Saturday, December 11, 2004

Social Security: Reform or Privatization (The Parties Flip Flop)

As I mentioned in one of the comment sections of the blog, I will not oppose proposals for changing social security purely because they come from George Bush. I am a bit disturbed at how battle lines are already drawn, as can be seen by each side coming up with their own derisive. terminology. What is "reform" to Republicans is "privatization" to Democrats. One reason I supported John Kerry was that he was willing to consider conservative economic ideas when appropriate, such as in balancing the budget. (At least that was a conservative idea at the time.)

I'm willing to consider proposals which take advantage of the time value of money, but the details will be very important. I'm concerned about the effect on the deficit. Such proposals could have been considered more easily before George Bush squandered the budget surplus. While I appreciate the benefits of time value of money and likely increases in the stock market, I also note the basic principle of investing that first you start with safe investments, and have some money in cash before buying stocks. Social Security might be best kept as the fall back, safe money. Most importantly, I'm concerned about more misdirection from George Bush. We already have seen that his idea of reforming Medicare is proposals which are designed to ultimately destroy the program over time. We must not allow this to happen with Social Security.

I also note the irony that some Democrats and Republicans were on the opposite side when Bill Clinton considered such ideas. Among opponents of using investments in the Social Security system was one man nobody has every accused of being a liberal Democrat:

Greenspan Warns of Future of Social Security

29 January, 1999

By Lawrence Morahan
CNS Staff Writer

(CNS) – Federal Reserve Chairman Alan Greenspan warned Thursday that the only long-term fix to the Social Security retirement system may be to cut benefits or raise taxes.

Testifying before the Senate Budget Committee, Greenspan repeated his opposition to investing government money in the stock market and cautioned lawmakers against relying on projections of large surpluses that may never materialize.

"Investing a portion of the Social Security trust fund assets in equities, as the administration and others have proposed, would arguably put at risk the efficiency of our capital markets and thus, our economy," Greenspan said.

"To ensure that taxes and interest income will always be sufficient to pay benefits, Social Security taxes would have to be raised much more – perhaps something on the order of between 4 and 5 percent of taxable payroll" to finance the retirement of the baby boom in the next century, Greenspan told the committee.

Last week, Greenspan condemned proposals for investing a portion of Social Security funds in the stock market, as outlined by President Clinton in his State of the Union address. Greenspan endorsed Clinton's idea of saving rather than spending budget surpluses but thinks government investments in the stock market are too vulnerable to political influence.

Conservatives also have attacked Clinton's proposal. Presidential contender Dan Quayle described the idea as new age socialism in an address to the Conservative Political Action Conference last week.

Greenspan has argued the surplus would be put to better use by allowing it to accumulate, thus reducing the nation's outstanding debt, or using some of it to cut taxes.

Greenspan cautioned that the budget outlook depends on the continued good performance of the economy--currently nearing its ninth year of expansion--and the stock market, neither of which should be taken for granted.


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