Friday, February 11, 2005

LEAVE NO BROKER BEHIND

I thought I’d send you all something on Bush’s Social Security plan. This has the potential to be the most sweeping piece of legislation in a generation and if it passes it will greatly effect each and every one of you, so it’s worth taking a good look.

First, a couple of indisputable facts:

1) Social Security is a wildly effective program. It collects taxes efficiently. It disburses benefits efficiently. And those benefits are, the vast majority of the time, used wisely, ensuring that millions of people are housed, fed, healthy and alive for as along as they naturally should be.

If you are one of those people (and I’ve known a surprising number in my life and heard more than a few others on TV, radio and the editorial pages) who count Social Security among those “socialist” programs of the New Deal era that never should have been enacted in the first place, then what you’re really saying is this: that the health and well-being of the American elderly should be left up to religious and charitable organizations; that if an elderly person didn’t save wisely or didn’t have the intellectual or physical abilities to earn excess income for retirement or doesn’t have access to religious and charitable assistance, then what they should properly do is die quietly in an alley like an infirm, abandoned dog.

I want to stress: that is a legitimate position to take. I only ask that if you say you are against Social Security as such that you do so with this level of transparency.

2) Social Security IS NOT in any immediate danger of becoming insolvent and disappearing. Period. End of story. Anyone who tells you otherwise is misinformed or stone cold lying to you.

A member of the Bluest Fist community who knows a helluva lot about economics (being a senior officer of a very large financial institution in NYC) has sent me the link to an interesting article by Bill Gross, “Sizing Up Social Security”:

http://www.pimco.com/LeftNav/Late+Breaking+Commentary/IO/2005/IO_Feb_2005.htm


As our Bluest Fist member (who shall remain nameless for the moment b/c I haven’t asked him whether he wants his feelings about the Bush Administration spread all over the web) tells me, “Bill Gross runs the PIMCO bond fund - the largest bond fund in the word. He is a brilliant fund manager whose words often move the debt markets. His posting today argues that, W's social security plan makes absolutely no sense.” Our fellow member goes on to explain Gross’s article in a language which is, for this English professor at least, a bit easier to understand than Gross’s own:

“Essentially Gross argues that, to the extent that one anticipates that the US government will have a problem funding social security in the future (around 2050-2070 depending on who you believe), private accounts will not help solve the problem. If there is a problem with Social Security, then it is a funding gap problem (fewer workers will need to pay more in taxes to fund the SS benefits of baby boomers or the US government will need to borrow to fund the gap). But the point is that allowing taxpayers to save a portion of their social security taxes is PSAs [Private Savings Accounts] will not reduce the funding gap. ONLY MORE WORKERS PAYING INTO SOCIAL SECURITY WILL SOLVE THE FUNDING GAP. Although reducing the US government's ballooning federal deficit would provide the US government with more leeway to borrow money to fund the SS funding gap...

Instead, W. [your President] is simply trying to pull the old 401k versus fully-funded pension bait-and-switch routine on US taxpayers. In W's "ownership society" workers will fund a portion of their own retirement by re-directing a portion of their SS taxes into PSAs. These savings accounts will be secure and may be transferred to heirs at death (draining even more money out of the SS system!!). But these PSAs will not solve the Social Security funding gap unless the rise of PSAs is also coupled with either (A) more workers paying into the system OR ..... wait for it .... (B) a gradual lessening of the burden on the US government to provide social security benefits (i.e., eventually the government must reduce SS benefits to workers now in their 20s, push back the retirement age, and / or not allow rich workers to collect SS benefits, etc). For workers with large PSAs these reduced benefits may not hurt much. But for most people paying smaller amounts into the social security system, it will translate into fewer benefits from a social security system that will remain chronically under funded...

Moreover, PSAs will obviously introduce market risk into the retirement equation for individuals - which is a tricky variable no matter what Bush says. If you can sustain 50% losses in your 401k during a stock market crash, then it could happen in your Social Security PSA too. There is no way around it. Essentially, PSAs just shift the market risk to individuals as opposed having the US government bear the market risk (hence my prior 401k vs. fully-funded pension analogy). But private saving accounts for social security DO NOT lessen the looming burden on the government to remedy the funding gap for the entire system.”

I present this brilliantly succinct explanation of a colossally dim-witted piece of legislation as a service to you, my readers.

I would only add that Bush’s plan does have one very obvious constituency from where I’m standing: stock brokers. But the Slogan “Your Children, Grandchildren and Great-Grandchildren Should Bear the Burden of a Short-Term Windfall for Stock Brokers” doesn’t sound very Karl Rovian. “Leave No Senior Behind” is more like it. You see, with this White House, up is down and day is night.

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