January 26, 2005
David Wessel Talks to the Wise Ned Gramlich About Social Security
WSJ.com - Capital: I don't think the system is in crisis. But we can make much more desirable changes if they're made early. The problem with waiting until the car is about to go off the road is that our options are constricted. It's hard to make sensible benefit cuts if people have already retired or are close to retirement. It's easier to do if cuts are well-advertised....
We could raise the payroll tax a bit without huge economic consequences. But at some point we do want to get off the treadmill where we set a benefit system that we can't quite afford and then raise taxes to pay for it. I am, by the way, all for making the payroll tax slightly less regressive by raising the maximum wage subject to the tax.
If we were to go to a system that was entirely individual accounts, we probably couldn't have large backstop benefits to protect people.... The system we have now does work well and is really not all that costly....
We need more saving. We need it because people don't save enough for retirement. We need it to finance the benefit system we have. And need it for the nation's macroeconomics. One way to get new saving is to raise payroll taxes.... Another way is to mandate that people save a bit on top of Social Security....
With carve-out individual accounts, we erode social protections at a time when we also seem to be witnessing the collapse of the corporate defined-benefit pension system....
People in my grandfather's generation who got to age 65 paid into Social Security for 40 years and got benefits for about 10. People in my grandson's would collect benefits for more than 20 years. As life expectancy increases, the disparity gets increasingly unfair across generations. An easy way to restore fairness and to make a huge impact on the actuarial deficit of Social Security is to have the retirement age go up in line with overall life expectancy -- in an automatic way....
Posted by DeLong at January 26, 2005 09:27 PM
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Amazing how this Social Security non-crisis has pushed Iraq off the front page. I guess the crisis is doing its job.
Here's an idea to play with. It seems to me that the SS privitization plan pushed by the right wingers is little more than a multi-trillion dollar check written out by the middle class payable to the investor class. So what if we suggest that all "transfer fees" from SS privitization are public money, payable to the general fund? In other words, make it illegal to profiteer off of the Social Security investment trade. Instead it is a regulated public service.
It would never happen of course but imagine the howls. Just imagine.
Posted by: Alan at January 26, 2005 09:38 PM
If you raise the retirement age, workers would wear out (both mentally and physically) long before they'd be able to receive SS. You can quote longevity stats until you're blue in the face; longevity does not imply vigor.
I don't know any 75 year old coal miners, and no company is going to hire one. And if they do raise the age, expect a surge in age-discrimination lawsuits. Desperate times etc.
Posted by: djs at January 26, 2005 10:01 PM
"Amazing how this Social Security non-crisis has pushed Iraq off the front page. I guess the crisis is doing its job."
I seriously doubt this. The way public opinion seems to work, no matter how mind-numbingly bad Bush's policies on Iraq are, any Iraq news, even bad news, seems to help Republicans because it emphasizes the importance of national security on which they are better trusted.
Fortunately for Democrats and the country, the public seems to be highly opposed to whatever designs bush has on our beloved social programs...so I think the quite the opposite is happening...
Posted by: seank at January 26, 2005 10:55 PM
It sounds like he's endorsing the Brad DeLong party line plan for Social Security.
Posted by: Brian at January 26, 2005 11:49 PM
[dog comment spam has followed me home from Making Light...]
Posted by: at January 27, 2005 02:10 AM
Posted by: at January 27, 2005 03:33 AM
Why am I not impressed? Should we have to wait till 80 or 90 to receive Social Security. There is no problem with Social Security. When friends of the system speak about cuts in benefits they convince many others there really is a problem, and so they undermine the system. Who wants retirements payments to begin at 70 or 80 or 85 or 90? Social Security has a fine surplus and economic growth is fine, so go on to real problems and see what is happening several years from now.
Posted by: anne at January 27, 2005 04:13 AM
The piece is generally level headed, but even this level headed author has missed at least one important point (that others have mentioned here in the past) and adopted the rhetoric of the nut-bag crisis croud in another. The nut-bag crowd wants us to talk in terms of cars going off the road and problems that are easier to solve now than later. Any objective review of the outlook for Social Security should acknowledge the considerable odds that there will be no crash, at all, ever. The Trusees low-cost scenario looks a good bit more likely than the high cost option, and at least as likely as the most-discussed medium-cost option. The only problem with the low-cost option is that the party in power has not had the discipline to keep its had out of the cookie jar - more Trust Fund surpluses would encourage the GOP to ignore the fiscal mess it has created in the general fund.
The point the author seems to have missed is that life expectancy increase he or she refers to is not the relevant one for discussions of Social Security. Life expectancies have risen more overaall than for those who have reached retirement age. The life expectancy for those who have reached retirement age have always been higher than for the general public, and has advanced far less than the author suggests.
Posted by: kharris at January 27, 2005 04:33 AM
"The life expectancy for those who have reached retirement age has always been higher than for the general public, and has advanced far less than the author suggests."
Always the right argument! The idea of nibbling away at Social Security benefits, including putting off benefits, simplyt makes Social Security seems less desirable for younger workers. Delaying Social Security benefits is not necessary or desirable, but is simply another way of slicing away at the system.
Economic growth at historical levels should be enough to secure Social Security. Possibly, a small change in payroll taxes will be seen as necessary in several years. Changes in the pyroll tax system in 1982 have allowed for the decline in the proportion of workers to retirees. Social Security is fine.
Posted by: anne at January 27, 2005 05:39 AM
" As life expectancy increases, the disparity gets increasingly unfair across generations."
Kharris has already pointed out the that this statement is largely not true. But even to the small extent that it is true the conclusion dosen't follow, at least as far as I am concerned.
We expect future generations to be richer than we are. As someone who has paid into the system for my whole working life, I somehow have limited sympathy for people who after paying will have higher incomes than I do now crying in their beer about how unfair it all is.
Posted by: Jonathan Goldberg at January 27, 2005 06:18 AM
I also endorsed the DeLong party line plan today. See http://www.techcentralstation.com/012705B.html
Posted by: Arnold Kling at January 27, 2005 06:22 AM
Robert Pozen in the Economist magazine lists 3 problems with raising the retirement age:
"But such an extension would face three practical challenges. First, many senior citizens already have difficulties finding full-time employment. Second, most elderly Americans want to retire earlier rather than later. Third, low-wage workers tend to hold jobs requiring a relatively high degree of physical labour, so they may be physically incapable of working in the jobs available to them over age 67."
Posted by: bhaim at January 27, 2005 06:57 AM
Cutting Social Security benefits by changing from wage to price indexing, and raising the age for beginning benefits. This is pure Republicanism and has nothing to those who treasure what Social Security means to millions of retirees.
Posted by: lise at January 27, 2005 07:05 AM
The problem with undertaking "reforms" so far from the date when the problems start to arise is that you are relying on long-range forecasts that are difficult to make accurately. You may perform surgery on a system that turns out to have no problem after all if growth, immigration, longevity trends are favorable.
Posted by: Bob H at January 27, 2005 07:09 AM
Great discussion. Was searching for something exactly like this to validate what I believed to be true. Although I took a few econ classes back in college a few decades ago, I'm no economist, but common sense was telling me what has been elaborated here.
Guess I've found some new daily reading. ;)
Posted by: Stuart D at January 27, 2005 07:15 AM
Chile's Retirees Find Shortfall in Private Plan
By LARRY ROHTER
SANTIAGO, Chile - Nearly 25 years ago, Chile embarked on a sweeping experiment that has since been emulated, in one way or another, in a score of other countries. Rather than finance pensions through a system to which workers, employers and the government all contributed, millions of people began to pay 10 percent of their salaries to private investment accounts that they controlled.
Under the Chilean program - which President Bush has cited as a model for his plans to overhaul Social Security - the promise was that such investments, by helping to spur economic growth and generating higher returns, would deliver monthly pension benefits larger than what the traditional system could offer.
But now that the first generation of workers to depend on the new system is beginning to retire, Chileans are finding that it is falling far short of what was originally advertised under the authoritarian government of Gen. Augusto Pinochet.
For all the program's success in economic terms, the government continues to direct billions of dollars to a safety net for those whose contributions were not large enough to ensure even a minimum pension approaching $140 a month. Many others - because they earned much of their income in the underground economy, are self-employed, or work only seasonally - remain outside the system altogether. Combined, those groups constitute roughly half the Chilean labor force. Only half of workers are captured by the system.
Even many middle-class workers who contributed regularly are finding that their private accounts - burdened with hidden fees that may have soaked up as much as a third of their original investment - are failing to deliver as much in benefits as they would have received if they had stayed in the old system.
Dagoberto Sáez, for example, is a 66-year-old laboratory technician here who plans, because of a recent heart attack, to retire in March. He earns just under $950 a month; his pension fund has told him that his nearly 24 years of contributions will finance a 20-year annuity paying only $315 a month.
"Colleagues and friends with the same pay grade who stayed in the old system, people who work right alongside me," he said, "are retiring with pensions of almost $700 a month - good until they die. I have a salary that allows me to live with dignity, and all of a sudden I am going to be plunged into poverty, all because I made the mistake of believing the promises they made to us back in 1981."
With many Chileans finding themselves in a situation much like that of Mr. Sáez, people are still looking to the government, not private pension funds, to ensure a secure retirement.
"It is evident the system requires reform," the minister of labor and social security, Ricardo Scolari, said in an interview here. Chile's current approach based on private pension funds has "important strengths," he said, but "it is absolutely impossible to think that a system of this nature is going to resolve the income needs of Chileans when they reach old age." ...
Posted by: lise at January 27, 2005 07:21 AM
What percentage of workers do physical labor until eligible for Social Security, and then leave the work force? These are the ones who could suffer the most severe hardship from modest increases in the retirement age. Does anyone have hard facts on this? I suspect the percentage is small. Many physical laborers transition in one way or another to less demanding jobs in their later working careers. This seems to me too important a question for an absence of facts.
Posted by: Ken at January 27, 2005 07:29 AM
Wasn't one of the original reasons for Social Security the fact that it would allow older workers to retire, and younger workers to take their place? Or was that just a Depression thing and no longer a valid argument?
Raising the retirement age without planning where jobs for 70 year olds are going to come from is ridiculous. And it would probably end up being another expensive government program. Although a program that would allow earlier (65) retirement in exchange for volunteer work at schools, shelters, etc. would probably be feasible.
Posted by: Mary R at January 27, 2005 07:30 AM
National Public Radio news has been happily telling us how impressive a model for us Chile's privatization of Social Security has been. Transition costs are never mentioned of course, and never mentioned is:
"Over all, Chile has spent more than $66 billion on benefits since privatization was introduced. Despite initial projections that the system would be self-sustaining by now, spending on pensions makes up more than a quarter of the national budget, nearly as much as the spending on education and health combined."
Posted by: anne at January 27, 2005 07:31 AM
Raising the retirement age is just a less honest way to cut benefits. Why not just call it what it is and cut benefits across the board (or, better, cut the higher earners' benefits more)?
Posted by: enfant terrible at January 27, 2005 07:32 AM
Someone needs to explain something to me.
If part of the "problem" (humor me here) with SS is that the surplus is going to run out and benefits will need to be paid from general revenues as the trust fund bonds are redeemed -
How is that helped by increasing the payroll tax? That just creates a bigger surplus, buys up more "worthless IOU's" and simply allows the government to hide more of the current deficit behind the trust fund, until the day when even the new surplus runs out. At which time, we can be sure to see the same arguments as today trotted out.
Am I missing something?
It's really time for some bold Democrat to come out for the abolition of the payroll tax.
Oh look! A snowball in hell!
Posted by: mario at January 27, 2005 07:41 AM
in 1950 the life expectancy at age 65 was 13.9 years and in 2002 it was 18.2 years. see http://www.cdc.gov/nchs/fastats/lifexpec.htm, Health, United States 2004, table 27.
Posted by: supersaurus at January 27, 2005 07:42 AM
I think an awful lot of blue-collar workers have physically taxing jobs right up to retirement. Carpenters, plumbers, truck drivers and the like might not be breaking rocks with a sledge hammer, but their jobs are still a lot harder on their bodies than office work. Might be worth noting that we have yet to see how widespread repetitive motion disorders like carpal tunnel syndrome will be as information age workers get older.
Posted by: demisod at January 27, 2005 07:48 AM
The Treasury bonds that comprise the Social Security trust fund are worth just as much as all Treasury bonds, and are "backed by the full faith and credit of the United States." So, payroll tax surpluses may be used for government purposes other than Social Security but the surpluses will be honored and returned to Social Security whenever needed.
Posted by: anne at January 27, 2005 08:10 AM
Hal Varian, in writing about the Guaranty Corporation, did some option math to show what it would cost (at mid-December prices) to guarantee a return from stocks over a 20 year period that is equivalent to a 20-year bond paying 5%. His example, I think, offers a lesson for those thinking about private accounts.
In order to assure a $1000 payout in 20 years, one would need to put $377 into the bond. The same $377 put in stocks, along with a put to lock in the $1000 value, would end up costing $502. Of course, there is the substantial possibility that the put would expire worthless and the stock would end up worth more than $1000. There is also a substantial, though lesser, possibility that the stock would end the 20-year period worth more than $502 invested at 5%.
I think this does a pretty good job of expressing the risks and costs of private accounts in Social Security. Varian's point is that the Guaranty Corporation essentially pays for the put when corporations put pension funds in stocks. As Anne's NYT piece points out, Chile has paid $66 bln for the equivalent of such puts for its private system. If we are to provide insurance against destitution among US retirees, we need a defined benefit program or we need someone to pay for the put option.
Posted by: kharris at January 27, 2005 08:14 AM
KHarris has done us another favor by reminding us Hal Varian's fine article. Above is the cite....
Posted by: anne at January 27, 2005 08:22 AM
Also, if you raise the retirement age, what are all those older workers going to do about health insurance? Insuring older workers (and their spouses) is a HUGE cost that private industry is happy to pass on to Medicare as soon as possible.
Posted by: cc at January 27, 2005 08:52 AM
If you have to raise the retirement age, make it income-based. This addresses two issues:
1) wealthy people tend to live longer (strange how that never enters into the race-lifespan argument)
2) SS was "designed" as insurance - if you don't need it because your circumstances are beneficial, well then delay your SS retirement a bit.
Posted by: peBird at January 27, 2005 08:53 AM
Besides the difficulty faced by blue collar workers that several people have mentioned, there is a more general fact that poor people live shorter, and that raising the retirement age cuts a bigger chunk of the benefit of a shorter-lived person. Therefore, it is a regressive way of cutting benefits. It is unnatural for a Democrat/liberal/progressive to favor raising the retirement age.
If future benefits need to be cut (which is likely), they should be cut equally across the board, or progressively, by lowering the maximum benefit and/or changing the marginal replacement rate for higher earners (e.g. make the 15% part of the PIA formula 10%).
Posted by: enfant terrible at January 27, 2005 09:02 AM
KHarris makes it seem well worth posting Hal Varian's remarks on the subtle added cost of investment a pension fund in stocks:
As [Zvi] Bodie explains, there is a fundamental fallacy in pension accounting, which assumes that the ups and downs of the stock market will cancel out over time. This is not necessarily true.
Consider a 40-year-old worker who hopes to receive a lump-sum payment of $1,000 when she retires in 20 years. If the interest rate on 20-year bonds is 5 percent, then the company will have to set aside about $377 now, which is the present value of the $1,000 obligation at a 5 percent interest rate.
But instead of those dull bonds, the company could invest the $377 in a stock market index fund, which yields about 10 percent a year on average. After 20 years, the odds are that the company will have more than enough money to pay the $1,000, leaving itself a tidy profit, or so it seems.
The trouble with this logic is that even though the market will probably do better than bonds on average, there is still a significant risk of a shortfall, even in the long run.
To see this, consider how much the company would have to pay now to guarantee that it could cover its $1,000 obligation. The company would need to buy some sort of portfolio insurance that would pay off if the stock market investment fell below $1,000.
To provide such insurance, the company could buy a put option, a contract that gives it the right, but not the obligation, to sell the pension stock portfolio for $1,000 in 20 years. If the value of the stock portfolio ends up above that amount, there is no problem. If it falls below $1,000, the pension plan would exercise the option to make good on its promise.
How much would such an option cost today? Using standard techniques for option valuation, the price is about $125. Thus, the total cost to guarantee the $1,000 future payment turns out to be $377 plus $125, or $502.
So it is not so inexpensive to invest the pension in stocks after all. Either the employee runs some risk of not being paid the entire amount, or someone - the company or the Pension Benefit Guaranty Corporation - has to provide the put option.
Posted by: anne at January 27, 2005 09:49 AM
And as regards to increasing the retirement age:
Let's increase the work week while we're at it.
40 hours a week is for wimps.
Do we really need all of those weekends?
Posted by: mario at January 27, 2005 09:49 AM
re:Hal Varian's (incomplete) remarks.
Do the math. The scenario in which we invest $377 and purchase an option gives us an expected return of ~$2536 ($377 * 1.1^20), with a guaranteed minimum of $1000. Investing $502 at 5% returns ~$1332 ($502 * 1.05^20). I'll take door #1. I'll bet Prod de Long has a real life portfolio that's weighted toward equities as well.
Posted by: Neil S at January 27, 2005 11:49 AM
I apologize for typos and mis-spellings...make that Prof DeLong...
Posted by: Neil S at January 27, 2005 11:55 AM
Neil, run your calculation again with stocks at 6% return rather than 10%. it changes the outcome considerably....
It is not, after all, a constitutional right that stocks return 10% per annum, and there have even been 20 year periods where an index fund would have returned zero (well, probably not zero because of dividens, but iirc, it took 20 years from the crash of '29 before stocks returned to pre-crash levels)....
Posted by: howard at January 27, 2005 12:11 PM
Just about everybody here can struggle through PV math. I think you missed the point I was trying to make. The system we have now provides a certain payout during retirement years. That is a form of insurance for everybody, but a form which is most important to those who have, and earn, least. They have born a high burden relative to their income because of the regressive nature of FICA.
There is no question that the expected value of stock holdings over 20 years is higher than a bond specified at 5% return. Even is we take higher than historic P/Es into account and assume that your 10% return should be reduced. However, focusing on the expected value misses the insurance function of Social Security. For those who have very limited other sources of retirement income, assuring the $1000 payout is at least as important as knowing that the expected value might be twice that amount. In addition, for those at the lower end of the income scale, we are still talking about $377 over 20 years returning $1000, because their budget doesn't allow the additional $125 - not for the extra $332 in 20 years and not for the put. The calculation based on $502 assumes everybody can afford that figure. Those at the low end do not have the luxury of chosing between $1332 and an expected $2356 with a $1000 floor. They struggle to afford the $377.
Posted by: kharris at January 27, 2005 12:48 PM
Then the cost of investing a portion of payroll taxes in stocks is first: the amount that is diverted from curent retirees at the current interest rate. Second: the invesment cost, which will be low in the case of a total stock market index fund administered by Social Security. Third: the insurance cost, or the cost of the put option to secure at least the return of Treasury bonds.
Posted by: anne at January 27, 2005 01:21 PM
There will be large costs even if the Social Security system were to invest in a stock index for us. The costs involved for setting up and administering private accounts would be far higher, and properly insuring returns would have to be done by the Social Security system, as in Sweden, or the cost of such insurance would be beyond many many workers.
Posted by: anne at January 27, 2005 01:32 PM
Imagine a world with no Social Security where individuals would choose how long to work and how much to save as they worked in order to consume during their retirement years. What would be the optimal reaction to learning at age 25 that one would likely live to 85 instead of 75? Of course, one would choose retire at a later date (assuming one was not a coal miner).
Posted by: pgl at January 27, 2005 01:46 PM
Please note that I was doing the math for Prof Varian's scenario...that was the intent of the parenthetical (incomplete).
"Consider a 40-year-old worker who hopes to receive a lump-sum payment of $1,000 when she retires in 20 years. If the interest rate on 20-year bonds is 5 percent, then the company will have to set aside about $377 now, which is the present value of the $1,000 obligation at a 5 percent interest rate.
But instead of those dull bonds, the company could invest the $377 in a stock market index fund, which yields about 10 percent a year on average. After 20 years, the odds are that the company will have more than enough money to pay the $1,000, leaving itself a tidy profit, or so it seems.
The trouble with this logic is that even though the market will probably do better than bonds on average, there is still a significant risk of a shortfall, even in the long run."
I apologize for not clarifying my point. His article leaves one with the distinct impression that even given a 10% return, bonds are still a better deal. I believe his glowingly cited article is of marginal honesty in that it fails to actually perform the calculations based on the data in his scenario.
Nonetheless, I continue to believe the Profs DeLong, Krugman, and Drum do not allocate their personal portfolios in the same manner that they advocate for the Social Security system.
Posted by: Neil S at January 27, 2005 02:08 PM
I agree with your point that we need to do more for those at the low end of the spectrum. I am eagerly awaiting some suggestion as to how this is to be accomplished. My fear is that in 15-20 years, we will be facing a scenario in which politicians will be faced with the need to make hard choices, a scenario which frightens me given my opinion regarding the courage, honesty, and economic understanding of most politicians.
Frankly, I would like to see the existing system replaced with a means tested system which completely phases out benefits for those of us who have been diligent and fortunate enough to save for our own retirement. A system with a larger benefit that the current minimum. I believe such a system could be designed to be significantly less costly than the current system.
I'm looking for real alternatives from the brightest minds of the Democratic party, and instead see only demagoguery.
Posted by: Neil S at January 27, 2005 02:20 PM
Nice posts. JONATHAN CLEMENTS at WSJ also wrote a while ago that if SS is partially privatized, people may need to invest less in stocks just to keep the total portfolio risk unchanged.
Posted by: pat at January 27, 2005 02:31 PM
Re the savings rate --
C'Mon, folks. Most people in this country don't save because THEY DON'T HAVE ANY MONEY LEFT AT THE END OF THE MONTH. And I am not talking about yuppie types who have to pay on their BMWs, either. I'm talking about ordinary working people who earn so little that their earnings are completely absorbed by physical necessities -- shelter, food, transportation. There are an awful lot of these folks around and for most of them it isn't that they don't want to save, it's that they can't.
Posted by: Ann at January 27, 2005 02:34 PM
Notice the Chilean privatization system is yielding 30% to 50% returns on assets not to workers in the plans, but to the financial companies investing in the system. Chile's stock market has returned 2.9% a year in dollars for the last 10 years. The domestic currency return was 6.7% a year for the last 10 years. So, corporate investing in privatization has proven far far more rewarding than investing in the private plans set up for workers.
Also Hal Varian does not appear to be suggesting that stock investing for pension funds was not a way in which to raise returns. The point is only that the need to insure base returns add to the investing cost. There will be such a need for stock investing with Social Security.
Posted by: anne at January 27, 2005 02:49 PM
Good grief. I once knew grammmar :)
Also, Hal Varian does not appear to be suggesting that stock investing for pension funds is not a way in which to raise returns. The point is only that the need to insure base returns adds to the investing cost. There will be such a need for stock investing with Social Security.
Posted by: anne at January 27, 2005 02:53 PM
Those who want to 'reform' Social Security urge 'crisis' until you bring up global warming.
Then comes a transformation from the hysteria of Chicken Little to the detachment of Buddha.
Posted by: Jon Koppenhoefer at January 27, 2005 03:06 PM
I agree with you -- I have said many times the empirical fact is the 1984 SS tax increase helped financing Reagan tax cuts and making Bush tax cuts easier to push through is enough for me to against any form of payroll tax increase now. The democrat party line is worse than either (1) no change in SS now, wait a few years; or (2) partial privatizing but figure out some ways to reduce cost (such as put the payroll tax straight in 401(k) accounts and IRA accounts, or something like that). At least with partical privatizing, we have a better chance to defend the sunset clauses in Bush tax cuts.
Posted by: pat at January 27, 2005 03:57 PM
lost a that and a which:
the empirical fact is that the 1984 SS tax increase helped financing Reagan tax cuts and making Bush tax cuts easier to push through, which is enough for me to against any form of payroll tax increase now.
Posted by: pat at January 27, 2005 04:13 PM
I followed Mr. Kling's link to his "endorsement". He states that a decade long experiment with "Social Security Plus" should be enough to quell the fears of the naysayers who don't believe in private accounts. The relevant quote, "On the other hand, if proponents are correct and personal accounts are a winner, it seems likely that happy personal account owners under The Plus would press for expanding personal accounts to replace some or all of their Social Security.
I am willing to see The Plus used as an experiment to prove the merits of personal accounts. In exchange for giving up the hope of an immediate move to reform Social Security, taking The Plus would provide supporters of privatization with the opportunity to build a strong consensus for privatization several years from now."
At least he goes on to admit that his idea of Social Security reform is to eliminate the program entirely. He also continues to exaggerate the nature of the problems the system faces. In addition he commits an unforgivable sin of omission in not pointing out that one decade is peanuts in terms of the number of years it takes to see how well any program would stand up to the rigors of even one economic cycle much less multiple ones.
Posted by: Jim S at January 27, 2005 09:07 PM
I thought I might comment at TCS about Kling's article but you have to join and I'm not willing to, especially after reading the posts from some of its members. The name should be Right-Wing Whack Job Central instead. I could only stand reading about a half-dozen posts. Yechhh.
Posted by: Jim S at January 27, 2005 09:13 PM
"Imagine a world with no Social Security where individuals would choose how long to work and how much to save as they worked in order to consume during their retirement years. What would be the optimal reaction to learning at age 25 that one would likely live to 85 instead of 75? Of course, one would choose retire at a later date (assuming one was not a coal miner)."
The worlds with and without Social Security ere not much different in this respect. You would get qualitatively the same response with SS. And, of course, you may just decide to save more and retire at the same time.
Posted by: enfant terrible at January 28, 2005 08:09 AM
"I continue to believe the Profs DeLong, Krugman, and Drum do not allocate their personal portfolios in the same manner that they advocate for the Social Security system."
You are probably wrong. Unless they have found a way to sell their SS benefits short, they have the floor of protection completely in the good old pay-as-you-go Social Security. No stocks at all there.
Now I am sure they hold stocks etc. on top of that, but that is not a meaningful comparison. You just can't compare the use of marginal income at different levels. Look at it this way: if you earned $3 more than you earn now, you might as well spend it on a latte in Starbucks; but that does not mean it is reasonable for you to spend your entire income on lattes.
Posted by: enfant terrible at January 28, 2005 08:17 AM
"Frankly, I would like to see the existing system replaced with a means tested system which completely phases out benefits for those of us who have been diligent and fortunate enough to save for our own retirement."
Sounds like a tax on capital with humongous marginal rates for the middle class and zero marginal rate for the very rich.
Posted by: enfant terrible at January 28, 2005 08:45 AM
Raising the retirement age is bogus. Look at how many folks - well educated, widely read, computer literate folks -have been laid off since 2000. If they are in their 40s they have a tough time getting a job. If they are in their late 50s or early 60s they can forget about it. Most people in this position could re-train themselves if needed. They could certainly succeed in formal re-training programs.
The problem is that industry is not generally interested in hiring older people regardless of experience, education, etc. Until that attitude changes raising the retirement age may ease pressure on SS but it will not alieviate the problem faced by the suddenly unemployed 60 year old who has to scratch for 10 years until he can retire with what is a pittance from SS.
Posted by: bob p at January 30, 2005 11:12 PM
Posted by: at February 13, 2005 05:46 PM
Posted by: at February 13, 2005 05:46 PM
Posted by: at February 13, 2005 05:47 PM