Saturday, August 21, 2010

Compare & Contrast

1) President Barack Obama, weekly radio address, August 14th:
One thing we can’t afford to do though is privatize Social Security -- an ill-conceived idea that would add trillions of dollars to our budget deficit while tying your benefits to the whims of Wall Street traders and the ups and downs of the stock market.

A few years ago, we had a debate about privatizing Social Security. And I’d have thought that debate would’ve been put to rest once and for all by the financial crisis we’ve just experienced. I’d have thought, after being reminded how quickly the stock market can tumble, after seeing the wealth people worked a lifetime to earn wiped out in a matter of days, that no one would want to place bets with Social Security on Wall Street; that everyone would understand why we need to be prudent about investing the retirement money of tens of millions of Americans.
2) Democratic Representative Chris Van Hollen of Maryland interviewed by Candy Crowley on CNN's "State of the Union," August 15th:
VAN HOLLEN: And the fact of the matter is, [Republicans] would like to send more of the Social Security money to Wall Street. That has been a position the Republicans have held for a long time. And their -- their leader, the guy who wants to become speaker...

CROWLEY: But the implication is the Republicans want to get rid of Social Security. Is that not the implication, and do you think that's true?

VAN HOLLEN: Well, yes, effectively. Because if you take -- if you partially -- if you privatize Social Security, if you privatize it, the end result will be that that money is not there. There is not a stable source of retirement money because we will be literally gambling it on Wall Street.
3) Social Security Trustee Report, pages 56-57, August 5th:
Under the intermediate assumptions, OASDI cost is projected to exceed non interest income in 2010 and 2011 due to increased benefits and reduced tax revenue as a result of the economic recession, and to an expected $25 billion downward adjustment to 2010 income that corrects for excess payroll tax revenue credited to the Trust Funds in earlier years. For 2012-14, however, non-interest income will exceed cost as the economy recovers. OASDI cash flow, excluding interest, will then become negative in 2015 due to demographic trends. Throughout the period 2010 through 2024, trust fund income, including interest income, is more than is needed to cover costs, so combined trust fund assets will continue to grow. Beginning in 2025, combined trust fund assets will diminish until assets are exhausted in 2037.
The report (at 48) states that the "annual balance is important in the analysis of the financial condition of the program." The chart on page 49 of the Trustees Report shows a negative Social Security annual balance (under the "intermediate" economic assumptions) starting in 2015 and for all years thereafter:

source: Trustees Report at 49

Finally, page 14 summarizes the Social Security "gap": "Over the infinite horizon, the shortfall (unfunded obligation) amounts to $16.1 trillion in present value."

Conclusion: I'm not saying there's no risk associated with stocks and bonds. But at least you own them--you have no right to Social Security benefits, which can be changed or eliminated by future legislation. And would you invest in a corporation that admits it will lose money within five years and run out of capital just over 20 years later? Even a mediocre stock market may be better.

Simply put, Social Security is unsustainable. So, which is more prudent? Or the Ponzi Scheme? Which is the greater gamble?

Instapundit quotes Yale law prof John Langbein saying that "if Social Security were in the private sector, everyone involved would be locked up." Some sort of privatization is essential. Some lefties are starting to see the light. What will it take for the majority to lose its belief in busted socialism?

(via Exchequer, Heritage Foundation, Power Line, John Stossel, Wolf Howling, MaxedOutMama)


Warren said...

The Bush plan to privatize SS was voluntary and would have been financed by just 4% of a worker's payroll taxes (up to $1,000).

Seniors (at the time, I believe it was those over 55) were not even eligible for the voluntary plan.

The democrats fought the plan by fear mongering the elderly who were not even eligible for privatization. The dems made it sound like all of SS would be taken from the seniors and put at risk in the stock market.

Safe treasury bonds or even CD's would outperform SS.

4% or $1,000 per year, whatever is less. Small potatoes compared to an individual's total SS package.

Bush did a lousy job selling the plan.

Geoffrey Britain said...

" What will it take for the majority to lose its belief in busted socialism?"

The whole plan going bust for some, for others nothing will ever dispel their belief in the tooth fairy. When it collapses, they'll look for someone to blame; the Republicans, the rich, business, white people, whatever is most convenient and allows them to maintain their denial. For them, it's not about figuring out what went wrong, it's about their emotional needs.

GW said...

Great explanation and roll up on this issue. What amazes me are twofold. One, that the left is still trying to demagogue this issue, and two, that the right has yet to be able to explain the facts of social security to America.

OBloodyHell said...

> admits it will lose money within five years and run out of capital just over 20 years later?

For liberals, the answer is yes. Just look at the stock for the NY Times.


As far as the general issue, for the most part, as long as you don't Enron it, your pension is GUARANTEED to make far more than the same income put into SS. The ROI on money put into SS is pitifully, woefully disgusting. Any legitimate voluntary investment organization attempted to provide that kind of returns would be under investigation as well as losing investors like palm leaves in a hurricane.

Any pension would be rationally be distributed across a wide variety of mid-to-low risk investments (mid if young, low when closer to retirement) -- presumably a number of mutual funds.

> When it collapses, they'll look for someone to blame; the Republicans, the rich, business, white people, whatever is most convenient

Indeed, and the leftmedia will be there to sell that position as the propaganda arm of the Dems.