Should Social Security be privatized?

[mheslep]

Nobel Laureate Gary Becker on the subject; he addresses many of the above posts
http://www.becker-posner-blog.com/archives/2005/02/why_i_support_a.html
Why I Support a Privatized Individual Account Social Security System-BECKER, 2005


What caused the problem?

... as birth rates fell drastically, and the life expectancy at age 60 expanded enormously, fewer workers are now being forced to support more and more retirees. The result is a huge rise in social security taxes in every nation with a pay as you go system. The combined tax on employees and employers in the United States, excluding contributions to medicare, is now 12.4 per cent and rising, and that percentage is much higher in Japan and most Western European nations.
...
Pay as you go systems are in trouble throughout the world in good part because of changes in the number of workers per retiree, but also because of politically determined decisions that changed the system from saving for old age to an inefficient and complicated welfare system for some of the elderly. For example, despite the growing mental and physical health of older persons, political pressures in all nations with pay as you go systems forced a restructuring of social security payouts to encourage retirements at earlier ages than even the originally established age 65. In the United States many retirements occur age 62 or earlier, while Italians retire frequently while in their mid fifties, and very early retirement is not uncommon also in Germany, Belgium, and many other European countries.

What are other countries doing?

The expectation of continuing growth in this tax rate explains why countries as different as Sweden and Great Britain have partially moved toward a privatized individual account system.It also helps understand why Hong Kong, Poland, and other countries with low birth rates that recently introduced social security have important components of individual accounts in their systems.

So SS is in trouble, going broke. Just raise taxes? No, government can't help itself and blows it. Not just the US, all governments:

...Just as important are the political implications of Federal fiscal behavior. Tax revenue from social security taxes at present exceed payments to retirees. This excess is counted as part of the growing Social Security Trust Fund, but in fact also enters into the consolidated Federal budget account, and helps reduce the reported spending deficit. Reported deficits during the past decade would have been much larger if social security was not running a surplus during this whole time period.
Social security tax revenues are expected to fall below spending on retirees in about 20 years. If we simply raised social security taxes now-say by two percentage points- consolidated federal deficits would appear much smaller, and the federal government would be under less constraint to reduce spending. Both theory and evidence indicates that a good fraction of the additional revenue would indeed be spent. Putting aside assets for the future is very difficult for all governments, subject as they are to immense demands for spending now from various interest groups.

Becker's main reason for private SS: Higher benefits? No, it is that savings are removed from the political process:

I do not believe that the main advantage of a private account system is that individuals can get a higher return on their old age savings by investing in stocks. There are no free lunches from such investments since the higher return on stocks is related to their greater risk and other trade offs between stocks and different assets.
...
If there is no obvious gain from allowing most individuals to invest in stocks to help cover their retirement, and if there is no fundamental transition problem, what, if any, are the advantages of a funded privatized system? I believe the advantages are mainly political, not economic, that privatization helps to separate saving for retirement from interest group politics, taxation, and government spending.
...
So the really strong arguments for privatization are that they reduce the role of government in determining retirement ages and incomes, and improve government accounting of revenues and spending obligations. All the other issues are really diversions because neither advocates or opponents of privatization are asking the most meaningful question about privatizing social security: Is there as strong a political economy case for eliminating government management of the retirement industry as there is for eliminating their management of most other industries? My answer is yes

 

[Gokul43201]

I'm too tired to go digging now, but someone should post links to what the last Comptroller of the GAO, David Cantrecallhisname has said about the state of the SS fund.

 

[Ivan Seeking]

Steal their money? C'mon, Ivan. It is one thing to say that you want to keep the current system, but that's a rediculous thing to say, for three reasons that you already know:

-Social security is not an investment account. Your money never was reserved to be given back to you any more than any of your other taxes are. If that's all SS was, mandatory private retirement accounts would be equivalent, if not superior.

False. The SS program demands payment based on the good faith of the US. Your representation would make it a tax only and not a social safety net.

-People receiving Social Security are set to receive more than they put in. (So would you support a cutback to make their benefits equal their contributions?)

The money was paid based on the good faith of the US. Your position is that the US should commit fraud.

-The bulk of the money that current seniors will receive comes from young people. I probably wouldn't use the word "stealing", but the government is taking money from the young and giving it to the old, knowing that the young will likely not get the money back. So if you really want to use that word to describe the situation, you're using it backwards.

The money was paid based on the good faith of the US. You desire that the US commit fraud. Call it whatever you like.

But clearly, from the above, you only believe that when it applies to others. When it applies to you, you want someone else to provide the money for you.

Who said anything about me? I don't even expect to live that long. And if by chance I do, Tsu and I have invested well. [no we weren't naive enough to put our money in stocks]

 

[Ivan Seeking]

How are we to save SS? I thought everyone knew this by now: Immigrants.

 

[Astronuc]

Could you be more specific about how the events of the past few weeks lead you to that conclusion?

The stock markets were down 15-20% in one week, and about 40% down from their highs. More importantly, several financial institutions essentially went bust, their obligations far exceeding their capitalization. Given recent behavior of many financial institutions, I'd expect privatized SS to lose money. It is also a great way for some (managers of financial companies) to line their pockets or bank accounts with other peoples money - like some insurance companies have done with Medicare and Medicaid.

Private companies, which exist to make profit and enrich management, would add to the overhead (cost) of SS.

 

[WhoWee]

Astronuc...I HAVE TO AGREE!

How is it even possible to discuss privatizing social security in the same week our banks are being nationalized and stock market collapsing? It seems like the giant Ferris wheel is spinning so fast and out of control...it's now come off its frame and is rolling down the midway...and instead of trying to stop it... or get out of the way...is everyone instead trying to hop on for a thrill ride?

 

[Ivan Seeking]

Astronuc...I HAVE TO AGREE!

How is it even possible to discuss privatizing social security in the same week our banks are being nationalized and stock market collapsing? It seems like the giant Ferris wheel is spinning so fast and out of control...it's now come off its frame and is rolling down the midway...and instead of trying to stop it... or get out of the way...is everyone instead trying to hop on for a thrill ride?

uh huh. Perhaps the lunacy of the Republican/McCain plan can now be kept in perspective.

We need to get illegal immigration under control so that large numbers of young immigrants can move here legally and help to save the economy.

 

[Gokul43201]

I'm too tired to go digging now, but someone should post links to what the last Comptroller of the GAO, David Cantrecallhisname has said about the state of the SS fund.

I'm in luck. David Walker was on Bill Maher last night.

0NM5Q5VDpnA[/youtube]

 

[mheslep]

I think SS, as it exists now, should be completely phased out and terminated over the next 2 decades. It should be replaced by a much smaller (financial) disaster relief fund. As long as the markets are being reasonably well behaved, the overwhelming majority of the population should learn to take care of themselves.

It occurs to me that if Obama wins, politically he could take such a step and McCain could not. The left would trust Obama sufficiently - not that I see Obama taking such a step. Just as the right trusted Reagan to negotiate an end to the cold war with the Soviets at Reykjavik (barely), where they never would have allowed McGovern to do so.

 

[Gokul43201]

It occurs to me that if Obama wins, politically he could take such a step and McCain could not. The left would trust Obama sufficiently - not that I see Obama taking such a step. Just as the right trusted Reagan to negotiate an end to the cold war with the Soviets at Reykjavik (barely), where they never would have allowed McGovern to do so.

...in just the same way that McCain, rather than Obama, would have the political capital to cut wasteful defense spending.

 

[mheslep]

...in just the same way that McCain, rather than Obama, would have the political capital to cut wasteful defense spending.

Exactly. If McCain wins I hope he lops 25% or so off the top of DoD, the US could still maintain a strong defense where it counts.

 

[BobG]

Steal their money? C'mon, Ivan. It is one thing to say that you want to keep the current system, but that's a rediculous thing to say, for three reasons that you already know:

-Social security is not an investment account. Your money never was reserved to be given back to you any more than any of your other taxes are. If that's all SS was, mandatory private retirement accounts would be equivalent, if not superior.
-People receiving Social Security are set to receive more than they put in. (So would you support a cutback to make their benefits equal their contributions?)
-The bulk of the money that current seniors will receive comes from young people. I probably wouldn't use the word "stealing", but the government is taking money from the young and giving it to the old, knowing that the young will likely not get the money back. So if you really want to use that word to describe the situation, you're using it backwards.

And I know you know enough about SS to know these things. Good idea! But clearly, from the above, you only believe that when it applies to others. When it applies to you, you want someone else to provide the money for you.

As is, the plan is to steal money from someone. Either steal from those that paid in their whole life believing SS would be there for them when they retired ... or steal from a new generation of suckers.

I prefer doing the latter.

Realistically, the minimum age for receiving benefits should have increased at the same rate as the population's health. The plan was never intended to bankroll a life of leisure. It was intended to provide a minimum income for those who could no longer work.

 

[turbo]

Bernie Sanders' proposal is lifting the cap on SS payments. Currently, the cap is set at $90,000 of earnings, meaning that people making much more than that, still only pay SS contributions on the first $90,000. As he points out, Congress is not facing an economic problem with SS, but a political problem.

http://www.vote-usa.org/PoliticianIssue.aspx?Id=VTSandersBernard&Issue=BUSSocialSecurity

 

[dlgoff]

People receiving Social Security are set to receive more than they put in. (So would you support a cutback to make their benefits equal their contributions?)

After 40+ years of putting in money to SS, do you think $900 a month for a few years will use up all that was put in?
Shoot I'm going to retire a early as I can before you get enough people to agree that you can take/steal my part.

 

[CaptainQuasar]

How about retiring with a ten trillion dollar federal debt on the books? Isn't that stealing, just as much?

⚛​

 

[WhoWee]

I think the cap on contributions should be eliminated. Instead, the contribution could be reduced by perhaps .5% every $50K in earnings down to a minimum 1% regardless of income.

This combined with an increased age of eligibility and a much needed thorough/complete audit of all payment recipients (fraud is a huge problem) would move the program in the right direction. The 31% Medicare fraud rate should serve as a good indicator...EVERY recipient needs verified.

Further, young, able bodied persons receiving benefits due to (a whole host of reasons including heavy drug use) should have benefits reduced and any that are found to work "under the table" should be cut from benefits and forced to repay or imprisoned...likewise for anyone found stealing an elder persons checks or cashing a deceased persons checks.

Back on the point...If you want to privatize any part of the SS system...privatize the administration and enforcement of benefit payments...let the health insurance companies enforce the rules...abuse will go away.

 

[Ivan Seeking]

How about retiring with a ten trillion dollar federal debt on the books? Isn't that stealing, just as much?

⚛​

You can thank the Republicans for that. Perhaps your suggestion should only apply to people who supported Bush?


We told you, we told you, we told you!

 

[Ivan Seeking]

R Richard Milhous Nixon, 1969-1974
R Gerald Rudolph Ford, 1974-1977
D James Earl Carter, Jr., 1977-1981
R Ronald Wilson Reagan, 1981-1989
R George Herbert Walker Bush, 1989-1993
D William Jefferson Clinton, 1993-2001
R George Walker Bush, 2001-

http://upload.wikimedia.org/wikipedia/en/3/3b/USDebt.png

Anyone notice a pattern?

 

[CaptainQuasar]

You can thank the Republicans for that. Perhaps your suggestion should only apply to people who supported Bush?

We told you, we told you, we told you!

Actually, most of the elected Democrats supported Bush in the initiation of the Iraq War which was the keystone of the most recent debt avalanche - I hold all government officials responsible for it, both the ones who were jingoistic and the ones who were simply Jello-spined. God forbid an elected official ever have to stand up for what's right.

Props to Obama for being one of the very few exceptions but I'd really only be willing to let someone off the hook if they voted for Nader in 2000, I think.

(I did not vote for Nader.)

⚛​

 

[Astronuc]

How about retiring with a ten trillion dollar federal debt on the books? Isn't that stealing, just as much?

⚛​

Retire it with what?

And if one listened to David Walker - the $10 trillion is just the debt on the books, i.e. the cumulated deficits on the budget. There's apparently another $40 trillion off-the-books, but I don't know if that includes debt besides the government - or apparently it's Medicare and future obligations. The war in Iraq and Afghanistan has already cost nearly $1 trillion, and that is not included in the $10 trillion debt.

David M. Walker, Former Comptroller General
http://www.gao.gov/cghome/dwbiog.html

On, March 12, 2008, David M. Walker, resigned as Comptroller General of the United States and head of the GAO and accepted position of President and Chief Executive Officer of the newly established Peter G. Peterson Foundation.

http://www.pgpf.org/about/leadership/dmw/

US Government Immorality Will Lead to Bankruptcy



According to Walker, Americans are starved for two things - the truth - and leadership [in Washington].

 

[CaptainQuasar]

Oh yes, I know about the further debt. I just didn't want to obscure the discussion about who's stealing from whom with details like that.

⚛​

 

[Astronuc]

Medicare is a bigger problem than SS - maybe about 5 times bigger.

If one looks at the FY2008 budget information posted by the Whitehouse, one will read that the Bush administration expects a growth rate of about 5% per year in the economy, and that tax revenues will grow also, and therefore the deficit will turn to zero by 2012. Well - the growth rate has been more like 3% and this year and next year will be lower, and may even be negative.

In addition, the Bush's war has been financed by supplemental spending - so it's not on the books, i.e. it is not counted in 'the deficit'. For FY2008, the deficiti was in excess of $440 billion or a little over 3% of GDP. The Whitehouse data show a projected deficit of 1.6% - and that's with the 'official' number - not the actual number.

http://www.whitehouse.gov/omb/budget/fy2008/overview.html

Growth projections - about 3%/yr.
http://www.whitehouse.gov/omb/budget/fy2008/economy.html

Latest statement on the budget - http://www.whitehouse.gov/omb/budget/fy2009/message.html . The comment about the deficit is actually false.

See this video in which Walker talks about an even bigger crisis than the one now going on and shows where the $40+ trillion comes in.
https://www.youtube.com/watch?v=KIgrxpp97OQ