My Theory On Why Bush wants to Ruin Social Security

POSTED BY: piratejenny
UPDATED: Wednesday, February 8, 2006 17:07
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ZEEK

Thursday, March 17, 2005 6:11 PM

Quote:
Originally posted by SignyM:
ZEEK

Dr Blanchard replied that she does not discuss Social Security in her undergrad classes, only in graduate classes, and then only to calculate optimal retirement age (how much od you gain or lose by early retirement). She said that other professors prolly discuss Social Security policy but not her. (I would cut and paste her email here, but I've been told by a major webmaster that's ILLEGAL.) So, I've done my part bird-dogging down your curriculum for you. Feel free to fully document your claims on your own time.

Well it is possible it was another professor who went over it. I got a minor in Econ so I had like 5 different professors. I just remember her cause she was my first and last Econ professor. Also figured since I had her twice there was a good shot that she went over it.

I only remember the first name of another one of my professors and she's not showing up in any directory so she may have moved on. Pia something or other.

Anyway, it's still what I remember from whoever discussed it.

Besides Mr. Greenspan tends to support the claims that the surplus that was created by the baby boom and such was spent already.

"As the system is now, the surplus that has been paid into Social Security over the past 20 years has been treated as part of the general budget and has already been spent by the U.S. Treasury."

http://money.cnn.com/2005/03/15/retirement/greenspan_aginghearing/inde
x.htm

He also supports privatization to remove that flaw in the system.

As for the British plan that didn't work...I don't know anything about there system. So, I really can't comment either way. Maybe they made mistakes that we can learn from. Maybe their privitization system was totally different from the proposed plans Bush is pushing for, and AARP just uses it as propaganda. I don't know. I'd have to study it more.

SIGNYM

Thursday, March 17, 2005 8:37 PM

The number of people actively leaving private pension plan is fairly large considering the number of employed people eligible to participate (somewhat less than 20 million). The number of people simply refusing to enter is huge, according to this Nov 2004 article:

Quote:
Apparently concerned about the lack of pension saving by the rest of the private-sector working population, the Government introduced stakeholder pensions in early 2001. Research by ABI suggests that 82% of all schemes are “empty boxes with no members and sales of stakeholders are falling”, reports Bruce Love in the IFAs’ trade paper Money Marketing. Turner revealed that although 65% of companies with five to 12 employees have nominated a stakeholder provider, only 4% of those firms actually have employees who are bothering to make any contributions.

There is no bar whatsoever on you - or anyone- investing for retirement. Many people who contribute to Social Security do both. But you apparently have not fully considered the meanings of the words SOCIAL and SECURITY. Social is what we all do together as a society. Security is assurance that you will not fall below a minimum. Now, you can argue that it's not RIGHT to get together as a society and provide for those who are less wealthy or less knowledgeable or less provident than we are (I also invest for retirement). You need to make the case that we really should be in total social darwinian mode- every man for himself. (Of course, that begs the question as to whether it is a society at that point, but I digress.) but if you agree with the goal implied in the title of the program (Social Security) then privatization is not the way to go.

SIGNYM

Thursday, March 17, 2005 8:56 PM

If you look carefully at the article that you cite, the quote is not from Greenspan, it's from the author of the article. And the use of the word "spent" is something of a misnomer. In fact, the government sold Treasuries to the Social Security fund to support its' debt. The Social Security fund bought the Treasuries as an investment. But don't forget that the government also sold Treasuries to foreign banks, annuities, and individuals who purchased them for the same reason. It's very similar to buying a munibond or corporate bond, except that Treasury paper is backed by the full faith and credit of the US government.

Now, one may argue about the wisdom of that particular investment, but it has more to do with the Federal deficits and the value of the US dollar than with any fundametnal problem of the money having "been spent".

Greenspan himself has, and says he has (read the article again) OTHER motives for promoting privatization which is related to the Federal deficit and to our balance of trade. You have to know something about what is called the CURRENT ACCOUNT BALANCE to realize that he is anticipating that foreign countries are simply going to stop "investing" in our country (through maintaining a negative ... on our side...balance of trade and purchasing our paper) and that the US population must SOMEHOW be induced to take up the slack (increase private savings).

It would be far easier and more rewarding to simply tackle the problem at the level of the Federal deficit, because investors are nervously looking at the solidity of US Federal government financing, and finding it something of a house of cards. By reducing the deficit, a whole host of problems go away.

ZEEK

Thursday, March 17, 2005 9:48 PM

Quote:
Originally posted by SignyM:
If you look carefully at the article that you cite, the quote is not from Greenspan, it's from the author of the article. And the use of the word "spent" is something of a misnomer. In fact, the government sold Treasuries to the Social Security fund to support its' debt. The Social Security fund bought the Treasuries as an investment. But don't forget that the government also sold Treasuries to foreign banks, annuities, and individuals who purchased them for the same reason. It's very similar to buying a munibond or corporate bond, except that Treasury paper is backed by the full faith and credit of the US government.

Now, one may argue about the wisdom of that particular investment, but it has more to do with the Federal deficits and the value of the US dollar than with any fundametnal problem of the money having "been spent".

Greenspan himself has, and says he has (read the article again) OTHER motives for promoting privatization which is related to the Federal deficit and to our balance of trade. You have to know something about what is called the CURRENT ACCOUNT BALANCE to realize that he is anticipating that foreign countries are simply going to stop "investing" in our country (through maintaining a negative ... on our side...balance of trade and purchasing our paper) and that the US population must SOMEHOW be induced to take up the slack (increase private savings).

It would be far easier and more rewarding to simply tackle the problem at the level of the Federal deficit, because investors are nervously looking at the solidity of US Federal government financing, and finding it something of a house of cards. By reducing the deficit, a whole host of problems go away.

You're right the quote I cited was from the author , not Greenspan. My mistake. Read it too quickly.

It's possible that you're right about Greenspan's reasoning for supporting private accounts. I just don't see that as a good solution to lack of foreign investment. Foreign investment is such a huge part of the economy that it's just never going to be replaced by domestic investment. There would be all sorts of other problems with imports and exports. The whole thing would just break down.

SIGNYM

Thursday, March 17, 2005 10:51 PM

BTW altho I have a degree in Chemistry, I have a few econ course under my belt- micro, macro, environmental, and economic geography. It's been a fascination of mine, ever since I read "The Wordly Philosophers". It's been fun conversing with you.

FINN MAC CUMHAL

Friday, March 18, 2005 1:48 AM

Quote:
Originally posted by SignyM:
Isn't it a little late to be questioning the solvency of something that's been in existance and paying out for decades? And sure, the sun will run out eventually, but how do you figure Social Security will run out "eventually"?

Last time I checked we don't have to keep reforming the sun every 22 years with higher and higher taxes to keep it shining.

SIGNYM

Friday, March 18, 2005 2:56 AM

You "forgot" to quote or respond to THIS part, which addresses that question:

Quote:
What is going on is a temporary (NOTE: TEMPORARY) bump in the equilibrium because of the baby boomers. In order to stay solvent in the LONG RUN "money in" has to equal "money out" right? "Money in" is the lifetime contributions of contributors plus accummulated investments plus current contributions. Under what circumstances do you forsee this "running out"? Do you anticipate zero employment in the forseeable future? Or no babies being born, perhaps? A massive government default on the debt? You're right- in the future, the system will still be dealing with the "same problems": money in has to equal money out. But 10-20 years from now, when first wave of retiring baby-boomers starts dying off the current problem will ease and Social Security will be at a new equilibrium that will once again start to build up reserves and be sustainable for the forseeable future.

Since you're just recycling arguments I'll just recycle mine.

SOUPCATCHER

Friday, March 18, 2005 8:01 AM

Quote:
Originally posted by Veteran:
AuraRaptor:

Your right, the first beneficiaries of Social Security didn't contribute. But, really, how lucky were they? Most of them had been financially crippled by the Great Depression.
...

As usual, Veteran, you make a great point (I also agreed with the rest of your post but didn't want to make an overlong entry by quoting the entirety - I'll just make it overlong by being verbose

).

Just a quick digression. I was visiting one of the numerous tiny museums they have in California Gold Country a couple weeks ago and spent some time talking with the docent. She was a charming older woman who grew up in the area during the Depression and was telling me stories about hobo camps around Stockton, waiting in Yosemite valley for the monthly food wagon or truck to come in, poaching out of season to supplement meager rations, and she concluded by shaking her head and saying, "Young folks these days just don't remember the Depression." (She also recommended a book, "Bacon and Beans from a Gold Pan," about a couple that left San Francisco during the Depression and squatted in the hills panning for gold to keep from starving. It's on my list of books to buy.) I think she makes an important point.

I grew up hearing stories about how bad things were during that period of time (half of my grandparents - and many of their brothers and sisters - left farms in Arkansas and Missouri and came to California to find work). These were always related as cautionary tales - reminding us that things could get that bad again. Social Security is one of the guardians against that happening. The promise of the program is that, no matter how bad things get, you will always have a guaranteed income.

Do I expect to rely on Social Security? No. I certainly hope not. But I can't guarantee that I'll never need it. I fully expect to live off the proceeds of my own retirement plan.

Will all of those benefits be there for me if I need them? Yes. Unless one of three things happens. First, if the government defaults on the trust fund (which would lead to the biggest sell-off of T-bills that you can imagine). Second, if the trust fund is depleted through carve-out private/personal accounts and the associated implementation costs. Third, if the intermediate projections of the actuaries are correct and a fix is not implemented in the next 37 years.

Maybe I'm naive but I tend to see the money I pay into the Social Security program as a thank you to the generations that came before me. They survived the Great Depression. They fought and helped win the largest war in the history of humanity. They kept this country together during the tremendous social upheaval involved in changing this country to align more with the spirit behind the Founders deeds. The least I can do is support their Social Security accounts with the money I earn.

RUE

Friday, March 18, 2005 8:41 AM

SoupCatcher,

Thanks again for a great post.

Just a bit of new information regarding:

Quote:
Third, if the intermediate projections of the actuaries are correct and a fix is not implemented in the next 37 years.

I recently read actuaries are predicting life expectancy will go down in the US due to what some are calling the obesity epidemic.

SOUPCATCHER

Saturday, March 19, 2005 9:06 AM

Thanks, Rue.

Quote:
Originally posted by rue:
I recently read actuaries are predicting life expectancy will go down in the US due to what some are calling the obesity epidemic.

That would be a helluva way for the problem to go away.

It reminds me of a running joke I have with one of the post-docs at my research center (more along the lines of black humor). Every time I've fallen off the wagon and restarted smoking he thanks me - because that's one less person he has to worry about competing with for Social Security benefits - and we get a good laugh out of it. I've never pushed too hard but I hope he's attempting to use reverse psychology rather than being serious.

Back to the topic at hand. I found a link to a really informative transcript of an online chat. It's hosted by The Spokesman-Review and was a session between readers of the newspaper and a local professor of economics at Eastern Washington University, Doug Orr. Pretty long, but he does a good job of answering a lot of questions about the debate (the chat took place on February 11):
http://www.spokesmanreview.com/chat/transcript.asp?id=61

There were a couple of things that jumped out at me that I hadn't thought about or wasn't aware of: the argument based on the ratio of workers paying in versus those receiving benefits doesn't account for increases in productivity and any claims that private accounts have a guaranteed rate of return better than Social Security are illegal.

Quote:
section from transcript relating to productivity gains
Lynne: One of President Bush's arguments seems to be pretty convincing. In 1950 there were 16 workers paying in for every retiree, in 2000 there were 3 and by 2030 there will only be 2. Won't this create a breakdown in the system?

Doug Orr: On the surface this argument seems to be convincing, but it ignores one of the greatest strengths of a market economy. Productivity tends to rise over time. A worker in 2000 produces more than twice as much real physical output each hour as a worker did in 1960. That is why our standard of living is so much higher today than back then.

...

Quote:
section of transcript relating to the legal problems with guarantees
Doug Orr: ... In his stump speech, Bush keeps repeating that those who put their money in private accounts are "guaranteed" a better return than they will receive from the current Social Security system. If any broker who works for any investment firm made this claim to their clients, they would be arrested and charged with stock fraud. Michael Milken went to jail for several years as a result of making this type of claim about financial investments. Every prospectus on every stock sale includes the same disclaimer: "the return on this investment is not guaranteed and may be negative."

This disclaimer is there for a very good reason. During the 20th century there were several periods lasting more than 10 years in which the return on stocks was negative. From September 1929 to May 1933, the Dow Jones index of stocks went down by over 70 percent. The Dow did not return to its 1929 level until 1953!

In claiming that the rate of return on a stock investment is guaranteed to be greater than the return on any other asset, Bush is lying. On most of the discussion on the Social Security issue, things are open to interpretation.

...

There's lots of really good stuff in the chat session. I'd recommend it if you have fifteen to twenty minutes to spare during the day.

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