A simple reason why Bush's SS plan is stupid

[DanS]

Again, there are no free lunches.

To the extent that the government isn't paying interest on this SS money, it's shafting future SS recipients (i.e., current taxpayers). It is true that the government doesn't have to find buyers for its bad deal, but that's just a reflection of the fact that it is forcing the bad deal on future SS recipients by government writ.

[chequita guevara]

Originally posted by Drake Tungsten

Out of the frying pan, into the fire, as long as it's change it's good?

In this case, yes. Moving to a system that may be worse while opening up opportunities for reform is much better than sticking with a system we know is bad and is almost impossible to reform.

Actually, moving to something worse instead of staying where you are is not a good idea. That's sort of the definition of worse. In fact, doing what Bush wants is more likely to engender a complete breakdown of the system than doing nothing, and do it sooner.

It's kinda like saying, "The way we're going, we'll run into that cliff. With my plan, we'll drive off the edge of the mountain immediately and avoid that nasty crash!"

[Dinner]

Originally posted by Ned
Oerdin, I think part of the problem is that benefits continue to rise faster than the economy, even while the number of people supporting the retirees is dwindling. This burdens the economy in an unacceptable way, according to Greenspan.

The large numbers of people retiring and the relatively few young people mean that the ratio of workers to retires will fall. To do nothing and fund the difference would cost $1 trillion but if we follow Bush's plan then since much of the Social Security taxes wold be diverted to personal accounts the system goes broke in 2013 instead of 2052 and everything from 2013 until the last baby bommer dies must be subsidized out of the General Fund. That costs $2 trillion dollars which is twice as bad as the original problem Bush claims he wants to solve.

If we want to encourage people to save more and invest more then there are other ways to do that. We don't need to phase out Social Security.

[Dinner]

Originally posted by DanS
Again, there are no free lunches.

To the extent that the government isn't paying interest on this SS money, it's shafting future SS recipients (i.e., current taxpayers). It is true that the government doesn't have to find buyers for its bad deal, but that's just a reflection of the fact that it is forcing the bad deal on future SS recipients by government writ.

Dan what do you think of this idea? Currently the "Social Security Trust Fund", that amount of Social Security surplus which Congress hasn't raided (and they've raided a lot), legally must be used to buy government T-bills. What if the law was changed such that a portion of those funds could be invested by an independent investment company so that the "trust fund" could get a higher return on their existing savings. It seems that would accomplish much of what Bush wants with private accounts but would still avoid the phase out of Social security Bush is calling for.

You've said it is stupid to only invest in government bonds. I agree. So why not change the law so that Social Security is allowed to invest its funds in other assets so that they can get a better return.

[TCO]

god there is so much ignorance and poor thinking here.

1. Boshko, stocks ARE a better returning instrument than bonds. Stocks are desirable for decade long investments. Bonds for shorter periods. If you want to learn more read about the CAPITAL ASSET PRICING MODEL (CAPM). It is very standard teaching. check any MBA school textbook (you'll also learn why).

2. The Bush plan does not cost double Oedin. It just puts the obligations of SS as formal obligations. If you expect to recieve SS, then this is GOOD. (If you want to shaft SS reciepients it's bad). Direct opposite of your thinking.

[Dinner]

Originally posted by TCO
god there is so much ignorance and poor thinking here.

2. The Bush plan does not cost double Oedin. It just puts the obligations of SS as formal obligations. If you expect to recieve SS, then this is GOOD. (If you want to shaft SS reciepients it's bad). Direct opposite of your thinking.

Sorry but you are wrong. I point you to the numerous Krugman articles where this is reviewed at depth. You should read it because he covers this extensively and hits the nail right on the head.

[DanS]

/me Chuckles

[TCO]

Originally posted by Oerdin


Sorry but ou are wrong. I point you to the numerous Krugman articles where this is reviewed at depth. You should read it because he covers this extensively and hit the nail right on the head.

Whiskey tango muther****ing foxtrot? You gonna school me on basics of finance theory? The nerve. The sheer impertinence!

[Dinner]

I'm not talking about finance theory. Read Krugman's articles in the NY Times from Last December though this week and using the CBO's own numbers Bush's plan costs twice as much as doing nothing. Even the CBO comes to that conclusion.

Hmm, who do I trust? The CBO or TCO? Hmmm, let me think...

[Mr. Harley]

African-Americans actually get more out of Social Security, due to the fact that the benefit for poor workers (it is insurance, not an investment) is essentially subsidized by those at the higher end of the salary scale. African-Americans, especially males, tend to be in lower income jobs. Evidently the trade-off is so close that it depends on how you run the numbers. Essentially, it's a red herring at best, and a lie at worst.

The other problem with securities is that there are two pricing models - investment and commodity. Any time you have a bubble market, you transition from the investment mode to the commodity mode. That is why the stock market becomes so volatile at that point. This is germane, because as with any commodity, increased demand beyond a certain point increases prices beyond the fundamentals of that instruments as an investment.

To put this simply, it means that putting Social Security into the stock market as a 401K - esque investment, instead of an insurance benefit, is going to increase the value of stocks as a commodity. This means that those with better access to data, i.e. individuals in the investment community, will be able to use their better data to profit off those without access to said data. Look at the market timing in the mutual fund industry is you do not believe this is true. Also, those in the investment community can flee to other investments, i.e. foreign deposits of receipt, due to an impending collapse of the commodity pricing mode. The Social Security investors are NOT going to have that option, that would be considered high risk and that kind of investment is going to be limited, if not prohibited.

Also, and here all of the models about stocks versus bonds are very disingenuous, they do not factor in administrative fees. Many individuals in Chile, the success story touted by many as to how personal accounts work, avoid the legal economy, i.e. reporting wages, etc. because the administrative fees can reach as high as 30%. Note, that figure is from the Wall Street Journal article on that. Plus, the pro-"reform" advocates, so-called, assume average to low yields for continuing Social Security as is, and assume average to high yields for putting it in the stock market with no administrative fees. The same applies to growth rates, they game the numbers and assume one to three percentage points, i.e. at times almost double, difference in growth rates for the scenario where we keep Social Security as it is versus private accounts.

Plus, the nasty little story people don't want you to know about is that one of the things that put the Argentinian economy over the edge was that they also tried to change their Social Security system to a personal account system THROUGH BORROWING. That does not bode well for the US, especially because of other negative fundamentals for the US economy. Almost every argument against the negative fundamentals again games the results, letting the stock market based system have better fundamentals than the current system.

What it boils down to is that the privatization pundits are arguing this largely on faith, the same as their arguments for free markets. I just read an excellent article on that, reference Bush's new trade representative appointee. The commentary walked through the continued deterioration of US Current Accounts, with NAFTA, WTO, giving Chine most favored nation trading status and WTO membership, and now the Central American Free trade deal. This liberal punditry from from US News and World Report, which is a moderate to conservative magazine. I reserve faith to my argments about what happens after I die, not before.

[TCO]

Originally posted by Oerdin
I'm not talking about finance theory. Read Krugman's articles in the NY Times from Last December though this week and using the CBO's own numbers Bush's plan costs twice as much as doing nothing. Even the CBO comes to that conclusion.

Hmm, who do I trust? The CBO or TCO? Hmmm, let me think...

Read mother****ing point number 2 numnuts. Read what I wrote! Sheesh. Why do you think his plan costs twice as much? Are the costs of administering the plan higher (like the envelopes and beurocrats?) Is the money dissapearing into air? Sheesh. Use your farking noodle. Talking to you about this is like when someone (whoever it was, Stu, I guess) came and told Kitty that he didn't like quantum theory. Sheesh.

[TCO]

Krugman ain't **** by the way. Think you can just taut his name and no longer have to think? Sheesh! GRRRRR!

[DanS]

/me gets out his bag of marshmallows

[Dinner]

Originally posted by TCO
Krugman ain't **** by the way. Think you can just taut his name and no longer have to think? Sheesh! GRRRRR!

And I suppose you think the Congressional Budget Office is also stupid? They're saying the same thing.

[TCO]

Try to look at economic dollars versus accounting dollars. I suppose you were against companies changing from FIFO to LIFO, becuase it made the accounting profits worse while making the cash profits better.