A disturbing parallel: the liberals are right
I hate to say it, but the liberals are right about this one. There is a disturbing parallel between the way the White House is attempting to sell Social Security reform and the way it presented the case for war in Iraq.
I have never believed the war was primarily about weapons of mass destruction. I believe that the White House played up the WMD angle because they thought it the easiest way to make the case, particularly to the international community. It was a cynical, high-risk gamble, and they've paid the price for it.
It seems they're beginning to make the same mistakes in pushing Bush's domestic program. Social Security reform is a high-profile component of Bush's second term agenda. As Martin Wolk points out, there are troubling signs that Bush is touting his reforms as a "necessary" response to the Social Security crisis.
That's a big mistake. It makes his proposal sound like bitter medicine, and that's unfortunate. I support the concept of privatization, but the plan should be sold on it own merits, not as some "backup plan" we're being reluctantly forced into. Don't get me wrong, there are genuine actuarial problems with the current system, and they need to be addressed, but scaremongering is not the path to victory here.
Everyone knows the current system will be facing a shortfall in years to come. That's all the stick that's needed. Let's present some carrots. Two themes should dominate the campaign for reform: choice and ownership.
We don't own our Social Security accounts. Anyone unlucky enough to die before reaching the ever-increasing retirement age will have saved all his working life with nothing to show for it. This is especially true for minority groups with shorter life expectancies, and it will become more of an issue as the retirement age continues to increase. With private accounts, the deceased will at least be able to leave something behind for his survivors.
Critics often say workers should maintain private accounts in addition to Social Security, but for many lower- and middle-class families, it's difficult to sock away anything substantial once 15% of their income is already tied up in the current program. Many people would welcome the choice, non-mandatory, to put those same contributions into a private account.
It should also be pointed out that the current system is inherently regressive. I'm not just talking about the payroll tax structure that finances it, but the system itself. Far from being a savings program, it is a system that effects a net transfer of wealth from a poorer demographic to a wealthier one.
Private accounts can and should be sold on their merits, not on fear and panic. The American people are capable of understanding the issues if presented to them.
I'm on your side, Mr. President, but you need to do this one right. This one's important. Don't repeat the same mistakes this time.
Comments
Very well said.
Posted by: Amy | January 16, 2005 11:24 AM
Actually you're wrong about the "everyone knows" that the system is in trouble. The liberals are trying to sell it as 'He's taking away your SS paycheck.' - take a trip over to factcheck (www.factcheck.org) they spill the beans and the beans are that Bush is right.
Posted by: Michael_the_Archangel | January 16, 2005 04:28 PM
And what happens if the almighty stock market just happens to be tanking when you retire? Are you supposed to:
a) Live on the street
b) Sponge off your relatives
c) Die?
Just asking.
Posted by: Jill | January 17, 2005 11:23 AM
Jill, I don't know why all you "reality-based" people assume private accounts automatically means gambling the farm on Enron. I didn't even *mention* the stock market in my post. Any reasonable plan would include broadly diversified funds, comprising equities, government bonds, corporate bonds and money markets. And yes, I'd trust such a mix over 100% vestiture in your beloved government debt any day.
(BTW, remember when liberals were against debt? That was brief.)
Posted by: Barry N. Johnson | January 17, 2005 12:25 PM
Jill,
The key thing to remember in any of these SS privatization plans is that you will have a choice. No one is going to force anyone to invest in anything they don't want to invest in.
In any event, even the most ambitious plans I have seen involve only 4% of your salary. The other 8.4% of your salary would still be going into the ultra-safe, ultra low-return securities that they currently use. So even if you did the riskiest possible thing (all 4% into one stock), you would only be risking 1/3 of your SS amounts.
Posted by: Tracy Miller | January 17, 2005 12:46 PM
What on earth makes you people think you'll have that much of a choice? What you're going to have is a few funds that the government will decide on. They're not going to hand you a thousand bucks and tell you to go to T.D. Waterhouse any more than your employer gives you your 401(k) contribution and tells you to go to T.D. Waterhouse.
The Bush Adminstration has already demonstrated that he who greases their palms gets the goodies. And if you think that it's in the Bush Administration's interest to get you no-load funds, you're living in a dream world. But then, those of you who still support this guy ARE living in a dream world, so I don't even know why I bother.
There's another aspect to this that argues in favor of a stock-skewed plan: The fact that once baby boomers start drawing from their 401(k) plans, that's going to be a ton of money taken out of the stock market in a relatively short period of time. That is going to have to be made up somehow.
All this talk about Social Security going "bankrupt" is absolute bunk. Yes, there are bonds instead of cash sitting in that so-called "trust fund", and yes, they're going to have to be paid at some point. But to say that the government is going to default on them (which is essentially what Bush is saying when he uses the "B" word), what kind of a message do you think that sends to OTHER U.S. bondholders -- like the Chinese?
And you still haven't answered the question: What happens if your account isn't flush when you retire?
Posted by: Jill | January 17, 2005 01:52 PM
Why I'd probably do the same think you'd do if *your* SS system went bankrupt (interesting that you have so much faith in the federal government, BTW.)
Still, I'm making other plans for my retirement apart from Social Security, no matter *what* it's "invested" in. I'd recommend everyone else do the same.
And I can't tell you exactly what menu of investment options we'd have under private accounts (I lack your clairvoyance), but I *do* know this much:
Under private accounts, we'd have at least two options: the current system and the new one.
Under the current system, we have one option.
I prefer the first.
Posted by: Barry N. Johnson | January 17, 2005 02:15 PM
BTW, Jill, the bonds that our SS taxes are "invested" in are not the same bonds the Chinese buy. They are a special kind of bond that the government can default on without seriously impacting the broader bond market. I can't believe that as a "proud, unrepentant liberal" that doesn't bother you.
Posted by: Barry N. Johnson | January 17, 2005 02:27 PM
Jill said: "And what happens if the almighty stock market just happens to be tanking when you retire?"
The average American contributes to Social Security for about 40 years. Please identify a 40 year period of time in which the stock market failed to gain (on average) at least 9% per year. How about a 20 year period? How about a 10 year period?
The "tanking stock market" canard only holds water if a retiree has made the bulk of contributions at the top of the market and withdraws from the account at the bottom of the market. A simple examination of stock market averages over the last 100 years demonstrates that equities are easily one of the best excellent long-term investments available.
Posted by: withoutfeathers | January 17, 2005 08:40 PM
Jill,
You still seem to be indicating you think people are going to have no choice about investing. Under the most common plan I've seen, the choice exists to keep things the way they are, or take some control over your SS savings. Even if they only offered a choice of five funds, that would be five more choices than we have now.
As to your question about what if the stock market is tanking...not enough information. Most people understand that as you near retirement you must make your savings plan more conservative (more cash, money market, bonds) to avoid losing a lot of value in the last few years before retirement.
In any event, it probably won't matter much. In the worst case scenario, less than 1/3 of your SS will have been invested yourself (Bush's 4% of salary limitation). And on top of that, SS should only be a limited part of retirement savings. You should be using 401(k)'s, IRA's, Keough Plans, etc. to fund your retirement. SS has always been only a minimal subsistence plan.
Posted by: Tracy Miller | January 17, 2005 10:05 PM
"The fact that once baby boomers start drawing from their 401(k) plans, that's going to be a ton of money taken out of the stock market in a relatively short period of time."
...uh, no
When you're in the habit of saving money and investing it, you don't just empty out account the moment your tax status changes because you retire.
Mlv; certified, licensed baby boomer
Posted by: Mlv | January 17, 2005 10:07 PM