Are Private Social Security Accounts Really Private?
Not according to Casey Research, who read the plan. Instead:
- ...the Bush plan specifies that upon retirement, workers would be returned only the amount that exceeded inflation-adjusted gains over 3 percent. The SSA hopefully projects a return of 4.6% above inflation; the Congressional Budget Office, less sanguine, thinks a 3.3% return is more realistic. Either way, the government gets to hang onto the first several percentage points of your profit; brokerage fees included.
What does this mean in the real world? Assume that you invest $1,000 per annum for 40 years, starting today, and realize gains at 4%, midway between SSA and CBO estimates. At the end of that time, your “personal� account would grow to $99,800 in today’s dollars, but the government would then take back $78,700, a pretty hefty bite. But what if it only grew by an average annual 3%? Thanks to the government’s 3% fee, your net is zero. What they intend to do if there are some lean years and profits fall below that mark has not yet been decided, but it’s not inconceivable that you could wind up owing the government money.
A lot of the discussion of the "privatization" plan has focussed on anticipated rates of return, while the real issue is one of property rights. Do savers only have the right to plan for their own retirment if they can exceed some statistical margin?
Also lost in the discussion of comparing returns on private investments to "returns" on US treasuries is that government bonds are not in the economic sense an "investment" they are smply claims on the goverment's power to tax, which are at some level no different than the social security program, which is just another claim on the government's power to tax. While stocks and bonds are funded by actual savings (plus or minus credit expansion due to fractional reserve banking), treasuries are a loan to the government to fund current consumption.
Another somewhat irrelevant aspect of the debate on this issue is that surrounding the ability of individuals to invest in sophisticated instruments such as stocks and bonds, that require a high level of expertise. Under the gold as money system, the easiest way to save for people lacking financial expertise was simply to accumulate cash, i.e. gold coins, which tended to increase in purchasing power every year by a few percent as economic growth outstripped gold production. Reisman notes that it is the fiat money system that has forced people into riskier assets because cash is constantly depreiciating.
Comments (9)
Well, social security is a rip-off, and will remain a rip-off. Being a young employee, I just want out:(
while the real issue is one of property rights.
That's one point that confuses me. Even under "privatization," we will still not "own" our social security in a legal sense, just as today. We will only be "owed" (or not) social security through government policy.
So, these stocks the government purchases in these SS portfolios (unlike say, mutual funds) will have their name on it. So what happens when their funds buy 51% of my company's stock? (or enough to be able to drastically influence the price, policy) Does that mean that I just got nationalized? Are there laws that prevent full federal ownership of corporations?
That isn't a rhetorical question, I simply don't know. It just seems scary to me -- even more so than 40 more years of social security taxes.
Published: March 21, 2005 10:21 AM
Thank you for the post, Mr. Blumen. I have been pressing Bush supporters for details on this plan for a year--no wonder they refused to respond. Kudos to Mr. Casey for exposing this fraud for what it is. Arguably, one could say the Bush plan is actually the worst of both public and private finance.
This deserves repeating: "Under the gold as money system, the easiest way to save for people lacking financial expertise was simply to accumulate cash, i.e. gold coins, which tended to increase in purchasing power every year by a few percent as economic growth outstripped gold production. Reisman notes that it is the fiat money system that has forced people into riskier assets..."
Wall Street has made a truly infernal pact with government. One manifestation of this is the trumpeting of capital gains, by which the WSJ and its advertisers convince the suckers, pardon me, investors, that despite the company's non-existent cash flow and low to non-existent dividends its stock may be bought and sold to a greater fool later.
"The whole head is sick..." --Isaiah.
Published: March 21, 2005 2:08 PM
We are in a very sticky situation because we are trying to get out of the social security system that's now in place. Try to unscramble a scrambled egg. FDR specifically designed the system so that it would impossible to get out of it without going into huge debt to pay all the retirees.
I'm glad that Bush is even trying to ask the right question even though he's not giving the right answer.
Published: March 22, 2005 2:57 AM
It isn't at all clear to me why accumulation of gold might not still yield a slow increase in purchasing power, just as it presumably would as "official" money. Certainly, as inflation proceeds, it will yield higher NOMINAL values over time. Why that would not go so far as increasing purchasing power is something that just isn't clear to me.
Published: March 22, 2005 10:05 AM
arielb,
The apt solution to Social Security is the same solution that is applied to all other busted trusts: put it into receivership and sell off the assets to pay the claims of beneficiaries, including all assets held by the US government and the personal assets of its current and former high level employees.
Published: March 22, 2005 10:54 AM
Re: will gold yield a "slow increase in purchasing power"? The PP of gold in terms of fiat money has flucuated more widely since we went off gold as money, along with some pretty incredible fluctuations in the PP of fiat money itself. I think that gold tends to amplify whatever is going on in the fiat money system.
Published: March 22, 2005 9:52 PM
Doug I think you underestimate the difficulty of reforming social security. The government has NO assets!! Everything it 'owns' was taken from you. Furthermore, take a look at the latest AARP ads on TV. These guys will spend millions and millions of dollars so that social security won't change at all-except for some "moderate" tax increases. It's a major and very sophisticated racket. Once the government gets the ball rolling, it just keeps getting bigger and nastier.
I think the only real solution would be for more people to simply move to countries that don't have this kind of social security problem-or at least a lot less than what we have.
Published: March 24, 2005 5:40 AM
The govt has no assets? The govt owns half the real estate west of the Mississippi!
Price of gold has roughly kept pace with inflation. An ounce of gold is still needed to buy a good man's suit.
If we went back on a 100% gold standard the gold would be worth around $30,000/ounce.
Published: March 26, 2005 11:25 AM
"An ounce of gold is still needed to buy a good man's suit."
Or even a suit for a good man. ;^)
arielb,
Realistically, yes I know SS is here until people are using the checks for wallpaper instead of cashing them.
In that case, maybe we should support the Bush plan!
Published: March 29, 2005 1:32 PM