Friday, January 14, 2005

Scheming Your Social Security Down the Drain, What Privatization Could Mean to You

The concerns over the Bush administration’s scheme to privatize Social Security grow daily. Just yesterday, puppet master Cheney was out stumping on the misguided fear-mongering notion that Social Security is in a crisis. In his warped view, he tries to sell the concept that privatization would actually help low-income wage-earners.

"Many low-income workers who have nothing to spare after taxes would have a chance to begin saving for their later years," he said at The Catholic University of America.

However, this statement from Cheney seems to contradict a speech given by Bush the previous day:

The idea that Social Security personal retirement accounts would help lift the poor was a new argument for the administration. There was no mention of it at a lengthy White House briefing for reporters on Social Security changes a month ago. In a Social Security speech on Wednesday, Bush did not make such a case.

Cheney’s claim does appear to be an erroneous outlook. To show the effects that privatization could have on low-income workers, I have put together a series of views from various committees, think tanks, and columnists. Read closely, because if you have any concerns about what this could mean to you, there are some answers provided here.

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Anonymous Anonymous said...

This is a news FLASH...George W. Bush is our President...hooray!!! Social Security must be fixed...people must have a way to increase the money that is set aside from the Govt.
Cut red tape, improve efficiencies, lower medical malpractice, team with business, and benefits will increase not decrease. You Demmys (or is it Dummys) want to have people controlled by the govt. Bad long term we can see by the crumbling of SS

12:44 PM  
Blogger Ron Chusid said...

I can't decide which ideas above are worse--the poor understanding of retirement investment or falling for the GOP line on government.

I'll start with the later. I oppose the Bush administration due to the considerable increase in government control we are facing. The Republicans talk about limiting government, as they push for tremendous increases in the size of government and restrictions on our liberties. It is the Bush administration, for example, which is preventing sufficient research into stem cells, promoting restrictions on the rights of homosexuals, promoting restrictions on abortion rights, and sending people to fight in a war started based upon lies.

Team with business. No--I favor capitalism, not fascism which is what teaming with business really is. We have the government teaming with certain businesses, promoting certain large corporations at the expense of small business and the free market. (At least I'm glad to see you admit that teaming with business is one of their goals. Far too many Republicans fail to realize this and do not realize that the Republicans are working to eliminate capitalism.)

Malpractice. Yes, I favor reducing the problem, but those of you outside of the medical profession won't see the benefits claimed by Bush. Malpractice is a headache, but accounts for only two percent of medical expenses. Solving the problem is desirable, but the Congressional Budget Office has found this will only decrease insurance premiums by about one half of one percent--meaningless in an era of double digit increases annually. In addition, Bush's proposals will not help the malpractice problem. His proposals are really directed at saving the insurance companies money and will do little to help the medical profession.

As for Bush's social security plans, there are a few problems. (I'm basing this on initial reports--obviously the details of this may change as we see the actual proposal):

1) In order to continue payments to current benefiaries, which come from people paying in, it is estimated this will add about two trillion more to the deficit. If this was the only objection, we might have considered it during the years of the Clinton surplus, but Bush closed that opportunity.

2) Per news reports I quoted previously here on the blog, it is also predicted that Bush's proposals will result in tremendous cuts in benefits to current beneficiaries.

3) It is simply poor investment strategy. Conventional investment strategy is to start with a safe investment porfolio such as money market funds and bonds before getting into riskier investments such as stocks. (Of course with the likely incrased inflation we'll see due to Bush's policies, I'm thinking of dumping virtually all my bonds.) Similarly, the point of Social Security is to have a safe fall back which is immune to risks of the market as a base, and then to encourage people to invest other funds in the market. The stock market is not the place for Social Security.

In theory the long time horizon for retirement funds will greatly reduce market risks, however there remains no guarantee of this. I've posted a previous analysis here which showed one example where the market did win out, but by only a modest amount, making it not worth the risk for the first layer of retirement money.

(Normally I'd put links to our prevous blog posts on these topics, but as I'm on vacation I'm trying to keep this to a minimum.)

9:45 PM  
Anonymous Anonymous said...

By Anonymous, at 12:44 PM

Dear Anonymous,

Do you know where the WMD's are? There weren't any! Social Security is not in a crisis. Bush is fear monger. Wake up and smell the coffee or the Bushit you stepped in on the way to the polls.

10:15 PM  
Blogger Ron Chusid said...

Thanks for pointing out that Social Security is not in a crisis. After I left the computer last night I realized that I forgot to answer that point as I planned. Only minor restructuring is necessary to account for the retirement of the baby boomers--plans such as Bush's are unnecessary.

In contrast, look at countries which tried plans such as Bush's. Thatcher tried this in Great Britian, and it has been a failure. They are now looking at our Social Security system as a model to get out of their crisis.

6:36 AM  

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