Americans save at a rate far below Europeans and Asians. Once they see an account with their name on it, they'll be asking to withdraw the funds long before they retire to cover such expenese as medical, college for the kids, home purchases, etc. The larger these private accounts grow, the louder the calls will be to open them up.

Another problem is who will exercise the voting rights on the trillions of dollars worth of stock held by private accounts? Surely, we aren't going to ask all citizens to vote on thousands of corporate issues every year. Concentrating that much control of US companies in the hands of a few government agents would lead to something less than capitalism...

I question whether therre will be enough solid investments to channel all this money into. The S&P 500 is worth only about $10 trillion right now. A few years of SS monies invested in them will purchase a contolling interest in them all. What then, will we take our SS money and invest it in foreign companies?

As an idea, private accounts may be a good thing, but looking at the details reveals many huge problems, any of which could end capitalism as we know it. Is it really worth the risk?

Take my case:
I am 62 and started receiving SS. My wife and I total contribution to SS is $89,080. The company had to pay an equal amount for a total of $178,160. If I had invested this money at the risk free 10 Year Treasury Note. We would have $ 591,547 today. Our life expectancy is age 85 and 88. If we keep this money invested in the long bond at 5.75% and live until 85 and 88; we would receive an average of $40,300 per year (2005 dollars).

Social Security will pay me $16,500/yr (adjusted for inflation) and my wife $7,512/year starting in 2008. So $24,000/yr in 2005 dollars.

If invested in stocks and bonds at a 60/40% allocation I would get $63,000 for the rest of our lives (2005 dollars).

So $63,000 vs. $24,000. Which would the voters choose if given the choice.

Jay S.

I've always been under the impression that things like Roth IRAs were what one used if they wished to use their retirement money in the stock market. Regardless of the debate, one thing's for sure: The hedge fund managers are going to make a lot of money in the next few years.

I agree Nick. And considering the Fed says that 96% of shares held in this country are held by the wealthiest 20% of Americans...the rich are going to get a lot richer too.

Thank god Bush lowered the capital gains tax to 15% for the rich last year so they won't have to lose too much when their shares skyrocket in value when this scam is passed.

"Thank god Bush lowered the capital gains tax to 15% for the rich last year so they won't have to lose too much when their shares skyrocket in value when this scam is passed."

As you probably know, high capital gains tax reduces capital investment. Capital investment is why most people actually have jobs. Class envy can be tough to overcome sometimes, but sometimes you just have to swallow your hatred and support having the wealthy invest in your company so that you'll have a job. This doesn't even take into account the fact that millions of middle class investors ALSO benefit from low capital gains tax.

"I've always been under the impression that things like Roth IRAs were what one used if they wished to use their retirement money in the stock market."

ROTHS are funded with post-tax disposable income. Social Security is funded with an onerous payroll tax. In other words, only the well-off can have ROTHs, the rest of us must accept the deal offered by Social Security. I'm suprised more progressives aren't in favor of privatization considering this.

jb

But doesn't the whole privatized Social Security system begin with an assumption that people will know how to invest wisely? If I am wrong, then whoops, but if I am right, then wouldn't the government itself be obligated to prevent us from potentially losing our savings in the market?

I am just still confused about Social Security in general.

It is interesting how you in the end justify the implementation of Bush' plan based on a few select political reasons (though they are good ones). You admit yourself that the economic justifications aren't powerful enough to carry your argument. But don't you see that there is a lot of *risk* in Bush's plan? E.g., perhaps the transition costs will be enough to put us in another economic crisis within the next decade. What if regulation of the accounts (which you mention is *necessary*) goes too far, or even worse, not far enough? And what if, through some unpredictable market mishap, the government ends up having to top off the minimum payout on more accounts than they orginally planned for? Hey, that could lead to higher taxes or an increase in retirement age! (After all, we would still have to have a retirement age with the minimum payout condition.)

My point is, while I see some merit in personal accounts and in reducing government payouts to those who are not in need, I also see Bush's plan as unneccessarily risky and in fact possessing similar financial weaknesses as the current plan. We *know* the potential problems with the current state of Social Security and I bet the reforms implemented over the next 20 years if it is kept would be superior to the consequences of re-doing the whole system a la Bush. I could see myself endorsing a personal account approach to 'social' security if designed and implemented properly, but so far the Bush plan smacks of balls-out financial amateurism in the face of clear benefits to Wall Street.

As an aside, we all know that very few things in government are black and white -- i.e., it can be difficult to predict the pros and cons of one decision over another in our complex and unpredictable world. But notice that almost every policy that Bush supports is a *clear-cut* advantage to the rich and corporate side of society, while the alleged benefits to the poor are often grayer and more theoretical. Example: tax relief to the rich gives immediate relief to the rich, and theoretical relief to the poor. Example: privatized accounts gives an immediate boost to financial industry and theoretical benefits to the elderly poor. Why is that the public is so willing to give the government the benefit of the doubt only when the poor are at risk?

jb, as someone whose income puts him pleasantly in the upper tax brackets, I can say they my opposition to the latest Republican scam to funnel trillions of Social Secuirty tax dollars through their pals on Wall Street on the way to purchasing assets currently held by the wealthy is anything but class envy.

Rather, my opposition comes from a desire not to have to live behind 20 foot walls patrolled by security 24/7 and run the risk of having my children mailed to me piece by piece by blackmailers, as is the current lifestyle of wealthy people in any country where the gap between rich and poor gets too large.

Yes, wisely invested capital can create jobs, but it doesn't seem to be the case in the US these days. A lot of 'capital' seems to be going to mediocre CEOs who dream up ill-advised mergers and lay off American workers.

Sadly, the days of Adam Smith are long gone.

The details are so skimpy on this it is hard to judge. My worry is that the current system is progressive, tranferrring some of the benefit to low income tax payers. There is also an insurance aspect. For those who use private accounts, are they exempt from the progressive and insurance aspects? I think they are. And what happens when someone dies,do the unused benefits accrue to the system or to the estate. I think to the estate. If I am right on this, it is a way for upper income wage earners to opt out of the system. For example, say I inherit $12,000,000 so I have retirement taken care of. Then I can opt out of the progressive aspects.
I think if we do this the whole idea should be generalized. Let me direct 20% of my income taxes to an expenditure of my chose that give me a high rate of social return. For example from defense to medicaid.

We trust the government with our nuclear warheads and I think we ought to be able to do the same with respecting and accounting for SS revenues and savings. You're proposing privatization as a work-around for what is in effect a form of political corruption. That approach offends me in principle. I know nothing of the weak link between personal investment and personal return beyond what you've told me, but I don't see how that's intrinsic to a public insurance system or why we shouldn't regard it as a remediable structural or management issue. Already as you say wealthy people can invest as riskily as they like with what's left over after the government deducts for social security. If you think the government puts too much of people's savings into low-risk low-return investments, then ask the government to buy into an index fund with some percentage of the contents of the lockbox. I find it very hard to believe that the government, by investing everybody's deductions at a single ratio of Treasuries to index funds, say, would be constraining anybody to an overall investment strategy with a significantly different theoretical return rate than they could obtain were they unconstrained and everybody was able to invest the theoretical optimum portfolio distribution for their savings size. A sensible Social Security program, it seems to me, creates a minimum nucleus of investment in retirement, which is designed for the hypothetical person who finds themselves at retirement age destitute otherwise (because they chose risky investments, for example). As far as being free to choose your retirement age, I don't see why a public social insurance program can't offer that flexibility as well.

Wouldn't we be better off using this opportunity to uncouple the system from payroll tax? Deep six the payroll tax for quits. The supposed link between that tax and what you later take out is mostly smoke and mirrors isn't it? surely there are less bad taxes.

"But 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."

Isn't the real problem here rising life expectancy and decreasing birth rates? In that case, why shouldn't government promote childbearing and risky/life-threatening behavior?

There IS an obvious gain to privatization here if you are a CEO or wealthy shareholder... trillions of dollars go into the stock market, stock prices go up, the rich get richer.

Moving trillions from the public trust into corporate markets should cause riots, but you are all going to swallow it, because you believe in the myth of the triumph of liberalism and supply side econ.

This plan amounts to a regressive payroll tax which is then converted DIRECTLY to corporate welfare, provided it is an established/indexed corporation, because well, we all know that Exxon is just so technologically innovative and every dime Haliburton makes will come back into the public trust in the form of well paying jobs wiping the oil off of half-dead shorebirds.

Perhaps next time they mail out those Social Sequrity account statements, they can include instructions about the most orderly way to beg for bread outside the gates of the mansions of the rich.

Monkeyboy: "Rather, my opposition comes from a desire not to have to live behind 20 foot walls patrolled by security 24/7 and run the risk of having my children mailed to me piece by piece by blackmailers, as is the current lifestyle of wealthy people in any country where the gap between rich and poor gets too large."

You lambasted the cut in capital gains tax. Low capital gains tax is good for all investors. It's good for the rich obvioulsy, and it's good for the middle class too. And it's especially good for people like you who are worried about the huddled masses taking over since it creates more jobs for everyone.

Just because something is good for upper incomes doesn't mean it is therefore bad for everyone else. It's not a zero sum game. Low capital gains tax is a good thing, even though we must all accept the fact that some billionaires will get richer.

jb

Great blog!

For me, there does not need to be a crisis, or even an impending one, to desire reform of Social Security. The system can be better, and it can be fairer.

The most important reason to reform it, and reform it now, is global competition. In a world where workers from Texas compete with India and China, not just Indiana and Connecticut, personal retirement accounts and increased rates of savings are imperative. Prosperity will flow where the free market is the best. America needs to be that place.

JB, correct me if I'm wrong, but isn't a capital gains tax reduction an incentive to take money OUT of capital investments?

The current record setting defecits our government is running is a direct result of the huge tax cuts passed in 2003. The cost of these cuts dwarf any shortfalls in Social Security, Medicare, etc. Now we see with today's budget from Bush he intends to slash programs aimed at helping the poor and needy in our country to help make up for his huge giveaways to the rich.

If you want to increase jobs in this country, offer a large tax cut to those companies that add Americans workers to their payrolls at decent salaries and tax heavily those companies that lay off Americans...

"Low capital gains tax is a good thing, even though we must all accept the fact that some billionaires will get richer."

I refuse to accept that there should even BE billionaires in the first place. That level of wealth accumulation CANNOT be justified under any form of meritocracy because there is simply not that much variation in human capabilities.

Do you think Warren Buffet is 10,000 times smarter or wiser than you? No?

Several Billionaires, Buffet and Soros among them, were actually against the Bush tax cuts if I remember correctly.

I am middle class, and I did NOT benefit from the Bush tax cut. Prices and costs of "social" benefits went up far more than I saved in taxes. Then I got laid off, but Bush created a new part-time job for me so I guess I should have thanked him for my 85% pay cut. I chose to go to law school instead.

Becker plan for privatization:

1: Borrow benefits for retirees and current payees older than, say, 55 from source X.

2: Attach contributions from current payees younger then 55 to each such payee’s individual future benefits.

3: Allow each individual to choose how much they will diversify away from T-bills into equity assets.

Why not just borrow from source X and have some bureaucrat (as opposed to individuals) choose the aggregate amount of diversification? This eliminates all sorts of administration and transaction costs. After all, some government bureaucrat is either implicitly or explicitly charged with “regulating” these equities funds (if Uncle Sam says to only invest in S&P 500 index funds, this implicitly makes S&P employees government bureaucrats), and that is much more open to political corruption then simply the level of diversification. (As an aside, you could just make a law saying that the GAO cannot report the Social Security system as part of the general budget.)

But then again, all that would be happening in that case is the government would be issuing additional debt to invest in equities. According to Becker this is beneficial because:

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.

Well, the answer seems clear now. Clearly, the implication is that we must borrow huge sums of money to increase the apparent size of the deficit, investing these sums in equities whose value will be kept off the books (I’ll let the accountants and lawyers worry about how). The then apparent explosion of deficits will force spending restraint in our politicians. It’s so perfect only a Nobel laureate could have come up with it!

In all seriousness, I fail to see how a “sudden” increase in taxes would be significantly more disruptive then borrowing from source X the massive amount that would be required to finance current retirees’ benefits.

There are two key notions behind Becker's support for privatization of SS: 1) to solve the fiscal problem (i.e., make the system solvent) presumably because the rate of return (ROR) on equities exceeds the ROR on TBonds and 2) decouple the "social" aspect of SS (i.e., let each individual fend for himself).

Most people correctly understand that money saved in personal accounts would grow faster if it's invested in well-diversified equity funds rather than in government bonds. (By well-diversified I mean 2000-3000 randomly selected stocks, which could be rotated every 3 years). If that's so, shouldn't President Bush persuade Congress to permit (perhaps require) the Social Security Trustees to invest the current accumulated surplus, and future surpluses, into the equity funds (the same ones that the government would approve for us to invest in) instead of investing in low-interest Treasury bonds, which it has been doing all along? This way the Trust Fund would probably become solvent and the benefits would not have to be reduced, nor would the payroll taxes have to be increased, nor would the government have to borrow, in the future, to meet its obligations.

Since the government has an infinite time horizon it can ride out the ups and downs in equity markets.

The debate about making Social Security has focused on fiscal aspects (to make the program solvent) but has ignored the micro aspects – namely, the program’s built-in insurance schemes and the transactions costs of the privatized system relative to the costs of administering the public program.

What is worrisome about privatizing Social Security is that many social benefits delivered by the public program, at very little cost, would all be lost. Of course, most of the same benefits could be purchased in private markets, too, by each individual, but securing them would incur transaction and learning costs, which would add up to be significant, rendering the private system inefficient relative to the public program. Specifically, the cross subsidy from the high income workers to the low income workers could not be generated in the private markets.

Firstly, the private system cannot propose a prescription for how much money (or fraction of funds in the private account) an individual would be allowed to withdraw each year from his account, after retiring. One would think it would have to depend on how long he expects to live. If he lives longer than expected, he will have used all the funds in his account too quickly. How would he then finance the latter years of his life? Thus, it’s evident he must convert the funds in his account into an annuity, as soon as he retires. Such a transaction is complex and costly to arrange in the private market. Moreover, would the annuity paid to him each year sustain him? For millions of people it would not, even if they are willing to surrender the accumulated savings, upon death, to the annuity provider. Thus, if we privatize social security, individuals would have to be required to purchase an insurance policy, in case they live longer than expected, else they would become a burden on the government when they run out of funds in their private account.

Secondly, the private system would not cover or be able to support individuals who become disabled before retirement. Therefore, the government would have to require individuals to purchase the disability insurance, too.

Thirdly, the current system supports widows and children of the deceased. In the private system, if a worker dies prematurely, he wouldn’t have much saved in his private account. The savings would not be sufficient to support his survivors during their vulnerable years. So, privatizing social security would mean requiring workers to purchase life insurance, too.

Fourthly, the current system subsidizes those who make small contributions to the public program, each year, and work for perhaps 10 - 20 years. They are subsidized by those who earn a lot, from the start, and work until retirement. If this subsidy has been designed into the public program, because it has political support, to decrease the income disparity in America, then clearly it would be lost if the system were to be privatized. On the other hand, if people know that they could not rely on the public program, entirely, to support them during their old-age, they would try to work for more hours each year and work for more years and try to save more. This would be an advantage of privatizing Social Security. Nevertheless, there would be millions of people who won’t find full-time work for 40+ years, even if they try really hard to find work – for example, those with low-value skills or with poor health.

It's important to ask: how would the government monitor and enforce its requirements – i.e., requiring individuals to purchase an annuity, disability and life insurance policies? And, what about the individuals, who are poor, and do not secure the insurances, under the privatized system, but become disabled or live longer than expected, or die prematurely but have survivors? Would the government rescue them? How and to what extent?

In the private system people would either hire an expert or would have to learn too much detail about insurance plans to generate the benefits that the public program provides. The cumulative costs incurred by all the workers, to set up individual personal accounts, with the three insurance schemes, far exceed the costs of administering the public program. This is because the public program indiscriminately provides automatic insurance to everyone by pooling hundreds of millions of people who will encounter different predicaments during their lives. Moreover, the monitoring, enforcing and reporting costs of the private system are prohibitive, whereas, they are non-existent for the public program. Furthermore, it would be costly to maintain records and report the transactions to the IRS. Clearly, the administrative costs for the public fund are miniscule relative to the cumulative costs that would be incurred by the individuals and by the government (monitoring, enforcing and in many cases picking up the tab for those in desperate situations), for the privatized system, which we can be sure would have many regulations. The president wants to simplify the tax code and speaks about economic freedom and accountability, but privatizing social security would require individuals to comply with many requirements, which would not simplify the tax code or liberate the people.

In the end, undoubtedly, the government will have to rescue the poor who fail to comply with the complex regulations that would be imposed under the private system.

Paraphrasing Mortimer Zuckerman, "Social" implies a contract to manage poverty among the old, the disabled and the vulnerable survivors of the deceased and to know that our society provides a minimum income for all of our citizens. And, "Security" means buffering the cruelty of the markets that fail the very people who need Social Security benefits the most. Social Security was intended to insure against the cruelties of the market and to permit Americans to count on the next generation to take care of the old-aged; a time-honored tradition that exists in all societies.

Becker's comments completely ignore the fact that Social Security is more than a retirement system. It also provides payments to workers who can no longer work due to a disability. No private equity or debt investment can possibly provide a lifetime income for a 30-year-old worker who cannot earn a living due to a permanent physical disablement. How does he intend to cover these people?

"It also provides payments to workers who can no longer work due to a disability. "

That's no reason to oppose reforming the retirement portion of SS. In 2005, of the 15.3% FICA you pay, 10.6% is earmarked for retirement benefits, 1.8% for disability, and 2.9% for Medicare.

It's easy to accuse reformers of wanting to put disabled people out on the streets, but that's simply not the case.

jb

Corey: "I refuse to accept that there should even BE billionaires in the first place. "

That is what religion requires, a refusal to accept reality. Think a bit about what kind of system you'd put in place to prevent billionaires from occuring and get back to us. Even the borderline socialist economies in Europe produce billionaires, so I'm curious as to how you would prevent this evil while creating a strong economy with jobs for everyone.

The fact remains that low capital gains tax is good for everyone. All economic models support this. But partisanship motivated by class envy is sometimes hard to get past.

jb

I'd like to place a couple of comments in play.First,everyone(I think) agrees the current surplus in social security payments goes into the general fund/lowers the deficit.This overlapped in time with the lowering of income tax payments on the lower end of the income scale.People were still paying a significant part of their income for federal programs -i.e.14%-but they thought they were saving the money in some kind of an account.Thus it was more palatable than income taxes.What seems obvious to me is in 2030 or so a majority of Americans will vote their economic self interests and not raise taxes on themselves to continue levels of social security payouts.Also,Corey seems to be fixated on others'net worth as an indictment of something or other.Please consider my father's comments on things like this;if you're going to compare your penis to everyone else's in the locker room,sooner or later you're going to lose.

It's a good thing the economic models agree, JB.

I assume the private SS accounts will be tax free. In the long run, all capital gains will go to the private accounts. How will the government make up this lost revenue? Raise taxes on people who have to work for a living, I guess.

"Even the borderline socialist economies in Europe produce billionaires, so I'm curious as to how you would prevent this evil while creating a strong economy with jobs for everyone."

First off, the economies you speak of illustrate how you can create a strong economy with jobs for nearly everyone. It is the same thing the U.S. had last time we had a strong economy with jobs for nearly everyone... 70% top tax rate, progressive social insurance programs.

Ta da! Less billionaires, free on demand health care for all. That was easy. And you, as a member of the perpetual middle class, pay just a couple hundred extra tax dollars a year, but remember the free health care! You are actually saving!
Paul Allen might have to sell one of his 300 foot yachts, but I think he'll be able to recover from the loss.

If you have $1000 cash in your wallet and you refuse to give a homeless person a quarter, I'm sorry but you are a moral cretin. This has nothing to do with the size of my penis or bank account, it has to do with the moral (or social) utility of hoarding cash that comes to you via luck. It is "from each according to his good fortune, to each according to his need."

And if you don't think government regulation is necessary to guarantee minimum economic freedoms to the entire population, I give you... the Walton Family, and their untaxable undonated hundred billion.

Corey,

That cash isn't "hoarded" or put aside doing nothing. It is invested in corporations which produce jobs for the little folk. The folk you are supposed to care so fervently for. The many benefits of wealth accumulation have been recognized for some time, Corey. I have serious reservations that Buffet's or Gate's billions would be better spent in the hands of the government. Innovation and job production versus inefficient government hand outs? Hey, but if it helps the limo libs relieve some of their guilt, then it must be worth it.

So much of the Left's disdain for capitalism and the evil accumulation of wealth is rooted in simple envy. Envy is often couched in the most sympathetic terms. Yachts versus health care, for example. But the Coreys of the world find inequality per se unacceptable, even if the claimed "minimum standards" were reached for everyone. Hey, you have two yachts and I only have one! Would Corey really be satisfied with universal health care? Would his envy and/or guilt end there?

As I pointed out in a previous post to you, 99% of Warren Buffet's wealth is in his company, Berkshire Hathaway. He plans on giving the vast majority of his wealth--which he currently enjoys very little of--to charity. Considering he's a Democrat, it will probably go to all sorts of left-of-center think tanks and foundations.

Moreover, considering Buffet's stock has averaged about a 15% increase per year for decades, you can rest assured that his billions are an excellent investment for the future of liberalism (presumably much of his wealth will go to liberal, or quasi-liberal causes). So do your "progressive" brethren a favor, and stop picking on the fellow. Otherwise Buffet might wake up and see modern liberalism for what it is.

There is no guarantee that capital invested today will equal more American jobs in the future. It might go towards opening a plant in India, the purchase of capital goods that actually eliminate jobs, or simply go to buying a so-so CEO a new yacht.

Did Michael Ovitz really deserve $140 million for a years worth of work at Disney? Does the CEO of Lockheed, a company that is entirely supported by government money really deserve $20+ million a year?

It's easy to point out the flaws of the left. But the right still clings to a vision of capitalism from the 50s, when common decency prevented corporate executives from looting their companies for, yes, excessive luxury.

When a CEO makes a huge income for no other reason than he packed his board with relatives and friends, I think it's fair to ask if it's justified. Particularly if that executives' company gets most of its income from government spending...

Corey, thank you for confirming everything I said.

jb

monkeyboy "I assume the private SS accounts will be tax free. In the long run, all capital gains will go to the private accounts. How will the government make up this lost revenue? Raise taxes on people who have to work for a living, I guess."

The accounts will be funded from diverted FICA, so we're not talking about lost capital gains tax revenues for the IRS. All funds that earn capital gains in SS private accounts are actually monies that would have been general fund liabilities in the form of T-Bills purchased by the SS Trust Fund.

I agree with you on one thing however. The govt will most certainly stick to the taxpayer, from the working man to the rich man, to cover profligate budgets rather than reduce spending.

jb

I think you are missing my point, jb.

Last year, American companies did pretty well for themselves. They had after tax profits of around $800 billion. They kept about half of that for reinvestment and paid the other half out in dividends. I assume some of that $400 billion was subject to capital gains tax. In addition, large sums of money were made by people selling stocks that have gone up in value. Some of this was subject to capital gains tax.

If we create tax free private SS accounts, they will reap the benfefits of corporate growth and profitability (otherwise, why make them?). Eventually these private accounts will receive most, if not all of the captial gains in the country, tax free. Lost tax income to the US government.

Sure, some of it will be recaptured when retirees draw down their accounts, but probably at a much lower tax rate.

For those who may be powered more by beliefs than by facts on both sides, an excellent article in Newsweek shows how, with a little tweeking, the problem can be resolved: http://www.msnbc.msn.com/id/6920720/site/newsweek/
The one point that persons overlook is that the presidents proposal is one big tax increase. Perhaps necessary to cover increasing military spending and rising deficits.

"Take my case:
I am 62 and started receiving SS. My wife and I total contribution to SS is $89,080. The company had to pay an equal amount for a total of $178,160. If I had invested this money at the risk free 10 Year Treasury Note. We would have $ 591,547 today. Our life expectancy is age 85 and 88. If we keep this money invested in the long bond at 5.75% and live until 85 and 88; we would receive an average of $40,300 per year (2005 dollars).

Social Security will pay me $16,500/yr (adjusted for inflation) and my wife $7,512/year starting in 2008. So $24,000/yr in 2005 dollars.

If invested in stocks and bonds at a 60/40% allocation I would get $63,000 for the rest of our lives (2005 dollars).

So $63,000 vs. $24,000. Which would the voters choose if given the choice.

Jay S."

So let's get this straight:
We're operating under about about fifteen dubious/erroneous/absurd assumptions here. Among them:
- That you'll earn 5.75% for the rest of your life. Given the way Bush is treating the economy, that's questionable.
- That you can completely disregard the $2 trillion or whatever it is we'll have to borrow to implement the system (which makes investing in the US economy so secure, when you're borrowing against a deficit)
- That everyone here has the same amount to save and to contribute to social security, when an absurd amount of people in this country can't save - not because they are stupid or lazy but because they honestly cannot afford to
- That all benefits will remain the same when it appears clear that whatever 'reform' emerges, something is going to go to cover up the enormous drain left from Bush's upper class tax cuts
- That this whole scheme would work despite overwhelming evidence against it EVERY SINGLE PLACE IT'S BEEN IMPLEMENTED.
So yeah, best of luck with that. Especially when none of these concerns have been remotely addressed by supporters.

Mabye I'm wrong here, but there are a lot of excuses that we're given as to why there is a problem. Really, if you look at the system, when properly managed, there's absolutely no problem with it unless you get an influx of cripples. A boom in population and life expectancy will result in a largeer overall population (the population booms, you get the baby boomers popping out 2 or 3 kids a couple, ect.) An increase in life expectancy means you also get an increase in the health of the elderly and how long they can work for; these boost the income going into the social security system. The young population is almost always significantly higher than the older population unless you decide to kill a lot of them off in a war.



Moreso, you only have problems with paying money if you didn't put enough money into the system in the first place, or there's a radical decline then increase in living standards. The design of "everyone puts money in, and gets a certain amount out minimally" seems pretty simplistic and foolproof to me.



Additionally, if indeed 12.5% of, an as example, $20,000 a year job pays out, say, for 40 years, that's person has $100,000. Factoring out interest, taxes, investment, pay raises and inflation, that's 5 years of normal income if they squandered it all. If they didn't then theoretically by the age of 60 they'd own a house and have a lot of wealth built up. If it's $30,000, then you'd have $150K, if $100,000, you'd have $500,000 built up. Really in our day and age if you spend some time and really think it out, living expenses aren't all that bad if you do it right; it is the disposability and lack of long range planning in our society which is a problem. You can buy a new pair of $30 boots every 8 months or you can buy a pair of $200 boots and a $40 care kit and have them last 10 years if not longer. You can buy new bags for $20 or $30 a pop every year, or you can find some military backpacking equipment and mabye even some webbing for $60 or $80 which will last 10 or 20 if you have sewing skills. You can buy an antique cabinete which will last you lifetimes for a few hundred, or buy $80 stucko furniture. It's the luddite way of doing things really.



My grandma is living quite comfertably off of $100,000 she saved on her own in addition to the social security, but if the government did really get all that money and has had all this time to invest it, then I wouldn't see the elderly handing me carts at wal-mart.



I am of the opinion that most, if not all, of the money in the social security system has been essentially squandered on war, outright dumb research, secret projects (Area 51 can't be denied, and someone has to have the paychecks; there are a lot of other things going on however but going into them here will accomplish nothing). There's ample proof of the money being gone; most of what's in there is non-marketable bonds or as I call it, play money.



It's actually a pretty ingenious mind-hack if you look at it. Every time the government raises taxes they say it's to put money into social security and it's temporary. 5, 10, 15 years down the line nobody notices and they do it again so long as the living standard increases. They then take money out of it without telling anyone, then proceed to make up an excuse that, when thought about, really makes little to no sense on paper when mathematics are applied.



This money then, of course, gets wasted on making lucrative contracts for corporations or paying out to companies like halliburton for repainting rubble and selling troops $40 cans of dr pepper. Which really, how much trust can you have in the governments fiscal responsability when you hear stories like that, especially when it's known not to be uncommon and especially when nothing is done about it?



Perhaps you guys could show me some numbers to back yourselves up? I'd certainly like to be wrong on the whole "government squandered the cash" notion because if the fiscal responsability of the government has dropped that far into the toilet drain then it's only a matter of time before this shindig implodes and I'm out in the middle of the forest pickin' berries. My personal hunch isn't that it's the declining ratio of working people to retiree's half as much as it's the decline in the relative living standard which I personally believe to be a function of mismanagement at top levels of government and outright overconsumption spurred by the advance in marketing and advertising technology which was targeted at youth.



Americans do have massive credit card debt, and McDonalds does try to get people reliant on their poison..er..food, for emotional support, afterall.



And as a final point, I don't believe corporations are at fault here for paying taxes half as much as they are at fault for lobbying or bribing people to pass laws into place to make markets more favorable to them. And I don't even think the corporations, as a network of managers and people, are themselves responsable for that; I think the investors are responsable for that. There are an auful few people with an auful large quantitiy of capital and therefor, power over the government. It seems quite fishy when you've got a mass media owned and operated by 2 people who shut out of people like nader who, even though I may not support or even remotely like the guy, I still think he has a right to participate in a debate without being mugged by riotcops. I find it aufully fishy when the news industry stops covering things that really matter and purposefully turns down big stories which could net them big revenue like "social security bankrupt" for fear based consumption.

"I have serious reservations that Buffet's or Gate's billions would be better spent in the hands of the government."

Everyone here claims to love freedom and individual autonomy right? OK, then explain to me why it is better to have billions in the hands of unknown individuals with property and personal rights that prevent anyone from influencing what they do, vs. billions in the hands of a democratically elected fed/state/local government which can be petitioned, lobbied, voted on, or overthrown?

Locke and Hobbes loved their King, and you all love yours. All this talk of autonomy, yet all this trust in the gods the market has elevated above you. The reason I dislike liberalism so much is all of these creepy anti-democratic undertones.

It seems like, if we recite the incantation of personal autonomy enough, no one will see that corporate leadership structures look exactly like feudal facism. Supreme authority vested in the CEO/Soverign, who holds capital in the public trust and grants artisans the terminable right to ply their trade according to strict office rules for a middling sum of money.

Does civic virtue make you rich? Can you even get rich if you are truly actuated by the complex needs of the people around you? Do you really really believe that success in the economic marketplace is the prime qualifier for "control of the public trust"

These are honest questions, I have never been able to understand how people who prefess to distrust government prefer instead to rely on the unproven benevolence of some mega-capitalist who lives in a fortified compound and rules for life.

Yes I do believe that inequality is per se unacceptable, at least to the extent that you cannot justify it by showing a difference in skill or productivity on a personal level. That is why I modify the Marx quote "from each according to his talent" to read "from each according to his good fortune." The stuff that comes from talent you can keep.

World GDP is large enough to give EVERYONE on the planet $6200 US per year. Do you know how many billions are living below that? I'll give you a hint, its more than half the world's population. It is reasonable to assume there would be a global democratic majority supporting massive wealth redistribution...

Hey, I just figured out why y'all are afraid of democracy! :)

It's not hard to understand, Corey. For systematic reasons, most money spent by government is not spent as well as that in private hands. While it's necessary for some purposes, once it gets beyond those, it's people who didn't make the money, and therefore use it with less care spending it on others, and therefore with less care. It's people spending money who are not experts in particular things they spend it on, but are experts on getting money through government.

Also, taking money from those who have earnred it, and giving it to those who haven't lowers the value in society as a whole. While it may be more equitable if redistributed in small cases, overall, having those who earn it getting the money guarantees that value will be created to gain it, while giving it to those who do nothing for it rewards those who don't create value and takes money away from those who do.

To say this is somehow against autonomy or democracy(!), in that people can discover they can vote other people's money to themselves, shows, if anything, no your part, a strong disregard for the individual--a willingness to steamroll over rights in the alleged name of the collective.

I also don't understand your bizarre fear of CEOs. Corporations hold little power over me. If I don't work for them, they can do almost nothing to me. If I do work for them, I can always quit in a free market society, and if a company is a hellhole for workers, it'll go under. Meanwhile, the meanest governemtn employee can command me to appear before him, and if I don't jump through the proper hoops, he can force me to do what he wants or I'll go to jail.

And how do corporations get what they want from me--by pleasing me, that's how? (Unless they're in cahoots with the government--but then, that's the problem of government taking my money against my will.) Corporations are merely useful ways of organizing people to efficiently create value in our society. They are responsible for spreading more money to more people than almost any other legal construct. Those who don't like corporations would create a world those with less skill, who create less value, would be able to work the system better to gain more money, while consumers would have to settle for more expensive, lower-quality goods, in general. In particular, the poorest third of our citizens would be hurt the most.

The best way to unleash this creativity that helps everyone is to allow economic inequality. Legislating against such inequality lowers the quality of life for the average citizen, and if followed for enough, creates slavery.

If you gave everyone $6200 this year regardless of what they contribute, you would very soon have widespread poverty, since you'd be rewarding indolence and punishing initiative. If you think that people get money from luck, you'd soon find out how wrong that is if you take money away from the hardest, cleverest workers. (Some do get it through luck, but if that's all they have, they lose it, too.) Communist solutions of massive redistribution have always failed, and not just minor failure--destruction of basic freedoms, diry poverty, massive death.

"Communist solutions of massive redistribution have always failed, and not just minor failure--destruction of basic freedoms, diry poverty, massive death."

Hehe, Fred, that's a little over the top. Certainly the U.S. economy is the largest experiment in redistibution in history, and we seem to be doing ok.

I'm sure if Marx were around today, he would see the attempts to privatize Social Security as a clear sign that the proletarians had won. The bougeois have sunk all their capital into underperforming assets, and they want to sell them at a mark up to the workers.

Should the people really put their money into near-bankrupt airlines, debt-ridden and out of touch US auto companies, internet bubble 2.0 stocks like EBay, Google and Yahoo with their laughable valuations? I don't think so.

The wealthiest 20% of Americans own 96% of the stock in this country. They know they're holding paper that will be worthless in the long-term. This plan to get their sock-puppets in the Republican party to force us to buy their crap looks like a desperation move to me...and I'm sure Marx would see it that way too :)

I think Corey fails to recognize that the poor ARE better off because of capitalism. The presence of inequality does not mean capitalism has made things worse for the poor. While redistributing every last dollar of income to achieve perfect equality would delight the poor at the time, there is no reason to believe such a redistribution would be beneficial to ANYONE in the long run.

I am unsure what the last commenter, Monkyboy, means by American being "the largest experiment in redistribution history." Every capitalist economy in the world today is suffused with "socialist" elements, but America isn't even close to being the "greatest experiment in redistribution of history." That'd be the USSR or Communist China. Two "experiments" which worked out wonderfully for the poor!

I have no problem accepting many social programs, and even seriously considering large expansions. But Corey and his ilk fail to recognize the truth that equity compromises efficiency. And if you compromise efficiency too much, then you aren't helping anyone!

Is China doing that badly, lately?

I recently saw a list of 25 Communist Party and Red Army officials who are billionaires...

I'm sure economists and capitalists would like to claim the success of America is due entirely to capitalism...but it's hard to get past all those redistribution programs like Social Security.

The battle between Kapital and Labor is over. Who makes the real money in America these days? Service is where it's at, now. Movie stars, CEOs, trial lawyers, sports stars, lobbyists, etc. are all making a fortune without investing a dime in the means of production. Poor ol' Kapitalists are only making 5% a year on their money...a return even Marx would say is fair.

"Is China doing that badly, lately?"

Maybe you didn't notice, but China has adopted the evils of capitalism.

Gary Becker wrote:

"Retirees for whom social security income is not a major part of their retired assets will invest much of their own savings in stocks. Studies indicate that this is precisely what they generally do with their IRA’s in order to have a balanced portfolio between stocks and the implicit social security assets guaranteed them. Since lower income men and women accumulate few assets other than their social security assets, a fully funded system through personal savings would enable them to have more balanced portfolios between stocks and bonds.

"

The problem with this argument is that poorer people will rationally be more risk-adverse at the margin than wealthier and therefore the "balance" of risk to reward that is appropriate to them is quite different.

"However, neither is there any special “transition” problem in moving to a fully funded privatized system since future generations in some way or another have to pay for the implicit debt due to commitments toward present and future retirees. "

But paygo will not incur interest payments and currently, being in surplus, accrues interest. Cutting off the inflow to paygo and borrowing will require interest to be paid on that money, much of which will, as Judge Posner said, flee the country.

"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."

Uh, isn't the social security retirement age already set to gradually increase? As applies to the US, this seems wrong as a matter of brute fact. The old may vote disproportionally, but they are still outnumbered by the young.

"There is only a modest link from an individual’s accumulated tax payments on his earnings to these “guarantees”.
"

Because SS is insurance, not investment. There is only a modest link between payments and premiums in insurance, and we don't regard insurance as irrational for that reason.

"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.
”.
"

So change the bookeeping conventions (hey, isn't that what Al Gore meant by the much ridiculed "lockbox"?). This doesn't speak to the substance at all.

"regulation of which types of investment accounts are approved takes care of the incentive to be overly risk-taking.
"

All of a sudden the government is just tremendously competent at evaluating risk - the hardest problem in investment? And this evaluation, we assume, will be immune to political pressure, while we simultaneously assume all other government decisions are so pressured?

Investment directly at index funds intrinsically gives larger firms (firms large enough to make the Dow or whatever index) a structural advantage over smaller, the latter being the primary engines of employment and innovation (Drucker argues that medium-sized firms are the primary engine of innovation, but I think most of those would be unlisted. His standard for small is mom-and-pop.) This would be an economic disaster as it would collapse innovation by creating a privileged class of large corporations with much lower capital costs. This alone is reason to run from this plan shrieking in horror.

Judge Posner wrote:

"First, I believe it is plausible to model the individual as a succession of selves with different preferences. A young person may dislike the idea of growing old and may be inclined therefore to refuse to make provision for his old self. The old self—the self that will not emerge and “take over” the individual for many years—has no control over the decisions of the young self. Compulsory retirement saving gives the old self a “voice” in the decisions of the young self.
"

In a previous discussion on another blog, I asked Judge Posner how he could object to a ban on smoking if he did not believe in free will. He said:

"because I don't expect to be made better off by being told not to do things by government officials who have a much less exact knowledge of my utility function than I do"

How is a government too incompetent to measure whether the joy you get from smoking is worth the risk supposed to measure the values of phantasms that will not even exist for decades. If government cannot even evaluate your utility curves now, how can it estimate your future utility curves, even better than you can? It seems attributions of government competence around here are highly selective.

monkyboy wrote:

"Another problem is who will exercise the voting rights on the trillions of dollars worth of stock held by private accounts? Surely, we aren't going to ask all citizens to vote on thousands of corporate issues every year. "

This is the one thing I like about the proposal. Although I don't think the public should be directly voting on corporate governance - the informational problems are too serious - I think they should - and, if ownership means anything must - choose figures to govern in their name.

Joe Blow, just because some things are not zero-sum games does not means that nothing is. And even in positive sum games, it is not necessarily true that all parties benefit.

I would also like to point out that if the basic problem - to the extent there can be said to be a problem - is the decreasing ratio of young to old, it would not be hard for the US to increase its supply of young by simply easing its immigration requirements (indeed, Mexicans are the big reason this is not as big a problem in the US as Europe.) Provided, of course, that the US remains a desirable destination for immigrants other than for the desparately poor, which looks currently in doubt.

"Because SS is insurance, not investment. There is only a modest link between payments and premiums in insurance, and we don't regard insurance as irrational for that reason."

It has been painted as such but it's NOT insurance by any definition I'm familiar with. Even SSA.gov says it is insurance against loss of earnings in old age retirement, yet everyone who pays in collects money, whether or not they have suffered a loss of earnings.

This is not what I call insurance. It's something else. So let's stop pretending it's merely an insurance policy.

jb

maritn bento: "I would also like to point out that if the basic problem - to the extent there can be said to be a problem - is the decreasing ratio of young to old, it would not be hard for the US to increase its supply of young by simply easing its immigration requirements "

Good lord! You want to fix the broken pyramid scheme by importing more suckers to start at the bottom? Now I've heard it all. It's gotten to the point where for those defending Social Security status quo, it is an end unto itself. At all costs, Social Security must be preserved in its present form, no matter what the price. Unbelievable.

jb

"Everyone here claims to love freedom and individual autonomy right? OK, then explain to me why it is better to have billions in the hands of unknown individuals with property and personal rights that prevent anyone from influencing what they do, vs. billions in the hands of a democratically elected fed/state/local government which can be petitioned, lobbied, voted on, or overthrown?"

Because there's no conceivable reason why anyone who believes in individual freedom and autonomy would feel the need to control what billionaires do with their private assets, any more than they should feel the need to control what you do with your assets. Why do you object so strongly to successful capitalists being left to enjoy their personal assets in peace?

As for Social Security, we need to reduce promised benefits, period. Stop promising never-ending increases in the amounts that retirees are paid; hold the real value of their checks constant. Then, leave people alone, and let them invest as they see fit. I don't see anything morally outrageous about paying tomorrow's retirees the same as we pay today's, regardless of the gains earned by tomorrow's workers, and I don't see any reason to add in any scheme that gives anyone in Washington the right to direct your assets to their approved investments. Just limit the burden that people have to carry, contain the damage from our extravagant promises, and then leave people the hell alone after that. Retirement is not the most important thing in the world, after all...

"However, neither is there any special “transition” problem in moving to a fully funded privatized system since future generations in some way or another have to pay for the implicit debt due to commitments toward present and future retirees. But it is better to transit smoothly to fund this debt rather than require a sharp increases in taxes on later generations."

Hmmm... Surely, Prof. Becker, a person as smart as you can imagine more than two possible policy alternatives.

Personally, as a member of one of the younger generations, I would prefer a solution that spreads the debt more equitably across the generations, by forcing present retirees and near-retirees to pitch in their fair share.

Prof. Becker, can't you imagine a policy alternative that does so? I sure can, and I don't have a Nobel Prize in economics...

"It's easy to accuse reformers of wanting to put disabled people out on the streets, but that's simply not the case." - joeblow

Really? Matt Blunt was elected the governor of Missouri. Young, Republican, hyperconservative, and the son of an equally hyperconservative Republican member of the House he represents the future of the party and of America if the Republican party has its way. He said that while the state has budget problems he wouldn't solve those problems on the backs of the poor. Medicaid could be reformed and made better. In January he announced his compassionate reforms. 89,000 people would be forced off of the Medicaid rolls and another 60,000 would be affected by further benefit cuts. A program called First Steps to help disabled children and their families would be virtually eliminated. Don't shovel some BS about how noble Republican reformers are. They're all nothing but pathological liars with the morals of Jeffrey Dahmer.

Well... I suppose it's more original than Hitler...

Rereading Dr. Becker's original post, he seems to be saying that private accounts will somehow get the government out of the retirement business and force it into a more honest accounting of defecits.

How is the government getting out of the retirement business if there is a government panel picking which stocks we can invest our money in?

There is no such thing as an independent when it comes to money. Surely the Republicans will dump billions into News Corp, home of Fox News to reward them for their support. The Democrats, when they get back in power, will channel private account monies into alternative fuel companies, liberal press companies, etc. If anything, private accounts will get the government more deeply involved in our retirement funds.

The Social Security trust fund could just be allowed to sell the government bonds it holds on the open market if we want better accounting. No need to go to all this fuss to accomplish that.

"Rereading Dr. Becker's original post, he seems to be saying that private accounts will somehow get the government out of the retirement business and force it into a more honest accounting of defecits. [But h]ow is the government getting out of the retirement business if there is a government panel picking which stocks we can invest our money in?"

Administration of the accounts would be handled by agents of government, but government administration is different from singling out groups of citizens for income redistribution for partisan purposes. As Posner has pointed out, young people do not vote. So: as a practical matter, they do not participate in the process that determines how retirement benefits are allocated. Removing the government apparatus that permits the elderly electorate to single out the non-voting young for income redistribution is a good thing. That the system which does that will require some government administration is beside the point.

Social Security also helps younger people by easing the burden of supporting parents who have retired wihout sufficient funds, Jack. There will still be plenty of inter-generational battlefields like Medicare, Headstart, nutrition programs for children, etc. even if SS private accounts are approved.

Companies like Haliburton and Bearingpoint LLC receive government funds now seemingly just because the Republicans are in power currently. Imagine the trouble that will be stirred up if trillions of dollars in Social Security funds can be awarded to or taken away from companies based on their political ties.

On top of that, imagine how much money waits to be made trading on insider information about which companies will be added to or taken out of the approved index funds...why create the environment for so much political corruption if a simple adjustment to SS will keep it solvent through our current century?

First off, the economies you speak of illustrate how you can create a strong economy with jobs for nearly everyone. It is the same thing the U.S. had last time we had a strong economy with jobs for nearly everyone... 70% top tax rate, progressive social insurance programs.

Except, of course, that employment in the U.S. is significantly higher than in Europe. In many of those socialist economies of western Europe the unemployment rate is _routinely_ at levels the U.S. sees only in deep recessions.

-------

World GDP is large enough to give EVERYONE on the planet $6200 US per year.

Well, no, it isn't. Money is just paper, Corey. (Or in the modern world, electronic bits.) You can shuffle around that paper, but all that does is destroy the value of that paper. If you confiscate 90% of a person's labor, you're quickly going to find people doing 10% of the work they used to do. And then what are you going to redistribute next year, instead of $6200 for everyone? $620 per person? Will there ultimately be equality? Sure. Everyone will be equally poor.

China is neither communist nor capitalist; it is feudal with modern day warlords.

Monkeyboy starts off with a suite of false statements:

Once they see an account with their name on it, they'll be asking to withdraw the funds long before they retire to cover such expenses as medical, college for the kids, home purchases, etc.

Maybe. But 401ks and Roth IRAs are just as 'vulnerable'. And Americans are NOW calling for an accounting on the FICA "savings" that have already been "put away" for our retirement.

Another problem is who will exercise the voting rights on the trillions of dollars worth of stock held by private accounts? Surely, we aren't going to ask all citizens to vote on thousands of corporate issues every year.

Why not? And stepping out of facetious character for a moment, I would honestly ask who has voting rights on the current primary retirement investment vehicle, mutual funds? Doesn't seem to have been a problem yet in the past 20 years.

I question whether there will be enough solid investments to channel all this money into. The S&P 500 is worth only about $10 trillion right now. A few years of SS monies invested in them will purchase a controlling interest in them all. What then, will we take our SS money and invest it in foreign companies?

What happens when money is invested in companies?? C'mon, monkeyboy. It gets invested. Creates new wealth. I welcome the prospect of living in a robustly growing economy. What do you think has driven the 401k-driven economic boom of the past 20 years? Clinton??

As an idea, private accounts may be a good thing, but looking at the details reveals many huge problems, any of which could end capitalism as we know it. Is it really worth the risk?

Since capitalism is based on private ownership, why would anyone think private ownership of assets would destroy capitalism?

"Social Security also helps younger people by easing the burden of supporting parents who have retired wihout sufficient funds, Jack. "

How in the Hell does it do that? Seems to me that Social Security forces younger people to support parents who have retired without sufficient funds, and to support someone else's parents when theirs are no longer available.

It also seems to me that people who never bothered to have kids, didn't bother to get their kids properly educated, or abused their kids to the degree that their kids no longer give a damn whether they live or die, shouldn't really have the same entitlement to be supported (by someone else's kids) as people who had kids, treated them well, and helped them become successful.

Now that doesn't mean that a "personal savings account" as Bush suggests is a good idea. I think it's a horrible idea. What we need to do is contain the growth in benefits to limit the burden on younger people, and leave them to make their own investments without political control or influence, based on their judgement backed by their own money of which investments (if any) are the best available uses of their money.

A social security benefit with the same real value as the benefits that today's seniors get is quite sufficient as a fallback position, and should not grow in real terms over time.

Jay, I think you have a distorted idea of who holds stock in the U.S. The Fed says 96% is held by the wealthiest 20% of Americans. The amount of stock held by 401 and other retirement accounts is negligable.

There is no guarantee that more capital = more growth. The Japanese hold trillions of dollars(yen) in accounts that pay a little over 1% annually. That is why U.S. govenment bonds look good to them. In addition, U.S. companies paid out over $400 billion in dividends last year. If they needed more capital for growth, they could simply retain this portion of their profits.

Most Social Security reform plans call for people to invest in mutual funds holding shares in thousands of different companies. With mutual funds, the fund managers vote the shares. Imagine a few government officials voting trillions of dollars worth of stock. These individuals will be the most powerful people in corporate America, hardly a capitalist ideal.

You are ignoring two things

1. There are two sides to the market for US debt. Just because you want to "smoothly transition" from where we are to where you would like us to be doesnt mean that the other side of this market has the same desire. It isnt necessarily a smooth twice differentiable function. In order to be correct you have to make the case that debt ratios which were NOT ok for other countries ARE ok for us. Maybe our status as the (for now) world reserve currency gives us more rope than others have had and maybe not. But what it definitely means is that we are in uncharted territory - not a good place to be. And a corollary - It definitely IS possible to lose our status as the world reserve currency - it has happened before to the Brits, for ex., and doing that would be a monumental mistake.

2. You rightly acknowledge that there will be risk in a private system. That means there will be people who choose badly and are impoverished in their old age. At that point we will have to reinvent social security if we dont want old folks starving on the streets.

At the end of the day we have a massive problem of hysteresis. We might be better off if we had a savings rather than transfer program from the beginning. But that isnt what what happened. It is entirely possible (even probable) that once we have gone down the path we are on the costs of shifting to another path are greater than the extra benefits that path could give us.

mb,

The amount of stock held by 401 and other retirement accounts is negligable.

1.Then why your original concern over SS retirement funds overwhelming the markets? You seem to be proving your point wrong.

2. I guess you never read a financial page (Barrons, WSJ) in the 80s and 90s bemoaning the sharply increased influx of money from 401ks, saying it couldn't last and we were setting us up for a market crash that would make mincemeat of the crash of '29.

There is no guarantee that more capital = more growth.

Nope. No guarantees. But bloody likely. The Japanese argument is not relevant. Your implicit argument is that lots of money, or some other form of asset or wealth, does nothing for growth. And maybe not, but it certainly is a necessary condition.

Most Social Security reform plans call for people to invest in mutual funds holding shares in thousands of different companies. With mutual funds, the fund managers vote the shares. Imagine a few government officials voting trillions of dollars worth of stock.

Those same reform plans call for investing the money in private mutual funds. The fund managers would not be government officials. Your argument is no different than the sleight of hand magicians practice.

These individuals will be the most powerful people in corporate America, hardly a capitalist ideal.

Given your demonstrated knowledge, or lack thereof, of things capitalistic, your statement doesn't carry much weight.

My arguments stand unmolested.

Joe Blow: "Low capital gains tax is good for all investors. It's good for the rich obvioulsy, and it's good for the middle class too."

It doesn't do much for the middle class because most of their investments are in tax-deferred accounts or pension funds.

BECKER:"However, neither is there any special “transition” problem in moving to a fully funded privatized system since future generations in some way or another have to pay for the implicit debt due to commitments toward present and future retirees."

The Bush "plan" will cost about $15 Trillion by 2050. The ENTIRE SS deficit for the NEXT 75 years (2080) is $3.75 Trillion.

BECKER: "Hence, the social security system has evolved into two largely independent systems: a sizeable tax on wages, starting with the first dollar earned, and retirement benefits that are ‘guaranteed” by the government."

The wage ceiling is capped at 87.9 K Raising the cap to 200 K would eliminate the SS deficit for the rest of this century. I suggest including ALL income, not just wages, to make the tax less regressive and reduce the cost to business.

BECKER:"A good individual funded savings system would require people to save 4-6 per cent of income (President Bush suggests 4 per cent), and invest these savings in private individual accounts that would meet certain government established criterion. At the same time, social security taxes should be cut by a couple of percentage points from its present level to ease the burden on workers."

This would be a fiscal disaster of a magnitude not seen since the Great Depression.

BECKER:"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”."

Wrong answer. Please re-do your math.

Joe Blow:"Just because something is good for upper incomes doesn't mean it is therefore bad for everyone else. It's not a zero sum game."

Supply-side economics IS worse than zero-sum. We are still paying off the Raygun deficits.

Jaffer Qamar:"If that's so, shouldn't President Bush persuade Congress to permit (perhaps require) the Social Security Trustees to invest the current accumulated surplus, and future surpluses, into the equity funds (the same ones that the government would approve for us to invest in) instead of investing in low-interest Treasury bonds, which it has been doing all along? "

Great idea. There is simply no need for 120 million separate accounts, aside from the "poor" brokers.

Joe Blow: "But partisanship motivated by class envy is sometimes hard to get past."

It's not class envy, it's class warfare. The top 1% received 33% of the Bush (Paris Hilton) tax cuts and all we had to show for it was a lousy 120K gain in jobs over 4 years.

Palook:"It is invested in corporations which produce jobs for the little folk. "

The Bush tax cuts produced a net gain of 120 K jobs in 4 years.

Monkyboy

"isn't a capital gains tax reduction an incentive to take money OUT of capital investments?"

Er, no. It makes the market more liquid. People will put more money in if they don't have to achieve sky-high rates just to break even vs. other possible investments. People will put more money in if they know they can shift to other investments if they don't have to eat a huge tax penalty every time they do so.

You didn't see everyone flee the market as soon as the rates dropped, did you?