Was it not Keynes that pointed out that you can not 'save up' for retirement pensions? Pensions must involve distribution of current production. The question only becomes one of where the transfer to pay for that production comes from. In the 'pay-as-you-go' schemes, it comes out of current premiums and/or interest and capital from bonds paid for in previous years when premiums exceeded pension payouts (because of an aging labour force, for instance). But it matters not, if the social security payout is guaranteed, whether the pension is paid out of stocks, bonds, ss premiums or government transfers. If the payment remains the same, the equivalent transfers in terms of percentage of the GDP must take place. The only question is from where?
What then is the purpose of privatizing SS. In Canada, the government went part way by investing a certain percentage of Canada Pension Plan (CPP) premiums in the stock market since the plan, since its inception has been 'partly funded', on the grounds that the rate of return in the stock market was higher than on government bonds and hence in the future there would be less need to increase premiums or transfer from government funds to cover the cost. Unfortunately, they did this just in time for the collapse of the stockmarket bubble with the result that the market-based fund lost I think it was about 20 per cent of its value -- multi-billion dollars anyway. In short, at least in the short run, partial privatization has cost the pension fund money that the government will have to make up if the fund doesn't fully recover since CPP payments are guaranteed and do not fluctuate like a US 401 account or, in Canada, an RRSP. Other than than, the administrative costs of managing the market fund are higher but, I don't believe, hugely so (as in Chile) because it is administered as a single pension fund.
So what is the plan in the US? From what I gather here, the whole ss will be privatized and that individuals will only get the market value of the resulting individual annuity on retirement. This is the equivalent of the move in the private pension system to guaranteed contributions from guaranteed benefits plus quite significant increases in administrative costs which will be deducted ultimately from pensions. Increased uncertainty and lower pensions? Hmmm, doesn't sound like a good deal for workers to me.
Paul Phillips
Max B. Sawicky wrote:
The points of vulnerability for Bush include:
Your individual account is more risky than a guaranteed benefit;
You bear the cost of annuitizing your nest egg once you retire;
You bear the administrative cost of maintaining the individual account;
If your wages are low, you end up with less compared to the present system (offset by a converse implication for those with high wages) (defining 'less' is not a trivial exercise, plus it is an appeal to losers, a classification nobody likes to be put into);
There is no money to finance the transition; if the Gov borrows, which is what it looks like will happen, it runs the risk of financial market reaction (when you ask, why not already you ask, f** if I know).
For anyone who has worked for a while and paid into the system, your benefits are threatened by the diversion of revenue (the longer you've worked, the greater the threat).
Obviously this has to be translated for popular consumption, but there is something to work with.
On the other side, once the accounts are set up with some money in them, it could be hard to halt the policy and very hard to reverse it. (expropriate the piddling little savings of tens of millions of workers?)
Bleating about the deficit resulting from the transition, or waiting for a financial crisis, is not an appealing strategy. That deficit is also a bludgeon on domestic programs.
Between this and tax reform, it's going to be a busy year for yrs truly.
mbs
-----Original Message----- From: PEN-L list [mailto:[EMAIL PROTECTED] On Behalf Of Michael Perelman Sent: Friday, November 05, 2004 12:15 PM To: [EMAIL PROTECTED] Subject: Re: Social Security
This is exactly this sort of material where this list could be useful. I wish that Dean Baker were here again to weigh in on this question.
On Fri, Nov 05, 2004 at 06:47:41AM -0600, Bill Lear wrote:
So, the lies will soon start flying about the "problems" with Social Security and how it needs to be "fixed" --- in the same way that your dog needs to be "fixed".
I would like to see discussion here on this topic, to see how we can help defend Social Security from Bush, for whom 60% of the eligible electorate did not vote.
Let's start with an outline of what Social Security is: is it a form of insurance (against an event that is close to 100% likely for most people)? Is it a straight redistribution program? Both? What is it, really and how to best explain what it is to the lay person? Why is it important? Why should we care?
Bill
-- Michael Perelman Economics Department California State University Chico, CA 95929
Tel. 530-898-5321 E-Mail michael at ecst.csuchico.edu
