February 13, 2005

WHAT DIFFERENCE COULD INVESTING TRILLIONS OF DOLLARS MAKE?:

Social Security plan an ideological crusade (WILLIAM O'ROURKE, February 13, 2005, Chicago Sun-Times)

[B]ush's Social Security PR push has taken the subject out of the hands of partisans -- those like myself who support the system and those who want to end it -- and moved the debate into the less emotionally engaged scrutiny of the middle ground.

For non-passionate observers, the contradictions of Bush's plan are stark: It is hard for the privatizers to claim that returns on stock will remain historically high for decades to come, while at the same time claiming the very conservative estimates of economic growth over the same period set by Social Security experts foretell its doom. Either things go well, or they don't -- if the economy grows faster than the Social Security actuaries predict, then no shortfall is forecast, ever.


It gets harder and harder these days to separate when the Left is spectacularly ignorant from when it's just lying, but the main economic argument for the Ownership Society/Neoconomics is that if Americans started saving and investing such enormous sums of additional money it would foster even higher growth than we've enjoyed historically.

Posted by Orrin Judd at February 13, 2005 10:31 AM
Comments

Try working in finance, and watch so many who should have known (in fact, who knew better) recant. It is depressing, but yet, enlightening. The culture wars have shattered my confidence in the objective scientist and financier. Did the 90's start or just accelerate this process? How much did the Clinton's have to do with this?

Posted by: Moe from NC at February 13, 2005 11:30 AM

Returns on stock? What about the returns on gov't debt or the real returns generated within an overtaxed economy? The zero-sum economic assumptions of the left reflect a level of basic stupidity driven by ideology that never ceases to amaze. The lust for power over others seems to support just about any rationalization.

Posted by: at February 13, 2005 12:20 PM

If only we had some sort of precedent by which to judge.... What's that you say? IRAs were established by ERISA in 1974 and, as of 2000, "approximately 46.3 million taxpayers held $2.6 trillion in individual retirement arrangements (IRA’s) based on the fair market value of their plans at yearend." In 1974, the S&P500 was at about 60 and in 2000 was at about 1400, which is an average annual return over the lifetime of IRAs of about 12%.

Posted by: David Cohen at February 13, 2005 1:46 PM

I'll make it easy for you OJ; they're lying liars!

Posted by: Genecis at February 13, 2005 3:16 PM

if the economy grows faster than the Social Security actuaries predict, then no shortfall is forecast, ever.

So Mr. O'Rourke contends that economic growth would increase the revenues brought into the system (which is admittedly true) but apparently doesn't think such growth would lead to higher wages, which the payout schedule of Social Security is closely tied to.

If this guy doesn't watch out, some conservative -- perhaps me -- is going to sneak up and whack him over the head with an economics textbook.

Posted by: Matt Murphy at February 13, 2005 9:41 PM

I take it that all this discussion in the media is necessary to inform a modest, but important, part of public opinion of the concepts involved so that a consensus conclusion is reached. It will probably look something like this:

There will remain a modest benefits-defined government pension program. It will be like Social Security now, but be means tested and intended for the poor and hard up. It will be made actuarially sound by reducing overall benefits and increasing the range to which the payroll tax applies.

There will be a self-funding contributions-defined retirement plan that replaces most of Social Security for most people. Self-funding insures solvency. Investment options will be limited in order to insure that the capital contributions will be preserved in case of disaster. Probably a mix of bonds, tock index funds, and a modest growth fund.

There exists individual retirement accounts (IRA) and company contributed 401(k)'s that allow people to make more aggressive investments if they so desire. The limit to yearly contributions may be increased.

These three options will be the pillars of the US retirement system. Specific details and perhaps the ratios between the plans to be developed later.

The US public will, overall, remain just as ignorant in the future as they are now about real financial literacy. Those who are financially literate will take care of their retirement on their own as they always do.

Posted by: Chris Durnell at February 14, 2005 11:22 AM
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