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Sunday, February 20, 2005

Prose and Cons

I talked about the president's agenda earlier, and I don't believe saving Social Security is his goal. Howevah, I do support his grandiose schemes, and he needs our support if he's going to tinker with a popular program. More specifically, he needs the support of Senate Republicans, and they need to know their subjects- uh, constituents- support them. So...

Carved out accounts' immediate benefit is that they will squeeze more money out of the SS trust fund, ensuring its solvency for our children. By our children, I refer to me, a member of Generation Why Bother.
If personal accounts are successful, they may lead to the eventual phase-out of Social Security. The only problem with that is people who become disabled. I suggest SS insurance still exist, specifically for those instances. Of course, we may cure everything in the next 40 years and avoid that necessity.

The second benefit to the prez's plan is that it will shift the SS trust fund from T-bills, supporting USGOV spending, to stock, supporting economic growth. Growth >> spending.

Private accounts would also be the property of their owners, which prevents benefit cuts and cancellations and allows the money to be inherited in the event of death.

The main objection to SS accounts is that it transfers the risk from the fund to the individual, thus removing all meaning from the term insurance. This is a concern. Over the long run, very few individuals could lose money, but I suspect some special people would. I would suggest a default program that non-investors would be put into. Many companies that offer 401ks already have a few of those. In the SS case, the proportion of stocks to bonds would decrease with age. I'm leery of putting that much "zombie money" into the markets, though. It would tend to exaggerate the fluctuations caused by traders.

So what do we do with the people who lose everything *coughenron* at the age of 67? Laugh at them and give them their old job back, I would imagine. You shouldn't bet what you can't afford to lose. Under the prez's plan, they would still have some defined benefits, so they could probably survive.

The other problem is that there will be a period of 20 years or so where SS is paying more than it is making. In the long run the accounts will balance, but the trust fund will be used up. The SSA may even have to borrow money for a while. We would all be putting our faith and trust in Adam Smith if that happened- interest would have to be paid, and spending would be cut in the general budget to find $$$ to lend the SSA. Either that or income tax increases.
We could avoid this by starting carves-out accounts at 1% of FICA rather than 4%, and increasing it slowly when possible, but that would take decades. Political will might give out before the system proved itself.

That was a bit lengthy. Sorry. My remarks will be pithier from now on.


Anonymous Anonymous said...

uhm...yeah...could you please tell me how to get to Arbys™? I gotta have me a Super Roast Beef with extra horsey sauce and a Jamocha shake.

Do you know if they take food stamps?

8:47 PM  
Anonymous Anonymous said...

Your comments on Social Secutiry give more to mull over. This subject is worth debating. I hope that private accounts make it. I look forward to the possibility of increasing our retirement funds and then handing them down to our children.
Keep up the good work.

11:18 PM  

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