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January 13, 2005

A Point of Clarification

Ryan Lizza writes:

The New Republic Online: Hardball 101: Private accounts are now officially out of favor even among New Democrats, the most obvious source of potential administration support. The Democratic Leadership Council and a new centrist policy shop called Third Way both recently announced their opposition...

Ahem. This is not quite correct. It is time to eliminate this line wobble. Peter Diamond stopped by my office today and laid down the party line: private accounts good, funding private accounts by diverting revenues away from Social Security very bad. Indeed, a little later in Lizza's article, Adam Smith lays it down:

...in the House... Adam Smith, the leader of the New Democrat Coalition... 67 members in the House.... Smith... ruled out support for any proposal that includes private accounts funded through a carve-out of the Social Security payroll tax. "Social Security is a safety net. That's what it's there for. It's there to be the safest portion of your portfolio," he told me. "It's a guaranteed benefit for a reason, and, for that reason, I don't support private accounts.... I think there is broad consensus among New Democrats that you must not privatize the system."

Private accounts are good. It's funding private accounts by diverting revenues away from the safety net of Social Security that's bad. That's not negotiable.

Posted by DeLong at January 13, 2005 09:31 PM

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Tracked on January 16, 2005 11:42 PM


Brad, I know you are a policy wonk which means such details matter to you, but this is a demonstration of exactly what is wrong with the Democratic message machine.

WE CAN'T MAKE SUCH DISTINCTIONS! ... well, we can, but it'll only lead to heartache later.

Republicans are very good at crafting easy to understand messages and then repeating them relentlessly. They do not quibble over distinctions. I don't remember any Republicans saying, "HillaryCare is good. It's funding HillaryCare by diverting revenues from the American taxpayer that's bad. That's not negotiable."

Democrats are sooo quick to make distinctions when what we really need are clear messages. In this case, the message should be "Private accounts are bad!"

Now, you can go ahead and point out again and again that they aren't bad per se, but this is beside the point. The Republicans are going to try to fund this in one of two ways: by diverting funds from the Trust Fund OR by racking up huge deficits. Neither is ok. Which leaves us with --



Posted by: manyoso at January 13, 2005 10:17 PM

The above poster has a good point. Might it be easier to kill the Republican proposals before delving deep into our own? In other words, can't we work on proposals but save 'em until we are done taking down the Republicans?

To be honest, I'm glad the more moderate Democrats are aligned with the liberal Democrats. They can work together to strengthen the existing system and build something new on top or expand something that already exists. We can be the party that gives Americans something even better than what they currently have.

Posted by: Brian at January 13, 2005 10:40 PM

For what percent of the people collecting social security is it acting as a safty net? Certainly a significant percentage of the people collecting but not all.

Posted by: Rob Sperry at January 13, 2005 10:42 PM

Would someone please explain to me what the difference is between a private retirement account NOT funded by a social security carveout is, and an IRA or 401(k) or SEP-KEOGH?

Truly Brad, please clarify. What would the difference be between what you want and just raising the limits on IRA/401(k)/SEP-KEOGH deductions?

Posted by: jerry at January 13, 2005 10:44 PM

I second Jerry's question. I made exactly the same point in a comment a few days ago and was disappointed to see not a single response.

If all we are talking about is yet another variant program to run alongside IRA, 401k, Keogh and so on, then mark my words. It makes ZERO sense to adopt some sort of middle-of-the-road "private accounts good; diverted funding bad" approach that will open itself up to all sorts Republican mockery about flip-flop-ism for such a worthless entity.

Posted by: Maynard Handley at January 13, 2005 10:57 PM

Here's Diamond-Orztag on private accounts as a component of Social Security:

Individual acounts ... already provide an extremely useful supplement to Social Security, and they can be improved or expanded. But they are simply inappropriate for a social insurance system intended to provide for the basic tier of income during retirement, disability, and other times of need.
Furthermore, individual accounts ... would not by themselves improve the ability of the Social Security system to finance its traditional benefits, and they might actually undermine that ability. ... [T]he immediate effect would be to increase the deficit within Social Security.

For practical purposes, I think it's helpful for progressives to say "IRAs and 401Ks - good. Privatized Social Security - bad".

I see some merits in a universal 401K using the Federal Thrift Savings Plan, targeting low and middle income people, perhaps set up as an opt-out plan administered through a tax return, perhaps with subsidies for low income people under a certain age.

OK, no, bad me. I think I'm with Joshua Micah. We need to keep this politically simple. Brad, can you report to reprogramming tomorrow morning? This isn't something to fight with nuances.


Posted by: Charlie at January 13, 2005 11:08 PM


For essentially everyone.

People able to accumulate private assets can rely on SS benefits so they can take on appropriate risks throughout their lives. SS provides a complementary guaranteed, lifelong income.

People don't have to worry excessively about outliving their assets, or about the possibility their illustrious careers as world-class programmers will be outsourced so they'd better put what assets they have into treasury bills, things like that.

For most people given a chance to switch from the SS anuity model to a private account model, if they've already got private assets such as a 401K, rationally, they'd want to KEEP the predictable, low overhead, modestly progressive social insurance portion of their retirment in traditional Social Security. If they were to privatize their personal SS account holdings, they'd rationally rebalance assets elsewhere - switching from equity to bonds in their personal holdings, and buying an expensive high-overhead anuity with a portion of their assets when they retire, instead of getting the low overhead, inflation adjusted SS anuity.

You don't have to be destitute to benefit from a safety net.

Posted by: Charlie at January 13, 2005 11:16 PM

But if all you mean by "private accounts" is "retirement savings that private people have", then the USA already has "Private accounts", unless I have quite radically misinterpreted the relevant law.

If you want to save for your retirement in America in addition to your SS contributions, surely all you have to do is phone up one of about a million financial services companies and do so. Since I don't believe that anyone has a proposal on the table to ban Americans from saving money, "Private Accounts" in a political context can only mean "Private Accounts funded by diverting social security contributions".

Posted by: dsquared at January 13, 2005 11:34 PM

Since the president has already suggested that Social Security will be bankrupt by the time some of us retire, perhaps we ought to make it clear that this can only be true if the U.S. intends to default on its obligations, due to the mismanagement of the national finances.

Before that point is raised, though, we need to hammer home, again and again, that Social Security is already soundly funded.

Once that point gets some market share, we need to push the idea that the only way to secure our future is to bring the national finances into a nearer approximation to sanity than what we have now.

Only then should we acknowledge that private accounts are indeed a good thing, we've had them for a while, and our citizens aren't putting enough money into them. (While we're at it we might also remind the citizenry that it isn't particularly prudent to play the lottery, either.)

Posted by: bad Jim at January 14, 2005 01:04 AM

Not so much "intends" as "expects". Any long term US project can be expected to be subject to high sovereign risk, based on the US track record; over the decades that has been more often true than not. People asserting otherwise are merely expressing sincere belief in continuing good times, not allowing for the usual short termist response to bad times.

For a more detailed discussion, read Trollope on North America, the finance chapters. It summarises financial markets' experience of US sovereign risk and messages for the future, up to the 1860s.

Posted by: P.M.Lawrence at January 14, 2005 02:57 AM

Although I agree with Brad "private accounts good, diverted funding bad," I agree with the first poster to keep the message simple. I do think Democrats should introduce a "retirement reform" bill that strengthens existing vehicles, like IRAs for everyone.

Posted by: Unstable Isotope at January 14, 2005 03:41 AM

As others have noted, we do have private retirement accounts (IRA's, etc.) but many (I'd guess most) people don't use them for a variety of reasons. Convincing people to divert a portion of Social Security taxes they have to pay anyway makes it easier to tap into this market.

The other point is simply that the Bushies cannot tolerate the redistributive aspects of Social Security. They prefer the YOYO approach (you're on your own). So much for a social contract.

Posted by: Philoking at January 14, 2005 04:37 AM

bad Jim nailed the issue. We need to move "crisis" and "shortfall" and "exhaustion date" right off the table. "Private accounts" are being pushed by people who accept the "fact" that there is in reality some gap between payroll taxes currently collected and benefits promised in the future. Well then show me numbers.

"Americans don't save enough" "Social Security alone won't allow you vacation trips to Bermuda". True enough, but totally irrelevant to the topic at hand. The real question at the heart of privatization (and not far from those pushing "private accounts") is this: Is the current rate of payroll tax sufficient to pay all scheduled benefits in the future?

Current numbers suggest, and are very close to compelling, that the answer to this fundamental question is "Yes, and then some". Ordinary (meeting the historic average) economic growth in the future exceeds the numbers of the 'optimistic' Low Cost Alternative that shows a fully funded Trust Fund with a five year reserve.
(Economic Assumptions: http://www.ssa.gov/OACT/TR/TR04/V_economic.html#wp159107
Resulting Trust Fund Ratios: http://www.ssa.gov/OACT/TR/TR04/II_project.html#wp106217 )

Should the Social Security Trustees consider investing in something other than bonds? Should the government require mandatory savings? Good questions, and ones worth considering once we settle this one: Is Social Security as presently configured able to meet future obligations?

My answer is: Yes, we are crushing the economic projections of the Low Cost Alternative (fully funded) and so there is no reason to believe that we can't extrapolate the numbers in the following table:
http://www.epinet.org/content.cfm/issueguides_socialsecurity_changes and unlike Prof Samwick we don't need to do it to infinity, 2080 is good enough for me.

Social Security is not broke, and skirmishing on the margins is just playing into the hands of privatizers. Rather than prattle about raising caps or indexing for this or that, instead insist on them presenting real economic projections that we can compare to the ones that produce the "2018" and "2042" dates they deploy so freely.

They just don't have the numbers, it really is as simple as that. Supporters of Social Security have been playing defense pretty much since it was instituted. Only in the last couple months has it dawned on many that we can fight back. But we need to move beyond that to realize that once we move the battleground to numbers these guys are defenseless.

The economy did not grow at 2.7% in 2004. It won't grow 1.8% in 2005, we killed the first number and the second is laughable. If privatizers want to defend those numbers and keep their doomsday 2018 and 2042 dates, they can just knock that chip off my shoulder, I'm ready to rumble.

Posted by: Bruce Webb at January 14, 2005 04:54 AM

It's good to see that the thinking arm of the Democrat party has a clear position. I worry that the first couple of responses could be correct, though. To me, the distinction is crystal clear, but it was also crystal clear to me that Kerry was a better choice than Bush. It is those swing voters who went for Bush that need to be convinced, and they didn't see things the way I did when Bush was handing out simplistic propaganda during the campaign.

The flip side of a clear opposition to private accounts now, is that it makes backing some better form of private accounts later somewhat tricky. A principled stance now could lose, but a lack of distinction now could make good policy more difficult later. Woe is me.

Posted by: kharris at January 14, 2005 06:27 AM


The British Evasion

We must end Social Security as we know it, the Bush administration says, to meet the fiscal burden of paying benefits to the baby boomers. But the most likely privatization scheme would actually increase the budget deficit until 2050. By then the youngest surviving baby boomer will be 86 years old.

Even then, would we have a sustainable retirement system? Not bloody likely.

Pardon my Britishism, but Britain's 20-year experience with privatization is a cautionary tale Americans should know about.

The U.S. news media have provided readers and viewers with little information about how privatization has worked in other countries. Now my colleagues have even fewer excuses: there's an illuminating article on the British experience in The American Prospect, www.prospect.org, by Norma Cohen, a senior corporate reporter at The Financial Times who covers pension issues.

Her verdict is summed up in her title: "A Bloody Mess." Strong words, but her conclusions match those expressed more discreetly in a recent report by Britain's Pensions Commission, which warns that at least 75 percent of those with private investment accounts will not have enough savings to provide "adequate pensions."

The details of British privatization differ from the likely Bush administration plan because the starting point was different. But there are basic similarities. Guaranteed benefits were cut; workers were expected to make up for these benefit cuts by earning high returns on their private accounts.

The selling of privatization also bore a striking resemblance to President Bush's crisis-mongering. Britain had a retirement system that was working quite well, but conservative politicians issued grim warnings about the distant future, insisting that privatization was the only answer.

The main difference from the current U.S. situation was that Britain was better prepared for the transition. Britain's system was backed by extensive assets, so the government didn't have to engage in a four-decade borrowing spree to finance the creation of private accounts. And the Thatcher government hadn't already driven the budget deep into deficit before privatization even began.

Even so, it all went wrong.

Posted by: anne at January 14, 2005 06:28 AM

As an artist, I think private accounts are good only if people are allowed to invest in art. Maybe only if they are required to invest in art. After all, why should big business be the only group to profit from this giveaway?
And what kind of liberal site is this anyway, if we have a bunch of recommendations to further the cause of big corporations without any consideration at all for any other sector of the economy? Talk about the debate being framed so nothing can really be talked about except the same old corporate agenda...

Posted by: bil at January 14, 2005 06:33 AM

>then the USA already has "Private accounts",

But as somebody said about the Seattle Seahawks' defense, it's "purely theoretical"!! IIRC, the number of people in the US that put away the maximum tax-deferred is < 2%... maybe somebody clever here can dig the numbers out of an IRS site somewhere? Even if my number is wrong, I guarantee you that it is not pretty. How can you leave that tax break on the table?

Since Brad hasn't answered, I'm guessing the difference between PAs on top of SS and IRAs/401s/Keoghs/SEPs (why the frell do we have so many goddam different retirement vehicles? Insanity) is that they will be mandatory.

Somebody's gotta save some money here. The Rethugs are going to be in power for a long time, they clearly can't discipline themselves so they're going to make us do it.

Posted by: a different chris at January 14, 2005 06:38 AM

Clarification: I meant since the government isn't going to save money the *DLC types* are going to *propose* to make us do it.

Further endearing the Democratic Party to the masses, of course. Why they can't learn to just let the Republicans wallow in their own shit is completely beyond me. Most of the time I try to give them credit for a misguided sense that they are "protecting America from the worst outcome of a bad idea", but sometimes I just think that they are so enamored with the sound of their own voices that they compulsively have to chime in on everything. The "I wouldn't go into Iraq, but it could be made to work if you put a genius like me in charge of it and here's how" mentality.

Posted by: a different chris at January 14, 2005 06:46 AM

Yeah Chris it is odd that the phrase "its your money" applies in every context except the payroll check of working stiffs.

Does America have a savings crisis? Maybe so, but I am thinking a big part of the solution would be people buying fewer $60,000 cars and $2000 suits and putting that money to work. Why minimum wage people are being called to fill this particular gap kind of escapes me.

Posted by: Bruce Webb at January 14, 2005 07:09 AM

The fraction of people who make the maximum contribution (depending on who you talk to) is somewhere in the low single digits. Check what comes up in Orszag's bibliography.

The primary reason for this is that most people did't feel they had $2000 to spare at the time these studies were done and certainly don't have $3000 now. Increasing the maximum contribution and other things to "improve the system of private accounts" overwhelming helps those with incomes above $70,000 and does nothing to help poor people save for retirement and little to help median households with incomes of around $40,000.

I believe the fraction of people who use SS as their primary source of retirement income is about half. The numbers are disproportionately minorities and women. With women, of course, the issue is particularly important because they have lower lifetime incomes and the longer lifespans mean they depend on the lifetime benefit.

Posted by: cb at January 14, 2005 07:12 AM

On Bloomberg, Caroline Baum seems to believe that buying used stocks from others (e.g., insiders cashing out their options, as they reportedly did last year to the tune of $49.2 billion net (http://www.gloomboomdoom.com/marketcoms/mcdownloads/050107.pdf)) constitues real investment, and buying US Treasuries doesn't:

"``Shifting the ownership of these assets from the government to individuals does nothing to add to the pool of savings available to finance investment,'' says Doug Lee, ...

"That's how most economists see it. Financing the transition by borrowing is a wash in terms of the effect on national savings, at least from an accounting perspective. Someone -- individuals, businesses or the government -- has to cut back on his spending in order for savings to increase.

"There's another way to look at it, however. Forget the voodoo accounting the government uses, ... In the real world, there is no saving going on now under the Social Security system. It's a transfer plan, not a savings plan.


"Under a privatized system, individuals would be forced to save some portion of their income in a private account. We go from a system where nothing is saved to one in which individuals save. ...

"Private accounts, invested in diversified mutual funds, would drive up the price of equities and drive down the cost of capital. That means more funds available for investment, more productive capital, faster productivity growth and a higher standard of living."


Meanwhile, also at Bloomberg, Susan Antilla describes the reality of much private investment:

" ``You will never outlive this money,'' broker Jeffrey Sweitzer told Falls and her husband during a meeting in his office in March 2000. And he added during the conversation, ``I can generate more take-home income than what you are taking home right now.'' ...


"Falls and her husband said they had $933,000 in retirement funds when they opened their Salomon Smith Barney account, but left as unhappy customers with $440,000.


"``They said in the depositions that we were never promised 12 percent and it was hypothetical,'' said Smith, ..." ... ``But I based my retirement on 12 percent.''


Posted by: jm at January 14, 2005 07:15 AM

Brad: I'm still very curious to hear a real economist's view on whether there's any difference in the economic effects between having the government borrow money to buy equities (roughly
$2T out of total equity cap ~ $13T), as opposed to levying a broad-based tax of 2/13 = 15.3% on
equity investment gains (dividends and capital).
It seems to me that the tax has almost identical
effects, other than shifting some extra risk onto people holding equities in taxable accounts - but they've chosen to take a risk, after all.

Maybe this should be the Democratic counter-proposal to close the (possible) SS
funding gap - and we could describe Bush's
proposal for the government to buy equities as
"socialism" - isn't that a fair word for purchasing the means of production with public funds ?

Posted by: Richard Cownie at January 14, 2005 08:04 AM


The British Evasion

"Britain's experiment with substituting private savings accounts for a portion of state benefits has been a failure," [Norma} Cohen writes. "A shorthand explanation for what has gone wrong is that the costs and risks of running private investment accounts outweigh the value of the returns they are likely to earn."

Many Britons were sold badly designed retirement plans on false pretenses. Companies guilty of "mis-selling" were eventually forced to pay about $20 billion in compensation. Fraud aside, the fees paid to financial managers have been a major problem: "Reductions in yield resulting from providers' charges," the Pensions Commission says, "can absorb 20-30 percent of an individual's pension savings."

American privatizers extol the virtues of personal choice, and often accuse skeptics of being elitists who believe that the government makes better choices than individuals. Yet when one brings up Britain's experience, their story suddenly changes: they promise to hold costs down by tightly restricting the investments individuals can make, and by carefully regulating the money managers. So much for trusting the people.

Never mind; their promises aren't credible. Even if the initial legislation tightly regulated investments by private accounts, it would immediately be followed by intense lobbying to loosen the rules. This lobbying would come both from the usual ideologues and from financial companies eager for fees. In fact, the lobbying has already started: the financial services industry has contributed lavishly to next week's inaugural celebrations.

Meanwhile, there is a growing consensus in Britain that privatization must be partly reversed. The Confederation of British Industry - the equivalent of the U.S. Chamber of Commerce - has called for an increase in guaranteed benefits to retirees, even if taxes have to be raised to pay for that increase. And the chief executive of Britain's National Association of Pension Funds speaks with admiration about a foreign system that "delivers efficiencies of scale that most companies would die for."

The foreign country that, in the view of well-informed Britons, does it right is the United States. The system that delivers efficiencies to die for is Social Security.

Posted by: anne at January 14, 2005 08:16 AM


I remember when Caroline Baum decided that taking some courses in economics would help in writing here bond market column. (What an odd thought.) Back then, she was in contact with the office where I worked just about every week researching stories. Very soon after starting her economics studies, she began commenting with great certainty on the economic issues of the day - educating people who had been doing this stuff for years, don't ya know. When Caroline offers opinion most forcefully is when you have to doubt her most. Her strong point is getting people to tell her what is going on - she's an OK journalist - though when somebody with a weak grasp of what is going on has her ear, she can be just as wrong as the next journalist. Her own views are her weak point. Her experience is mostly in writing about bonds, not about government accounting or politics or policy or economics.

Posted by: kharris at January 14, 2005 08:20 AM

I should amend my proposal - the extra revenue to be generated is only the difference between expected equity returns (say 6%) and borrowing costs (say 4%), so we only need a tax of approx 5% on equity returns to generate the same revenue.

The political advantages of this proposal are:
1) It gives Dems something positive to suggest
2) It makes SS funding more progressive
3) Most of the arguments for private accounts
("stocks are great") are equally arguments
for this.

Posted by: Richard Cownie at January 14, 2005 08:27 AM

We already have private accounts. They're called tax-exempt IRAs, SRAs, 401k's, etc.

Posted by: Jeff Vanke at January 14, 2005 08:30 AM

dd asks a pertinent question. Do BDL and PD mean mandatory private accounts, on top of SS? Also known as "forced saving"? Or something like the Clinton/Gore proposals?

Posted by: Max at January 14, 2005 08:36 AM

This reminds me, I saw a commercial on TV that absolutely horrified me and I wonder if there is an financial maven here that could clarify (hopefully in a reassuring way) what exactly the following commercial was referring to:

A standard financial services corp commercial with standard beaming guy behind a desk and standard happy, also beaming couple (interestingly enough, a black couple). The desk guy indicated how the couple had some undefined hesitiation about opening an IRA, but "I showed them how an IRA account could help them save for a house" - shortly followed by said couple, beaming even more brightly, entering what was obviously purported to be their new house.

My jaw hit the floor. You can use your IRA to somehow buy a house? Do we now have silent and invisible letters? Does "R" now stand for "Retirement or buy a McMansion"???

Jeebus help us if this is true.

Posted by: a different chris at January 14, 2005 08:50 AM


Right now, Social Security is regressive in that it has a cap on the amount of taxed income. We should uncap the income taxed and means test it. That'll make it a progressive system, but that will never happen with the Bush administration.

Posted by: Brian at January 14, 2005 09:32 AM

This is the kind of clever, shifty, leave the back door open kind of statement that John Kerry so loved. Remember where it got him.

Twice during the campaign, Greenspan said that we would have to deal with the defecit by cutting Social Security benefits. Kerry did not speak a word about it.

These people will do ANYTHING needed to stay in office, including lying to their friends and voting with their enemies.

Posted by: pragmatic_realist at January 14, 2005 10:06 AM


February 2005

A Bloody Mess
How has Britain’s privatization scheme worked out? Well, today, they’re looking enviably upon Social Security.
By Norma Cohen - American Prospect

A conservative government sweeps to power for a second term. It views its victory as a mandate to slash the role of the state. In its first term, this policy objective was met by cutting taxes for the wealthy. Its top priority for its second term is tackling what it views as an enduring vestige of socialism: its system of social insurance for the elderly. Declaring the current program unaffordable in 50 years’ time, the administration proposes the privatization of a portion of old-age benefits. In exchange for giving up some future benefits, workers would get a tax rebate to put into an investment account to save for their own retirement.

George W. Bush’s America in 2005? Think again. The year was 1984, the nation was Britain, the government was that of Margaret Thatcher -- and the results have been a disaster that America is about to emulate.

For all the fanfare that surrounds the Bush administration’s efforts to present a bold new idea on pension reform, the truth is that it is not new at all. In fact, the proposal looks suspiciously like the plan set in train during Thatcher’s first term in 1979 and which has since led Britain to the brink of a crisis. Since then, the nation’s basic pension, which is paid for out of tax receipts, has shrunk dramatically. The United Kingdom has the stingiest state pension program of any G8 nation, and there is growing consensus -- even among British conservatives -- that reform is needed. And ironically enough, considering that America is on the verge of copying Britain’s mistake, most experts seek reform in the direction of a more generous, and simpler, basic state pension -- one similar in design, in other words, to America’s Social Security program....

Posted by: anne at January 14, 2005 10:14 AM

What is a private account with no carving out of SS taxes to fund it? A private account funded by an EXTRA couple of percent FICA tax added on. Maybe it will be voluntary when you check a box on your W-4 or something like that.

My prediction: watch for democrats to proposes a VOLUNTARY SS investment account funded by extra withholding.

Rememeber that the object of all this is has nothing to do with Social Security, but to get more money into the stock market and produce management fees for the brokers.

Krugman says that the Bush administration lies all the time. Actualy its not lying so much as "misdirection". They make a big fuss to divert attention in a certain direction when the actual action is in a completely different place.

Posted by: pragmatic_realist at January 14, 2005 10:18 AM

Just a note about the "controvsery" about whether SST is "in trouble", going bankrupt, flat busted, etc.

1. There is no reason to let GWB cast the current state of affairs on this issue as a political question. IT'S MATH!! And just because the president doesn't understand it, does not make it fuzzy math. How much will be in the fund on any particular date is not a matter of opinion, it is a question of MATH and anyone presenting a figure has to show their work and explain their presumptions.

2. Quit acting like this is a surprise that the wise republicans just discovered a ticking financial time bonb that has been in SS since the beginning. Congress and the administration recognized the issue and addressed the situation over a decade ago, which one reason we have a surplus in the SSTF today. IT HAS LONG BEEN EXPECTED AND PLANNED that we would begin to use our saved up trust fund. That's what it's there for. In short, while some minor tuning is arguably necessary, the system is working exactly like it is supposed to.


Posted by: eric at January 14, 2005 10:29 AM

a different chris posits:

"But as somebody said about the Seattle Seahawks' defense, it's "purely theoretical"!! IIRC, the number of people in the US that put away the maximum tax-deferred is < 2%... maybe somebody clever here can dig the numbers out of an IRS site somewhere? Even if my number is wrong, I guarantee you that it is not pretty. How can you leave that tax break on the table?
Somebody's gotta save some money here. The Rethugs are going to be in power for a long time, they clearly can't discipline themselves so they're going to make us do it."

And cb nails the answer:
"The primary reason for this is that most people did't feel they had $2000 to spare at the time these studies were done and certainly don't have $3000 now. Increasing the maximum contribution and other things to "improve the system of private accounts" overwhelming helps those with incomes above $70,000 and does nothing to help poor people save for retirement and little to help median households with incomes of around $40,000."

Based on the degree to which Americans are indebted, is it any wonder that they don't feel they have the disposable income to able to save $2k or $3k, let alone ANYTHING? Yes, savings, especially for retirement, are important, but so are having a place to live, food to eat, health insurance etc.

Posted by: Lewis Carroll at January 14, 2005 11:27 AM

Brad is thinking like an economist when he says he likes private accounts but he should be thinking like a politician and saying he doesn't like private accounts. We need only look at the underlying reason for Bush's interest in them in the first place. It is about dismantling entitlement thinking and replacing it with every-person-for-themselves thinking - getting the poor off the backs of the rich. There should be *no* place for privatization in the SS discussion, period. It's a slippery slope that we don't want to go down.

As an aside: If in 2052 the youngest of the boomers, born in 1964, is 88 years old why are the boomers being blamed for this "crisis" in the first place?

Posted by: Dubblblind at January 14, 2005 01:06 PM

I'm somewhat confused as to exactly how private accounts differ from the traditional retirement accounts if they are not diverted from social security? Is it only that it would be unlawful to withdrawl the money before retiremnt?

Posted by: platypus at January 14, 2005 01:13 PM

I think the democratic party line is exactly wrong -- the last thing the working Americans need is another increase in payroll taxes: which would be the case if the "private accounts" are not funded by SS tax. I have said many times before, a cut in payroll taxes NOW will immediately show that the general fund defincit was $570b last year, rather than $410b as in the unified deficit -- which will make it less likely that Bush tax cuts are made permanent. Democrats should work to get such a payroll tax cut.

By the way, have anybody watched daily show for the past two days? Bush was shown to say private accounts "can be bet on lotteries, or some dice games" in his staged townhall meeting. I am surprised there is little press coverage of that.

Posted by: pat at January 14, 2005 01:42 PM

The conversations I have with the few conservative friends I have leftinvariably come around to social security. They start off by asking "Do you really want to trust the government with your money?"

Well, let's see. All those people in the service who have been involuntarily extended in a combat zone need to be paid or are we also considering privatizing our military?

the bottom line here is that we can't give a semantical inch to these thieves. Private accounts equate with distrust of the government; distrust of the government equates with Norquist's drown it in a bathtub; and the whole argument leads to distrusting anyone who mentions raising taxes, an inevitable solution in the short term to the deficits this administration is creating by its tax cuts (which, btw, are premised on a surplus that is made possible by the very system that Bush wants to eviscerate).

We cannot continue to allow them to define the debate and to use their terms. The minute we start talking about "private" anything we leave the door open for the logic that will allow them to privatize everything that's not already been looted: If privatization is good enough for your retirement funds, how can it not be good for ____? (Fill in the blank.)

We need to frame the debate for a change before we get caught up in semantics once again.

Full disclosure: I already collect social security so my benefits aren't targeted (wink, wink). This is about the future of our country and the salvation of some portion of the New Deal. Not only did Bush steal the last two elections, he's now trying to take away the clear mandate that FDR won over Hoover by rolling back FDR's policies. Kind of like a Wal-Mart attack on the New Deal.

Posted by: matt at January 14, 2005 03:49 PM

"Do you really want to trust the government with your money?"

I trust the government much more than Wall Street. We have at least some ability to fire the people running the government if they don't do what we want. Today, the nominal "owners" of corporations seem to have nearly zero ability to fire the people who actually run them.

Posted by: jm at January 14, 2005 10:34 PM


Many thanks for the background on Caroline Baum. It helps to explain why her reporting is so uneven.

It seems to me obvious that if the SS trust fund buys $150 billion in Treasuries, that's $150 billion less of Treasuries to be bought in the open market, freeing the $150 billion of private investment that would have bought them to go elsewhere. Am I missing something? I seem to remember this as being an Econ 101 topic.

Posted by: jm at January 14, 2005 10:44 PM

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