Sunday, January 16, 2005

Is the Social Security Administration pushing Bush's political agenda?

The front page story in today's New York Times has the headline: Social Security Agency Is Enlisted to Push Its Own Revision.

Over the objections of many of its own employees, the Social Security Administration is gearing up for a major effort to publicize the financial problems of Social Security and to convince the public that private accounts are needed as part of any solution.

If true, that Bush is going to have the SSA spend taxpayer money to lobby for private accounts, which is Bush's political agenda, then we have yet another outrageously wrong use of public funds.

But after reading the entire article, I am just left confused with respect to what exactly the SSA is supposed to promote.

The agency's strategic communications plan says the following message is to be disseminated to "all audiences" through speeches, seminars, public events, radio, television and newspapers: "Social Security's long-term financing problems are serious and need to be addressed soon," or else the program may not "be there for future generations."

The plan says that Social Security managers should "discuss solvency issues at staff meetings," "insert solvency messages in all Social Security publications" and spread the word at nontraditional sites like farmers' markets and "big box retail stores."

If the plan only calls for the SSA publicizing the fact that benefits promised exceed the amount we can afford to pay, then I think that's completely appropriate. But if the SSA is also pushing for a particular political agenda, the creation of "private accounts," then that's clearly wrong. But the NY Times article just isn't clear.

I am opposed to private accounts. I've thought about the issue since my last Social Security post.

The correct way to "privatize" Social Security is to simply lower taxes and benefits and let people do whatever they want with their money!

I don't see how a complicated new government program has anything to do with privatization. Just the opposite, these "private accounts" seem like yet another new federal intervention into the private sector. The new plan will surely have strict guidelines with respect to the types of investments which may be made, meaning that government bureaucrats will be directing the investment of hundreds of billions of dollars. Giving government control over such a huge amount of "private" funds sounds like socialism to me


TWM said...

From scathing reviews of one night "hook ups" to scathing reviews of social security privatization. Well, you certainly try to cover all the bases.

Be careful though - you stand the chance of ending up like Wonkette or Maureen Dowd - and I don't mean Pulitizer Prize winning Maureen either.

Good luck . . .

Old Blind Dog said...

Forget for a minute whether private accounts are or are not a good thing. As it stands now the SSA has 100% control of the tax money (supposedly) in the trust fund. So I don't see your point about them messing with taxpayer dollars. The larger point is that the whole scheme is a scheme and is a misuse of taxpayer funds.

In the original scheme the "existence" of individual taxpayer accounts was a lie. There never were any. Nor a trustfund. It was the only way to get the public to go along with it. It is why you hear old people talk about getting "their" money back.

Have you seen the TV commercial showing 16 people supporting 1 retiree? Ever wonder what happened to the other 15? They died before retirement age. Retirement age was set at 65 because most people died before that. I think the median age of death then was 64.9 yrs. It always was a Ponzi scheme. Now that most people live well past 65 the chickens are coming home to roost.

So to get around the "misuse of taxpayer dollars" the whole thing needs to be got rid of. But it is like Iraq--now that we are there we can't just pick up and walk out. Switching to a partial private account system is a first step to getting out of the social security business.

Aaronlane said...

I agree that private accounts simply extend an already inequitable and inefficient ponzi scheme to include more governmental control, not less.

However, so would a private school voucher system. It would install another agency and more transfers of funds from one individual to another. It might also benefit a lot of children. (This is a major point of contention between the two fractious research arms of Libertarianism: Cato and the Mises Institute.)

The Bush administration's push for privatization still seems to me only a stop gap measure. Perhaps the contributions would be earmarked for individuals, but they are still not liquid funds. And the unfunded liability owed to current and short term retirees remains unfunded. This will inevitably lead to massive federal borrowing, further exacerbating our deficit problems.

There are a few options that must be considered:
* Raising the retirement age
* Reducing benefits
* Raising taxes to fund the unfunded liability

There is a way to accomplish the second one of these that might make the program less regressive and politically manageable.

Instead of indexing benefits payable to PRICES, as they are now, index them to increases in the overall WAGE rate.

Do the math. The unfunded liability becomes exponentially smaller, and the system becomes solvent.

I know, no one likes a policy wonk...

TWM said...

Raising the retirement age sounds great to people who work in office jobs, but for the guys and gals who are standing on their feet all day or who do any kind of "manual" labor it is a big deal. Just because people live into their 70s, doesn't mean they want to be loading or unloading trucks at that age.

Mark H. Foxwell said...

Hi LG! I'm someone that is here because Skippy mentioned one of your posts.

Every now and then I spot check what is meant by "liberatian" by the people who use the word. Your own postings (of which I have seen only a few yet) seem closest to what I'd respect as fidelity to the meaning of the word, because unlike some of your critics you seem to believe you have a right to do what you want to and that it is healthy to be honest and open about it.

I'd call my self a left-wing socialist libertarian, but I suppose that would not compute here?

So rather than try and explain why I think we should keep and strengthen, not weaken, the existing SS program, let me just clue all you freedom lovers in to something your free-ranging, skeptical, reason-respecting minds have not apparently stumbled on yet, though in some circles we've been warning anyone who will listen about this for years:

The trap in Social Security "privatization" (which has been tried in Britain by the way, under Maggie Thatcher, with dismal results) is that when each individual is responsible for seeking the most profitable investments for their money, they must play the market. We hear a lot of argument about average rates of return, but in order to track the market, shifting money from stocks that are losing ground to winners, it is neccessary to _change the investments._ And guess what--each and every transaction _costs the stockholder money_, for it is only possible to sell one stock and buy another through brokers. Who make their living by charging fees.

So, in order for the privatized schemes to _break even_ with the returns on the existing bond investments held collectively by all of us, we must _better_ the performance of those investments by a big enough margin to offset these transaction costs. Which, you can see, must be more frequent hence more costly the more active you are in tracking (or worse, trying to lead) the market. But we all know if you just put your money down in what you thought were safe investments and turn you back on them, they will almost certainly underperform, depriving you of income when you need it. Or tank completely leaving you destitute.

So now look from the _brokers'_ points of view. With SS privatization, here come 100 million or so unwilling suckers onto the market. Suppose, as a liberatian, that you have no sympathy for the 90 percent or so of your working neighbors who don't fancy themselves market gurus and have wisely stayed out of a field where they will probably lose their shirts. Say that it is good for society to have all working people be forced to choose between having their earnings stripped away from them, not by goverment program that _might_ not pay them back, but by clever professional market operators who will _never_ give it back having won it from them "fair and square" in the casino that is the stock market--or instead buckle down and try to _master the market_ instead of showing up for work at the job they have chosen, doing the work they have chosen to do. That seems like a very bad situation to me (and not very respectful of freedom--force everyone to do what _you_ think is rewarding and then make fun of them for not doing as well as those who freely choose that field) but let's set that aside for the moment.

Do the brokers have any incentive to perform on behalf of these new operators? Maybe a little, since they are in theory in competition with each other for the business. But as a class, those working people who are not _already_ playing the market are those who don't want to, don't know how to, and perhaps disbelieve in doing it--but under Bush's idea of "freedom" they have a gun to their heads, to sit down at this card game or lose for sure. These people will come with a huge bonanza of capital in their hands, and are a gold mine for a minority of market professionals--beginning with the brokers who will probably not suffer much loss of market share if they give all kinds of bad or thoughtless advice, but will profit for sure each and every time a worker decides for any reason to transact in the market.

Do I even have to point out that the most successful brokers probably have relationships with the big interests who stand to profit by plundering these "investors" and might well deliberately steer small fry into the jaws of big sharks, knowing that their cut from the big players outweighs any losses the little ones might suffer that diminish their funds? Because you see these are different markets. The big players _only_ profit from returns on their investments, so dimininshing their portfolios represents lost opportunity to collect fees for the brokers--but the the little players constantly bring new money to the table _because the law compels them to_, and if they lose their shirts today they still have to come back tomorrow to gamble again, even if they don't want to.

You might think, oh pooh, everyone will become really great at market transactions, all that capital will liven things up, it will be fun and profitable. I laugh at that of course. The stock market does not create wealth; at best it provides a meetup between idle capital and investments. But if that is not the main bottleneck in the economy (and I doubt it is) it doesn't do much else except provide one channel of information-a very noisy and distorted one--on market performance, and on the other hand introduce an element of chaos and feedback that can and often has crashed the system. Thus, diverting SS savings into that cesspool is _not_ going to transform the economy, except in the sense that it will _further accelerate_ the ongoing transfer of wealth from the working people who produce it to the big property owners who control it without accountability.

It is like the end game of Monopoly, where the player who is farthest ahead _automatically_ gains because what they can legitimately _demand_ other people pay is not in proportion to what the others have but to what _they_ already have. And vice versa--if you, as the winning player, land on some poor player running behind you, they can only charge you rent according to their investments, which have been depleted by landing on _your_ hotel projects on the expensive squares. This aspect of Monopoly--that concentrations of wealth act like black holes into which other people's wealth spiral in but never come back out--very correctly models how our society actually works, which is why it is so popular of course.

This is why the wealthy today are always pushing privatization and deregulation--public ownership/management and regulation _can_ arrest or counteract this process and keep ordinary working people in the game (or not, if ineptly or corruptly run--but it _can_, unlike the market that cannot), but in the short run, ripping that stuff up enhances their revenue stream right now. They will be in hog heaven if this SS privatization stuff happens. The rest of us will be anxiously watching all the money that is supposed to cover our survival in the future get sucked up, and we will be told it is our individual faults for not being as clever as our neighbors. But if we do honest research we will find that the _vast majority_ of our neighbors as as bad off or worse than us. But all we will hear of is the minority that gets lucky--because inclination and opportunity to be a master stock player is as much luck as anything else, and even then, you watch--the established players will come out far ahead while very few ordinary workers will even break even. Compared that is to the _scare stories_ an unscrupulous government is being ordered to make up by unprincipled politicians, as they have done before, in this very matter.

Transaction costs--no matter how good you are, you will still be paying a tithe, along with all other working people, to a class of people who are completely unnecessary to our old age survival right now. People who are truly free to enter or leave the market are perhaps in a position to negotiate with brokers but working Americans will not have this freedom. Thus, the less able an individual is to benefit from the opportunities of the market, the more they will pay and the less they will have to live on. That looks like the very opposite of freedom to me.

I suppose libertarians who believe that property ownership always is the best solution to anything don't understand why Social Security was necessary in the first place and really want to destroy it. _That_ is Bush's agenda--unless he can leave the compulsion to divert wages into a program in place, and only remove the _security_ part. Whether you think that is "bracing" or something I don't know, but it hardly strikes me as "libertarian," to be compelled to hand my money over not to a public official who is supposed to account for what they do with it, but to a broker who is perfectly entitled to advise me to do things with it that cause it to disappear forever--but still gets his cut either way, and never has to make the loss up to me. How is that "freedom?" It isn't, but it can be very profitable, a much better deal than a "Ponzi scheme--" for the insiders.

Don't let them cheat you.

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