I remember a month or so ago, when Kevin Drum posted a piece from the National Review where the writer said trade deficits were a "logical illusory," or something similar to that. Drum said that it represented the bizarre frame of mind that no matter what happens during his presidency, George Bush is never wrong. King Louis of France, Drum said, would be lucky to have such stalwart support.

More or less, Drum was right on that one. And this recent bit of nonsense is another addition to the body of evidence of his claim.

National Review, "Just... stop. You're hurting America."

It's not even a good deal for young rich workers, at least not for the smart ones. Right now, when a 20-year TIPS yields a real 2%, there is absolutely no reason not to take all the risk-free 3%-real return the government is offering you and ask for more. A smart, rich young worker stays in the system and incorporates SS-classic's implicit 3% into his overall allocation strategy. He thus ends up with either higher return, less risk, or both than if he had taken the money out and tried to beat a real 3% -- and been forced to take the risks the market currently demands to get it.

A few years back, when I bought a 10-year TIPS yielding 3.5%, you might have been able to make an argument, but not now. Not even the richest workers should pass up free money.

I don't even think it's necessarily a great deal for richer folks.

For richer folks, the insurance policy, even if it isn't a bargain for the buck, has fairly significant value. The disability/survivor benefits are worth a lot for younger "expecting to be rich" workers with dependants. And the old age benefits provide a very safe floor, allowing greater risk and longer term planning for personal savings.

And even rich folks don't always know they'll be rich until they're well past midlife. From there on the value might not seem worth much, but earlier in life, the insurance covers the uncertainty that they'll really retire rich.

As one of the supposid beneficiaries (young, high income), NO WAY IN HECK. 3% real ROI is a good conservative figure for the social security money, as being one of the young, high income class who's maxing out my 403(b), why should I take the "very low risk fallback" portion of the retirement planning and put it into the higher risk pool?

The only real advantage I see is you take a 1 point less interest hit (delta between current TIPS and the 3%) and replace the "Social Security Trust Fund Treasures" (which according to President Bush aren't real treasuries and can be defaulted on at any time) with "Real Treasuries" which supposidly are safe from default.

Nicholas, add in the government insured, inflation adjusted annuity with no transaction cost.

You might get a better return if you could "opt out" and you know you won't need the survivor or disability benefits. But for the bucks you could save, I think most rich folks don't mind contributing to a modestly progressive program that absolves them of further responsibility to take much care of the elderly.

For those who would like to end Social Security:

May your Mother-in-law move into your home when she retires.

Isn't that reason enough to support the current system?

Can somebody enlighten me on where the 3% real rate of return figure the Bush guys mention comes from? Are they saying that they think the current system's pension benefits will work out to a 3% rate of return? I thought projections said it would be lower than that -- and would vary according to a person's birth cohort and earnings history. If the people opting for private accounts would have otherwise only gotten a 2% real return, but give up a 3% real return, does that mean that people opting for private accounts strengthen the system for those who remain in it?

Also, I've been assuming that the "plan" says that those who diverting funds to private accounts would still be entitled to disability and death benefits. The comment from Nicholas Weaver seems to suggest otherwise.

Didn't your parents teach that every time you do a regression analysis on government figures the little baby Jesus cries?

I worked out the NPV for someone like me (age 26, baby bust) but a bit poorer, and the returns from current SS system were very, very negative. I also wonder where the 3% IRR came from. It sure as heck doesn't come from mortality figures or projected benefits. Can someone please point me to this source?

1.5 to 2% is historically average for the real return on more or less risk-free assets. That is, short-term gov't bonds held by the public. If a system can't beat that in IRR terms, then it's actuarially unfair as a retirement savings / very-old-age insurance mechanism.

I'm confused. NR says the breakeven point is 3%; Brad says NR means 3%+inflation. Wouldn't the NR editors have said 3%+inflation if that's what they meant?

[If the NR editors knew what they were talking about, they would have said 3%+inflation.

At a deeper level, I don't think "mean" or "intend" are verbs that can be correctly ascribed to whoever types the words that appear in NR. They routinely flunk the Turing Test, after all...]

Chris, in this case it doesn't matter what the actual benefit returns are, though going by memory I would say you're doing something very wrong to get negative returns on your payroll tax.

What matters is that opting out you immediately eat 3% real off the top of whatever you earn. There is no way in hell that can possibly be a good deal. It is in the realm of taking a second mortgage and plowing the proceeds into index funds -- it seems smart until you work out the risk portion of your two potential portfolios.

Yeah, my memory was right: you did something really, really wrong in calculating your returns for someone "like me but a bit poorer."

According to Caldwell's NBER paper (written, let it be noted, to make very much your argument), under current law, the lowest paid quintile gets real IRRs around 4-5%, while median quintile workers get 1-2%.

If "like me" means "filthy stinking rich" and "a bit poorer" means "just pungently well-off," however, I retract my criticism. Social Security Classic (TM) is indeed a bad deal for you.