Do Americans Now Favor Government Intervention in the Economy?

[ShawnD]

Let's take Social Security. You're saying the costs have increased, which is true due to the baby boomers. However, you should ask yourself why baby boomers have placed pretty much no stress or worry on private retirement companies.

Actually the same thing does happen in the private sector. When somebody chooses to buy into a mutual fund, they're told right away that the MER is 2%, meaning 2% of your entire investment is taken every year regardless of performance. When you factor in compounding over something like 40 years, that's a fairly significant chunk of cash that has gone missing from your investment. Then of course there are companies Sprint or Nissan where the pension comes up short time and time again. Then there are the worst of the worst, companies like Enron that completely lose all of their investors' money.

The private sector is no better than the government when it comes to screwing up, but they are held accountable when such a screwup happens. Several people went to jail over Enron, but nobody will ever go to jail for pissing away social security.

 

[Economist]

Wait a minute, are you refuting against hard solid numbers that costs have gone up in medicine and social security? You're not that insane of a sceptic, are you?

I don't know that it's correct to say that costs went up. People may have spent more, but the same things probably cost less. In other words, they are spending more, but also for better quality stuff. For example, you were talking about fancy new macinary as a cost going up, but I don't think that's precise, as it makes it sound like you're paying more for the same thing. It's like saying that the cost of VCRs went up because DVD players were more expensive than VCRs when they first came out. Anybody would quickly realize that it's a misleading statement because you are comparing apples to oranges.

My bigger point though was that the costs of medicare and social security have probably went up for very different reasons than when the cost of something in the private sector goes up. For example, social security is not that great of a system in my opinion, and it's filled with problems, which is what makes the costs go up. The failures of the system is what makes it increasingly more costly.

 

[Economist]

Actually the same thing does happen in the private sector. When somebody chooses to buy into a mutual fund, they're told right away that the MER is 2%, meaning 2% of your entire investment is taken every year regardless of performance. When you factor in compounding over something like 40 years, that's a fairly significant chunk of cash that has gone missing from your investment. Then of course there are companies Sprint or Nissan where the pension comes up short time and time again. Then there are the worst of the worst, companies like Enron that completely lose all of their investors' money.

The private sector is no better than the government when it comes to screwing up, but they are held accountable when such a screwup happens. Several people went to jail over Enron, but nobody will ever go to jail for pissing away social security.

I disagree with your analysis.

Here's a Thomas Sowell article on the topic: http://www.jewishworldreview.com/cols/sowell091500.asp

The Social Security money that comes into Washington from our paychecks gets spent, not invested, despite creative accounting to the contrary. When the politicians spend the money, they give the Social Security "trust fund" I.O.U.'s in the form of government bonds. But this paper transaction changes nothing, except for creating the illusion that something is being saved when it isn't. You can't spend money and save it at the same time -- no matter how creative your accounting may be.

Future taxpayers are going to have to pay off the government bonds that have been issued to the Social Security system in exchange for the money that was spent. If no such bonds had ever been issued when that money was spent, we would still have to depend on future taxpayers to come up with the money for the baby boomers' retirement. The bonds in the "trust fund" change nothing economically.

What this accounting sleight-of-hand does politically is to confuse the public and maintain the illusion that your Social Security "contributions" are being put aside for your pension when you retire. That would be true if you were investing in the private sector, but not in the government.

The law requires private insurance or annuities to be backed up by enough assets to cover their liabilities. Private insurance companies can't just promise people anything and leave it to someone else in the future to figure out how to pay them off -- or how to evade the responsibility for paying them off. Only the government can do that.

There is a reason why you don't hear the same hysteria from private financial institutions that you hear from the government about how hard it will be to pay the baby boomers' pensions when they retire. Private pensions are financed by investing the money that comes in, so that the assets will be there when retirement time comes.

 

[ShawnD]

The law requires private insurance or annuities to be backed up by enough assets to cover their liabilities. Private insurance companies can't just promise people anything and leave it to someone else in the future to figure out how to pay them off -- or how to evade the responsibility for paying them off. Only the government can do that.

Touche.