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How would they be secure from the whim of politicians who decide to monetize the debt (above some reasonable number like 2% inflation)?

It seems to me that the Democrats have two problems here. First, plenty of Democrats including, as I recall, Bill Clinton supported at least partial privatization that included stock investment. Second, today, right now, with the stock market at ridiculous lows would be the perfect time to invest that Social Security money. Buy low, sell high and all...

Interesting idea. How would you account for the differences in lifespans? Let's say you put in x amount of dollars over the year and I put in Y and Y is greater than X. What if you live to be 100 and I die at 70? How do structure the bonds to handle such variables?

With regards to privatized social security being partly invested in the stock market, it wouldn't necessarily be all bad. If there were rules that required trading to be done without as much flexibility as the typical mutual fund manager, perhaps stock values would be less volatile since large chunks of stock (as part of the Social Security portfolio) would not be sold during times of panic.

A big improvement to Social Security which is not talked about enough is taking it off budget. My understanding is the current receipts are treated as any other revenue that comes into the treasury when it comes to budget and deficit calculations.

I like it...
Being in grad school, I am paid by the state government, and therefore do not pay into Social Security yet. I have dreaded the day that I will. I would be much less angry about and additional, unavoidable, 13% of my pay check (including employer contributions) being taxed away from me if it was going to government bonds that I owned. That way, I could even adjust my retirement account to compensate for the required bond allocation. Are there any other notable proponents of this system of privatization in public life? It would be interesting to see this enter the national dialog, and see who would come out against it and for what reasons.

If you advocate SS funds as private property, then it would follow that the owner of said property should have the right to do as he/she pleases with the property as long as he/she is willing to accept the consequences - whether they be positive or negative.

You have slightly mis-stated the position of the Republicans - if you are referring the former President Bush's attempts. What they actually advocated is that an individual have the option of investing a portion of their funds in the market - stocks or bonds through selected funds. I don't particularly care for that option since it still constrained the individual's freedom, but it would be better than the current alternative. I would be very happy if my SS funds paid in had approached the appreciation of my IRA, including the current market results. I also know of no government bonds that would have been an improvement on my IRA. However, the bonds would certainly be better than the miserable returns of the SS system - which is a hybrid of a retirement fund and a welfare fund.

The problem with your proposal to me is that it doesn't solve the "need" (if there is one) of a welfare safety net, or the "desire" for an effective retirement plan. It is certainly better than the current mess, but still falls short of free choice. It would, however, continue to give the government low cost funds to spend on whatever it chooses, while passing the actuarial costs on to future governments or taxpayers.

Jerry:

Making the SS private property fungible is what killed the original idea; that's why I'd retain the system's original intent (a safe, government-backed safety net funded by an individual's "contributions" -- the term FDR used to sell the system), and keep specific benefits tied to specific individuals. To have any chance at all, the differences vs the current system must be limited to eliminating the risk of future politicians modifying current politicians' promises. That would force the issue of private property vs government control out into the open -- and there wouldn't be any place for the anti-private-property contingent to hide.


Tom:

Technically, politicians cannot monetize the debt; that job is the Fed's (as is de-monetizing). In any case, they could be structured like TIPS (Treasury Inflation Protected Securities).


Rich:

Where there's a will there's a way; I'd suggest something like lifetime "perpetual" bonds -- then let the accountants and actuaries work out the details. (I assume there are a few of those looking for work...)


Mike:

Don't forget what FDR told us: the money you'll pay into social security is not a "tax" -- it's your "contribution" to the nation's social safety net that will benefit you in your old age. All this proposal would do is make the promised benefits impervious to future reductions in benefits (justified, of course, by slick talk or scare mongering).

Nice idea, Steve. You're making the assumption that the good Senator has:

1)the requisite knowledge to understand what you are talking about and 2) the character (call it statesmanship, if you like) to acknowledge that you may be on to something. Excuse my snarky sarcasm but that's one heck of a stretch.

Be that as it may SS is a good topic though I want to know what the #@!&## is going on with AIG!!!
Nationalization of banks? You gotta be kidding me! The government is going to own an insurance company for cryin' out loud. Before we get through with this the government, one way or the other, is going to own a brokerage firm(ML) as well.

Doesn't that strike anyone as just a tad odd? Is this Bizarro world (http://en.wikipedia.org/wiki/Bizarro_World) or what?

Bob:

On both sides of the bank debate, it is understood that "nationalization" must be just a temporary condition. The disagreement is about whether or not it's necessary to blow the mud out of the tailpipes. One suggestion was to call it "pre-privatizaton" instead of the n-word.

Steve,

Where we apparently differ is that I don't think the anti-private property contingent is trying to be deceptive. They don't believe in private property and are not trying to hide it. The current generation of (primarily) Democratic Party politicians do not believe in private property and are not concerned with hiding it. They simply see this as one more aspect of the welfare state subject to their decision - not yours or mine, and have no intention of doing anything other than buying votes with promises that will be deferred to future generations to pay for or break. In that context, I don't think we can do anything effective but be as clear and honest about the differences in philosophy as we can. If the American People want a more extensive welfare system, then we can and will continue on the current path - and since it is in the interest of more than 50% we probably will. But that is just one example of the decline in the independence and responsibllity of the citizenry.

Unfortunately I do not see how Social Security Retirement Bonds which are not truly bonds can solve social security. If the entire point of privatization is to create a secondary market and competition, then non-transferable bonds is not truly privatization.

I understand your priority is to preserve social security for your generation, but for my generation it is to make sure Medicare and Social Security don't destroy opportunities for youth. My generation has given up on ever seeing social security benefits.

My nightmare scenario is legions of older, oxygen-tank sucking intensive care needing baby boomers impatient with Medicare voting in a socialistic government imposing massive tax increases and wealth redistribution from the working to non-working class.

Nobody could have known in 1960 the benefits of modern medicine could extend the lifespan of so many Americans. Extend the age from a pathetic 62 to 70 or 75. The Supreme Court says nobody has a right to social security benefits and I tend to agree.

Steve,

I'm good with banking intervention. Heck, nationalization is nothing other than a formality given the capital injections thus far. What my concern is the complete meltdown at AIG. I get that AIG is the largest insurer of commercial aircraft in the world but where do we draw the line?

BC,

I'm a boomer and both my parents are alive, in their eighties. I'm glad they are and am glad that quite a bit of my SS taxes paid in by me and my employers is partially funding their retirement.

To read your comment it would seem that mass euthanasia of all the old decrepit boomers (when they get old and no longer serve any useful purpose) might have some appeal. Quite frankly, that's fine with me because I certainly don't want to be a drag on the economy with tubes stuffed in my various orifices.

Bob,

At least I'm honest. Besides, in most other non-Western cultures large extended families live with their children rather than an extensive state welfare system. No doubt Americans will fight tooth and nail to prevent that, but given the alternative of entitlement payments taking up the entire US budget the US should learn from the rest of the world.

I'm making a point too, that what Mr. McInvale calls the "decline of personal responsibility" has always been around. There's really been no decline, just conservatives who don't accept the meaning of social contract and believe in natural rights. Natural rights which they do not justify except by axiom; at least with social contract there's an opportunity (in modern times) to move to a failed African state and be truly free from responsibility to others.

"Bernanke reluctantly confirmed that the stock market would not have been a good place for private citizens to have parked their social security assets. Duh."

Duh -- not!

Bernanke should have checked the numbers....

http://andrewgbiggs.blogspot.com/2009/01/follow-up-how-would-current-retirees.html

"... an individual retiring in 2008 who held a personal account his entire career would have increased his total Social Security benefits by around 15 percent.

"I also simulated full-career account holders retiring in years ranging from 1915 through 2008, showing that they would have increased their total benefits by between 6 and 23 percent, with an average increase of around 15 percent..."

Hi Jim,

He analyzed the return for "an individual retiring in 2008 who held a personal account his entire career..."

An entertaining romp in alternate history. But he left out one scenario: the analysis of alternate history that starts with the assumption that GW Bush got his way -- and everyone was permitted, say in 2004, to switch their SS credits into whatever they wanted. Most would have conservatively invested in broad index funds. Under that scenario, my guess is the baby boomers would by now have overthrown the government (one way or another; we are numerous).

Steve,

I don't even want to think about Senator Dodd, but let's assume that a mythical Senator Snodgrass took your comments seriously, and replied hondstly. Here's what he might say:

Steve, one problem is that we can't let you "own" your contributions because you always earned more than the average recipient and therefore we need some (maybe a lot) of your money to provide benefits to the less fortunate.

Second, we can't let you own bonds, because we have to have the money being paid in annually to fund other worthy government programs.

Third, if we issued bonds, it would increase our national debt as opposed to the current promises which are funded by paper. In addition, we might have to actually pay interest into your account to buy even more bonds.

Fourth, if we let you own it, we couldn't manage the Senior Citizens lobbies such as AARP who pressure us into annual increases in SS through the Cost of Living Adjustments, etc. in exchange for their votes to keep us in office.

Fifth, would you really want the bonds to be cancelled upon your demise - what about survivor's benefits for your lovely family?

Finally, why should we let you control OUR money - it belongs to us, not you. We'll give you what we think you should have. If we had wanted your opinion, we would have let you opt in or our to begin with.

I'm sorry Steve, it's an interesting idea - but if your persist in this kind of unpatriotic right wing fantasy, we'll just have to destroy you in the press, just as we did the former President. Can't have you peasants thinking you have a say.

Yours truly,

Senator Snodgrass

So, since it would have been dumb to privatize in 2004 because of high p/e ratios of an expensive market, would it be dumb to do it now, when it would be buying "on the cheap?"

Just start the program when the p/e ratio is slightly below the historical average and then we'd be much safer no?

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