The comments below are from Michael Kinsley who is an editorial editor for the LA times. I just wanted to repost his comments here because it basically sums up the way I feel about this issue.
The whole social security debate is meaningless to me. Everyone talks about privatization vs. current system. What we need to realize is that unless we control government spending and reduce deficits this country won’t be much to live in anyways. How long do you think it will take before the government can no longer easily sell treasury bonds because our national debt has risen to a level that shakes the foundations of our country? In 2004 we paid ~320 billion dollars in INTEREST on the national debt! That means that over 1 in 4 tax dollars collected went to just paying interest. Not for roads, military, social security or any other program that we rely on. Check out the debt number as of December 17th, 2004:
7,523,699,112,455.23
Now that’s one heck of a number. If I didn’t already know it was in the trillions I would have to count up the digits. I was talking to a friend of mine the other day about this. We decided that if we were assured that the government HAD to run a balanced budget we would be willing to take some "lumps" to try and rid the country of this debt. I.E. more taxes, etc. As long as the dollars went towards reducing the federal debt and nothing else. I would bet that there are many other like minded people out there. The problem is that we cannot trust our polititians to follow through on their commitments. I remember more than one balanced budget act making it’s way into law only to be ignored later on.
Of course there are times when you need extra funds to provide national security, offset disaster costs (hurricanes) and fund needs that are sudden. I am ok with this but if you fund those items you need to have a plan to make it up in the next few years/decade. You know congress. If you don’t make them accountable they will go hog wild.
Oh, and now to Michael’s piece. His e-mail is michael.kinsley@latimes.com. He invites comment on his opinions below.
—CUT HERE—
My contention: Social Security privatization is not just unlikely to succeed, for various reasons that are subject to discussion. It is mathematically certain to fail. Discussion is pointless.
The usual case against privatization is that (1) millions of inexperienced investors may end up worse off, and (2) stocks don’t necessarily do better than bonds over the long-run, as proponents assume.But privatization won’t work for a better reason: it can’t possibly work, even in theory. The logic is not very complicated.
1. To “work,” privatization must generate more money for retirees than current arrangements. This bonus is supposed to be extra money in retirees’ pockets and/or it is supposed to make up for a reduction in promised benefits, thus helping to close the looming revenue gap.
2. Where does this bonus come from? There are only two possibilities: from greater economic growth, or from other people.
3. Greater economic growth requires either more capital to invest, or smarter investment of the same amount of capital. Privatization will not lead to either of these.
a) If nothing else in the federal budget changes, every dollar deflected from the federal treasury into private social security accounts must be replaced by a dollar that the government raises in private markets. So the total pool of capital available for private investment remains the same.
b) The only change in decision-making about capital investment is that the decisions about some fraction of the capital stock will be made by people with little or no financial experience. Maybe this will not be the disaster that some critics predict. But there is no reason to think that it will actually increase the overall return on capital.
4. If the economy doesn’t produce more than it otherwise would, the Social Security privatization bonus must come from other investors, in the form of a lower return.
a) This is in fact the implicit assumption behind the notion of putting Social Security money into stocks, instead of government bonds, because stocks have a better long-term return. The bonus will come from those saps who sell the stocks and buy the bonds.
b) In other words, privatization means betting the nation’s most important social program on a theory that cannot be true unless many people are convinced that it’s false.
c) Even if the theory is true, initially, privatization will make it false. The money newly available for private investment will bid up the price of (and thus lower the return on) stocks, while the government will need to raise the interest on bonds in order to attract replacement money.
d) In short, there is no way other investors can be tricked or induced into financing a higher return on Social Security.
5. If the privatization bonus cannot come from the existing economy, and cannot come from growth, it cannot exist. And therefore, privatization cannot work.
Q.E.D.
So Whats the solution ? First, we cant just try to fix Social Security as an isolated program. We need to somehow change the culture of DC to one that respects fiscal sanity. We give our politicians license to “go out and get money” for projects that selfishly benefit us. We want that money for the insect museum down the street, or the new highway to the undeveloped part of town, or for whatever pet project buys jobs and votes. We have to change the culture of allowing our votes to be purchased with gifts. Until then, the only way to pay for our future is by increasing the risk we are forced to accept hoping it “all works itself out in the end”. At some point we will realize the hard way , that it doesnt.
Social Security Privatization
The comments below are from Michael Kinsley who is an editorial editor for the LA times. I just wanted to repost his comments here because it basically sums up the way I feel about this issue.
The whole social security debate is meaningless to me. Everyone talks about privatization vs. current system. What we need to realize is that unless we control government spending and reduce deficits this country won’t be much to live in anyways. How long do you think it will take before the government can no longer easily sell treasury bonds because our national debt has risen to a level that shakes the foundations of our country? In 2004 we paid ~320 billion dollars in INTEREST on the national debt! That means that over 1 in 4 tax dollars collected went to just paying interest. Not for roads, military, social security or any other program that we rely on. Check out the debt number as of December 17th, 2004:
7,523,699,112,455.23
Now that’s one heck of a number. If I didn’t already know it was in the trillions I would have to count up the digits. I was talking to a friend of mine the other day about this. We decided that if we were assured that the government HAD to run a balanced budget we would be willing to take some "lumps" to try and rid the country of this debt. I.E. more taxes, etc. As long as the dollars went towards reducing the federal debt and nothing else. I would bet that there are many other like minded people out there. The problem is that we cannot trust our polititians to follow through on their commitments. I remember more than one balanced budget act making it’s way into law only to be ignored later on.
Of course there are times when you need extra funds to provide national security, offset disaster costs (hurricanes) and fund needs that are sudden. I am ok with this but if you fund those items you need to have a plan to make it up in the next few years/decade. You know congress. If you don’t make them accountable they will go hog wild.
Oh, and now to Michael’s piece. His e-mail is michael.kinsley@latimes.com. He invites comment on his opinions below.
—CUT HERE—