Social Security "Crisis"
The Social Security system is not in crisis. This is the program that knee-jerk conservatives have loved to hate since its inception in the 1930's, and can't admit that the program is a major pillar of middle-class prosperity and social stability - two features that distinguish this great country from third-world countries. As we saw with the buildup to the war in Iraq, politicians don't have to fool all the people all the time to push through a disastrous policy - they just have to engage in enough fear-mongering to induce an avalanche of panic and whip a compliant Congress into line.
As with all insurance programs, Social Security helps allocate economic resources efficiently and encourage risk-taking: If Joe's ailing parents lose a significant amount of their private retirement savings because of poor investment returns, bad investment decisions or bad investment advice, and Joe has to support them, Joe is in no position to risk whatever money he has left over to start or make further investments in a business.
The imbalances in the system can be fixed with relatively minor policy changes, such as raising the capping level for income eligible to the Social Security tax or rescinding a portion of the Bush tax cuts, which are roughly triple the size of the anticipated shortfalls in the Social Security program.
Although the long-term investment performance of the stock and bond markets have been much higher than the returns to an individual's social security account, the stock and bond markets expose individuals to higher risk. The Bush "plan" is a scheme that subjects millions of retirees simultaneously to the vagaries of the stock and bond markets at the same time that it eliminates the insurance protection afforded by the program. The lower return is in part the price of insurance protection.
It is true that the accumulated value of a private account can be used to purchase an annuity from an insurance company to avoid the risk that a retiree outlives her savings, but much of the cost of an annuity is eaten up by expenses that a private insurance company must charge to cover its costs of doing business.
Higher returns come at higher risk, and a sinking stock or bond market will impoverish millions of retirees at the same time. Welcome to the United States of El Salvador.
As with all insurance programs, Social Security helps allocate economic resources efficiently and encourage risk-taking: If Joe's ailing parents lose a significant amount of their private retirement savings because of poor investment returns, bad investment decisions or bad investment advice, and Joe has to support them, Joe is in no position to risk whatever money he has left over to start or make further investments in a business.
The imbalances in the system can be fixed with relatively minor policy changes, such as raising the capping level for income eligible to the Social Security tax or rescinding a portion of the Bush tax cuts, which are roughly triple the size of the anticipated shortfalls in the Social Security program.
Although the long-term investment performance of the stock and bond markets have been much higher than the returns to an individual's social security account, the stock and bond markets expose individuals to higher risk. The Bush "plan" is a scheme that subjects millions of retirees simultaneously to the vagaries of the stock and bond markets at the same time that it eliminates the insurance protection afforded by the program. The lower return is in part the price of insurance protection.
It is true that the accumulated value of a private account can be used to purchase an annuity from an insurance company to avoid the risk that a retiree outlives her savings, but much of the cost of an annuity is eaten up by expenses that a private insurance company must charge to cover its costs of doing business.
Higher returns come at higher risk, and a sinking stock or bond market will impoverish millions of retirees at the same time. Welcome to the United States of El Salvador.
posted by Dave at 6:22 PM
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