCat]

oops!

 

[WildCat]

This is a skeptic's forum. That's why I'm still here.

Cost far less? Show me. Hope you don't mean this.

Know I've posted this link before but believe it illustrates what we'll soon be hearing from the administration.

Are you suggesting that in the future, when the IOU's come due, money will just fall out of the sky? Debts don't go away by lenghthening their terms, they just grow bigger.

Frank, there are only 4 things that can be done to the current system to keep it solvent. If you know of any others, the floor is yours:
1. Increase SS payroll witholdings.
2. Raise the retirement age.
3. Reduce benefits.
4. A combination of the above.

Every single one of those options reduce the already negative return of SS even more. Option 1 makes the problem worse by reducing the money available for an individual investor to put into his own retirement account (such as a 401(k)). Option 2 is hindered by the fact that many people will be too infirm to work at all at that age. Option 3 could reduce benefits so much they would be almost worthless.

Yet, those are the only options that Dems will consider. Everything else is off the table, as they huddle under statues of FDR and close their eyes to the reality of the situation. It's completely irresponsible to play petty partisan politics w/ something so important, and voters will notice. Why the Dem leadership picked this fight I have no idea. In 1998 their cry was "Save Social Security first!". Now it's "What, me worry?". Absolutely bewildering.

Bush has thrown out general ideas, not a specific plan. He has invited Congress to come up w/ the details developed through a bipartisan effort. But the Dems won't even go to the table to talk.

 

[Random]

Are you suggesting that in the future, when the IOU's come due, money will just fall out of the sky? Debts don't go away by lenghthening their terms, they just grow bigger.

This was the part of the Regan era Social Security agreement that never made much sense to me. There was absolutly no consideration about what to do when the bills would inevitably come due, Republicans and Democrats (yes, both were involved, get over it) saw the surplus money coming in and promply spent it.

The only president who actually seemed to care about how we were going to pay that money back was Clinton. He spent eight long years building up the Federal Budget into something that could sort of be called a "surplus". Bush blew through it in eight months.

It would have been nice to have taken the Social Security surplus and invested it in a sigle government controlled stock market account back in the 80s. The stock market does go up over the long term, and the government was in a much better position to absorb short term losses than the average taxpayer. Plus it would have kept the money safe from Regan and Tip O'Neil.

Instead, most of the money was spent on tax cuts and extra spending, most of which went to (gasp!) the rich. In essence, the working class loaned the rich the money in the Social Security Trust fund. This is why I find it particularly revolting when Bush tries to find a way out of paying that money back.

 

[Bjorn]

Are you suggesting that in the future, when the IOU's come due, money will just fall out of the sky? Debts don't go away by lenghthening their terms, they just grow bigger.

As far as I heard, there was nothing in the president's speech implying that the government won't 'pay the IOUs' - on the contrary, the only reason why the system will be solvent until about 2050 is the payback of surpluses from better times (like now).

Frank, there are only 4 things that can be done to the current system to keep it solvent. If you know of any others, the floor is yours:
1. Increase SS payroll witholdings.
2. Raise the retirement age.
3. Reduce benefits.
4. A combination of the above.

I agree with those 4, but can see at least one more:

5. Invest the money in the SS fund in a different way.

It only needs to be just as clever as the investment we will be allowed to do with our private accounts, which will supposedly give a return that is higher than what we get now. A couple of percentage points would do the trick.

Money is money and will grow according to how it is invested, not depending on being in 'private' accounts or not.

 

[Frank Newgent]

Are you suggesting that in the future, when the IOU's come due, money will just fall out of the sky? Debts don't go away by lenghthening their terms, they just grow bigger.

Assume you're talking about Treasury bonds... which ones? You mean the Asian ones? Hmmm, hey, just what the heck is the long-term economic rationale of China for putting its long-term assets into low-interest bonds in a currency that's dropped lately by more than a third and might/probably continue to do so anyhow?

Frank, there are only 4 things that can be done to the current system to keep it solvent. If you know of any others, the floor is yours:
1. Increase SS payroll witholdings.
2. Raise the retirement age.
3. Reduce benefits.
4. A combination of the above.

5. Wages growning more proportionately over all earning levels. If wages of high-wage earners are growing faster than low-wage earners, then the percentage of total earnings subject to Social Security taxes has to fall (given the ceiling on Social Security-taxed wages).
6. Tax-paying immigrant population.
7. Bigger families.

As far as worry over the ceiling on SS wages being lifted and reducing the money available for an individual investor to put into his own retirement account: well, leave that limit where it is but begin taxing wages again at $500,000. Of course, have a new ceiling above that.

Any plan will probably depend on indexing benefit increases to prices instead of wages. A bit harsh, but probably inevitable since it'll check a large percentage of the projected shortfall.

Huge borrowing to finance a system that probably isn't needed seems reckless. While we're at it, can you show the set of dividend yields and stock price increases that add up to the stock returns one would assume for a successful privatized Social Security system? (Bush's Social Security Commission has assumed stocks will give an average return of 6.5 percentage points above the rate of inflation over the next 75 years.)

 

[Random]

Somehow, in all the confusing statements about Social Secuirty deform, I missed this little gem quietly leaked out with everything else.

In a significant shift in his rationale for the accounts, Bush dropped his claim that they would help solve Social Security's fiscal problems — a link he sometimes made during last year's presidential campaign. Instead, he said the individual accounts were desirable because they would be "a better deal," providing workers what he said would be a higher rate of return and "greater security in retirement."

A Bush aide, briefing reporters on the condition of anonymity, was more explicit, saying that the individual accounts would do nothing to solve the system's long-term financial problems.

That candid analysis, although widely shared by economists, distressed some Republicans.

"Oh, my God," one GOP political strategist said when he learned of the shift in rhetoric. "The White House has made a lot of Republicans walk the plank on this. Now it sounds as if they are sawing off the board."

But Sen. Lindsey Graham (R-S.C.), a leading Senate proponent of restructuring Social Security, said the White House's candor was a good thing.

"As we debate the problem, we also need to be realistic about defining the solutions," he said. "The truth is, personal accounts will not even come close to making Social Security solvent."

So we are going to borrow two trillion dollars to do nothing? Is anyone else confused? I thought that the whole point of this was to make Social Security solvent and we were just arguing about the method.

 

[a_unique_person]

I'll hazard a guess that the only group that will be "secure" by these changes to Social Security, will be the rich GOP'ers and their supporters.

Charlie (let them eat yellowcake) Monoxide

If it is modelled on the highly successful Australian model (Successful for big business, that is), the original pension, or social security, will be left to wither away slowly. No one will expect to be able to live on it. The scheme will consist of money compulsorily paid to private funds that will then invest the money for you. These funds will then take their one percent, or two percent, or three percent cut of all the money that goes in, then their cut of the profits. The executives will be paid mind boggollingly large cuts for being such financial geniuses that they can take money people have to pay them and turn it over, sometimes making a profit, sometimes losing it.

The people who make the most will all be committed republican supporters. A few unions will create schemes as well, and these will have the highest returns.

 

[Elind]

Somehow, in all the confusing statements about Social Secuirty deform, I missed this little gem quietly leaked out with everything else.



So we are going to borrow two trillion dollars to do nothing? Is anyone else confused? I thought that the whole point of this was to make Social Security solvent and we were just arguing about the method.

That's exactly what I was trying to ask about earlier along with others here. IE taking a few percent OUT of SS and investing it in the stock market under the control (sort of) of individuals, is no different from "the government" investing some of the current SS receipts in potentially higher return funds.

However nothing in this actually increases the deposits into SS in the first place, which is where the investment funds come from.

So what's new?

 

[Random]

That's exactly what I was trying to ask about earlier along with others here. IE taking a few percent OUT of SS and investing it in the stock market under the control (sort of) of individuals, is no different from "the government" investing some of the current SS receipts in potentially higher return funds.

However nothing in this actually increases the deposits into SS in the first place, which is where the investment funds come from.

So what's new?

I know other people have told us that the White House wants to borrow two trillion dollars to do nothing, but I thought that was some sort of misunderstanding. This is the freaking White House telling us that they want to borrow two trillion dollars to do nothing!

 

[corplinx]

So we are going to borrow two trillion dollars to do nothing? Is anyone else confused? I thought that the whole point of this was to make Social Security solvent and we were just arguing about the method.

Eh? Solvency is still being addressed. They are just not pitching private accounts as a solution (and rightly so since they don't affect solvency).

I'm not sure where your going here.

 

[Random]

Eh? Solvency is still being addressed. They are just not pitching private accounts as a solution (and rightly so since they don't affect solvency).

I'm not sure where your going here.

He sure sounded like he was pitching it as a solution during the State of the Union.
Bush has been saying basically “Social Security faces a long term financial problem. I propose we allow Americans to divert money from their payments to Social Security, and place them into private accounts.” He makes it sound like the second sentence is his solution to the first sentence. A lot of people love Social Security, and want to save it. These people are getting suckered into supporting Bush’s privatization plan because they love Social Security.
Now he starts saying that his privatization plan will not help keep Social Security solvent. In fact, by diverting money from payments into private accounts, he is in fact going to make the problem much worse in what can only be the first step in the eventual phase out of Social Security. But he still wants to trick those people who love Social Security into supporting him. I can’t be the only person who finds this sickening.

 

[Bjorn]

He sure sounded like he was pitching it as a solution during the State of the Union.
Bush has been saying basically “Social Security faces a long term financial problem. I propose we allow Americans to divert money from their payments to Social Security, and place them into private accounts.” He makes it sound like the second sentence is his solution to the first sentence.

"Makes it sound like" is the clue. I predict wondeful discussions on this board in a year or three .... "but he said it would solve the problem!" "No, he never said that, read it again!" He said "We have learned from British social security", that's what he said.

To be fair, we haven't seen the plan yet, if there is one to let us see.

 

[Silicon]

Yes, you can. They can inherit your account. You own it!

From MSNBC:

President Bush frequently argues that one of the big advantages of his proposed personal retirement accounts is that unlike traditional Social Security they would allow participants to leave any accumulated wealth to their “children or grandchildren.”

But that is not completely true under the proposal that has been advanced by White House officials, which would require many workers to convert some or all of their savings into annuities that would expire at death.

http://www.msnbc.msn.com/id/6914807/

This is just ridiculous! By that definition, I "won" at Blackjack in Reno last year. OK, I lost 5% of what I started with, but most people lost more so I won!

It would, if a substantial proportion of the US economy was at the blackjack table with you. You actually think wealth is absolute? It's RELATIVE to the wealth of others.

Wealth=The amount of work you can command from others. If you do just as good as your neighbor, inflation catches up with you and keeps you from getting more, even though you have more money. If you have a stock that performs as good as the entire stock market average, then you have a crummy investment there. Large pools of cash funneled into the stock market without JUDICIOUS oversite by the owners of that cash is an ANTI-MARKET force. It will be an INEFFICIENT use of capital, and drive down competition and promote wasteful business. It's the first step toward socialism. Funny that it's under Bush's watch. Guess he was AWOL through economics class too.

Those are not Democratic Party sites. Please show the Dem proposals. You know, by Dems who are actually in the Senate or House.

Can you can show me the Republican plan from a Republican Party Site. You know, like the White House?

well, if the bureaucratic double-speak says it's not a ponzi scheme it must be so! Then there's no problem w/ SS, I can expect the same rate of return that previous recipients earned, right?

You are a terrible arguer. Bring facts, not "rolleyes". I pointed you to a site which demonstrates mathematically the difference between ponzi and pay-as-you-go. YOU wave away math as being from a biased bureaucratic double-speak website.

I guess if I linked to a democratic proposal at a democratic website, you'd do the same, so why should I bother to continue to argue with you?

Argument over unless you bring facts, Wildcat. You bore me.

 

[Lurker]

Since conservatives (Wildcat, etc...) are so sure that the private plans will have much higher returns than the current system, why don't we actually have a govt guarantee of minimum returns mirroring SS returns? If conservatives are so sure private plans will provide better returns that the current system then guarantee it.

Lurker