Stock Market Vs Ss

[hblask 1]

From the government's own report at:http://www.gpoaccess.gov/usbudget/fy00/pdf/spec.pdf page 326:

These balances are available to finance future benefitpayments and other trust fund expenditures—but onlyin a bookkeeping sense. These funds are not set upto be pension funds, like the funds of private pensionplans. They do not consist of real economic assets thatcan be drawn down in the future to fund benefits. Instead,they are claims on the Treasury that, when redeemed,will have to be financed by raising taxes, borrowingfrom the public, or reducing benefits or otherexpenditures. The existence of large trust fund balances,therefore, does not, by itself, have any impacton the Government’s ability to pay benefits.

[Southern Buddhist 1]

About ten years ago, I was right in the middle of this debate, as part of a Social Security-reform focused advocacy group. I'm rusty on it, but I will throw this in:Reformers (and I was one of them) used to talk a lot about the Chilean model of privatization. A few years ago, the Chilean model turned 20 or 25 years old, and some reporters went down to see how it had done. Short answer: terribly. Nearly everyone who had taken part in the privatization wished like hell they could get out of it and into the government-guaranteed plan. The problem had mainly been that administrative fees had decimated the return, something that Cato has NEVER factored in to its gee-whiz charts. [i've sat on panels with Michael Tanner, and while I would like to explore partial privatization, I have never backed the Cato plan, which is of full privatization and a screeching halt on benefit promises made to existing workers and retirees.]Henry, you support privatization, but concede the sensible points that fees will have to be regulated, that an individual's choices will have to be limited so he doesn't put his whole retirement into a penny stock and churn madly, and that other oversight will have to occur (maybe even more so in light of the choices our banking industry has made recently). You know that what this really means is that a massive bureaucracy, indeed not much smaller than the Social Security Administration itself, would have to come into being to actually DO all this oversight over 100 million private accounts. And meanwhile the SSA would have to continue to exist to administer the existing plan to old retirees.How does this square with wanting to shrink government? Who BUT government could provide the oversight you concede must exist?I'm not playing gotcha, I'm really asking out of curiosity. I like the fact that you're one of the most genuinely thoughtful people on here.Also, since a private Social Security account invested in the stock market is really virtually indistinguishable from a 401(k), why do you advocate that, when you would almost certainly (I'm guessing) feel that if government simply ordered all employees to provide a 401(k) for their employees, to be paid for out of a portion of FICA taxes, that would be an assault on business owners' liberty? Aren't they essentially the same thing?I have had a growing conviction that partial SS, partial privatization, and personal savings adds up to layers of redundancy and bureaucracy (and redundant admin fees) that probably don't need to be there. Yet I absolutely cannot buy any attempt to make a case that Social Security as it is can just be suddenly abolished -- it simply cannot, for many, many reasons (which Cop can iterate). So it's there as a necessity. Personal savings are there as a necessity -- as The Handsome One said, no one's advocating dependence on Social Security alone. So the partial privatization is what we are discussing. You want it, and I want it, but isn't it really the same as a 401(k), only government-mandated and government-watched? How is that a good thing? Why shouldn't the government just mandate a 401(k) instead, and actually fund that mandate?

[hblask 1]

Excellent questions all, I'm glad someone wants to engage here:

Reformers (and I was one of them) used to talk a lot about the Chilean model of privatization. A few years ago, the Chilean model turned 20 or 25 years old, and some reporters went down to see how it had done. Short answer: terribly. Nearly everyone who had taken part in the privatization wished like hell they could get out of it and into the government-guaranteed plan. The problem had mainly been that administrative fees had decimated the return, something that Cato has NEVER factored in to its gee-whiz charts. [i've sat on panels with Michael Tanner, and while I would like to explore partial privatization, I have never backed the Cato plan, which is of full privatization and a screeching halt on benefit promises made to existing workers and retirees.]

Fees on index mutual funds tend to be less than 1%, and if the available funds was a competitive market, there is no reason to believe that would change. Congress can't wipe their butt without taking 20%.

Henry, you support privatization, but concede the sensible points that fees will have to be regulated, that an individual's choices will have to be limited so he doesn't put his whole retirement into a penny stock and churn madly, and that other oversight will have to occur (maybe even more so in light of the choices our banking industry has made recently). You know that what this really means is that a massive bureaucracy, indeed not much smaller than the Social Security Administration itself, would have to come into being to actually DO all this oversight over 100 million private accounts. And meanwhile the SSA would have to continue to exist to administer the existing plan to old retirees.

While I'd prefer a free system, I'm willing to put limits on it for the things you mention. Basically, it would be a system where you could only invest in index-type funds or mixed bond/index funds. There doesn't need to be tons of oversight, just a few rules on what available funds may or may not do.

How does this square with wanting to shrink government? Who BUT government could provide the oversight you concede must exist?

See above.

Also, since a private Social Security account invested in the stock market is really virtually indistinguishable from a 401(k), why do you advocate that, when you would almost certainly (I'm guessing) feel that if government simply ordered all employees to provide a 401(k) for their employees, to be paid for out of a portion of FICA taxes, that would be an assault on business owners' liberty? Aren't they essentially the same thing?

It's about moving in the right direction. If the plan was "employers must contribute to a 401K INSTEAD OF the part they put into SS", that would be a move in the right direction. IF it said it was IN ADDITION TO the part they put in SS, that's moving in the wrong direction.

So the partial privatization is what we are discussing. You want it, and I want it, but isn't it really the same as a 401(k), only government-mandated and government-watched? How is that a good thing? Why shouldn't the government just mandate a 401(k) instead, and actually fund that mandate?

Again, see above. Basically, my idea is a plan that allows people to choose between SS and mandatory 401K (with limited investment options). Each dollar you redirect to your private plan reduces your eventual payout from SS by some amount that leaving SS means *more* money left for the people who stay. That way, SS and private accounts get into a sort of competition for dollars. If you have more questions, I can explain later, but I gotta run...

[BaseJester 1]

While I'd prefer a free system, I'm willing to put limits on it for the things you mention. Basically, it would be a system where you could only invest in index-type funds or mixed bond/index funds. There doesn't need to be tons of oversight, just a few rules on what available funds may or may not do.

I fear that political corruption would influence what stocks are included in the index fund.Is anybody really under the impression that social security is anything different another 15% of tax?Is it really good policy for the Federal Government to borrow money to put into the stock market?

[hblask 1]

I fear that political corruption would influence what stocks are included in the index fund.Is anybody really under the impression that social security is anything different another 15% of tax?Is it really good policy for the Federal Government to borrow money to put into the stock market?

1:Yes, political corruption could be a problem. I think the answer is to define what qualifies as a diversified fund, and other than that keep the govt out of it. Basically, you could force them to be index funds.2:No, I don't think there are many people who believe SS is a tenable system, except people who are exceptionally stubborn and are close enough to retirement that they are worried about themselves.3: No, but they are not really doing that and the proposals to do that are DOA. At least pre-Obama they were.

[Southern Buddhist 1]

Good clarification. We're in agreement, then, that a mandated 401(k) INSTEAD OF, not in addition to, FICA taxes would be a good thing. I wasn't sure how you felt about that. I think we're both also in agreement that just mandating a 401(k) and NOT funding it would be wrong. It would amount to a forced tax increase, and as such would depress wages.I think a mandated 401(k), alone, would be so similar to all the reform plans that it would essentially be the cleanest, simplest, least redundant way to accomplish the same goals. The reform plans, I've gradually come to realize, raise a lot of questions about additional fees, oversight, political pressure on which stocks could be chosen (and I don't think anyone's really realized how nasty and intense that debate could become, what with tobacco stocks, arms makers stocks, birth control stocks, etc., all in your basic index fund), etc. Just shifting a portion of FICA taxes into your already existing 401(k) set-up, with decades of track results already behind them, would be the simplest plan. The only issue then is how to make sure people on the low end of the income spectrum, who tend to change jobs more often and could have forty jobs over a lifetime, could be helped to keep track of their accounts and make sure they all get rolled over properly. But that's a minor issue compared with all the questions raised by a completely new reform plan.

[hblask 1]

The only issue then is how to make sure people on the low end of the income spectrum, who tend to change jobs more often and could have forty jobs over a lifetime, could be helped to keep track of their accounts and make sure they all get rolled over properly. But that's a minor issue compared with all the questions raised by a completely new reform plan.

The accounts would be privately owned in your name, so maybe it's more like an IRA than a 401K, which is tied to your job. All you need to do is give your employer the name and account number of your account and they just continue where the last employer picked up. Or just create a new one, although that gets ugly quickly if you are hopping fast food jobs for a decade.I don't think any of the plans are perfect, but pretending that SS is feasible is no longer an option.