Sunday, November 28, 2004

Social Insecurity

I will post Part II of Access of Evil shortly. However everyone in the blogosphere is much exercised about the following NYT article about W's plan to privatize social security. I didn't want to be left out. (Scroll down for my incredible insights.)

Bush's Social Security Plan Is Said to Require Vast Borrowing


WASHINGTON, Nov. 27 - The White House and Republicans in Congress are all but certain to embrace large-scale government borrowing to help finance President Bush's plan to create personal investment accounts in Social Security, according to administration officials, members of Congress and independent analysts.

The White House says it has made no decisions about how to pay for establishing the accounts, and among Republicans on Capitol Hill there are divergent opinions about how much borrowing would be prudent at a time when the government is running large budget deficits. Many Democrats say that the costs associated with setting up personal accounts just make Social Security's financial problems worse, and that the United States can scarcely afford to add to its rapidly growing national debt.

But proponents of Mr. Bush's effort to make investment accounts the centerpiece of an overhaul of the retirement system said there were no realistic alternatives to some increases in borrowing, a requirement the White House is beginning to acknowledge.

And so on...

The issue over how to pay for the shortfall, monumental though it is, papers over some other very serious concerns that are not being addressed in the public debate. This opens the door for the Republican counter argument: “Yes, but, the cost of doing nothing…” And so once again, the Republicans are doing something while the Democrats criticize. There was a golden opportunity right after the election when W had made some vague and undefined – in the realm of public discourse – references to something called Social Security reform. The Dems could have swooped in (try and stop yourself from imagining Nancy Pelosi swooping, I dare you) and filled the definition void with their own plan. But I digress.

Here are the problems:

As a practical matter, you couldn’t have millions of people setting up and administering there own accounts. This massive new program would need to be administered. And who, pray tell, would be doing this? Don’t be surprised if this is privatized too, thus allowing W to claim that he isn’t “increasing the size of government.” Just think of all those fat fees for the lucky firm or firms that get to administer that portfolio.

Then there’s the matter of choice. Perhaps, those with sufficiently large portfolios might be allowed to make their own choices. But the rest of us will likely have, at best, a limited menu of options. And who, pray tell, would get to decide which lucky firm or firms would get the massive investment? If you thought politics was corrupted now by big money interests, you ain’t seen nothin’ yet.

Next, the stock market holds no guarantees. Anyone allowed to make their own choices will probably treat this as found money and invest accordingly, without regard to risk. But even the retirement savings in the massive slush fund are not necessarily safe. Had social security been privatized years ago, it would be easy to imagine Enron and WorldCom being prime beneficiaries of the program. This may have kept them afloat a while longer, but not indefinitely. And what happens if some bubble bursts? Do we say to millions of retirees: Sorry, that’s life! Of course not, even if these investments are not guaranteed by the government, let’s be real, in the long run they’re guaranteed by the government.

Finally, once the deed is done, it could not be undone – no matter how disastrous an idea we latter decide it to be. Trillions of dollars cannot be yanked from the stock market at some latter date without plunging the country into a massive fiscal crisis. Even a staged withdrawal would be slow and painful.

I gotta hand it to the Republicans, it’s a gutsy move. This would be in effect a massive transfer of wealth from ordinary tax payers into the hands of huge corporations. And, one way or the other, we, the taxpayers, hold all the risks. Unfortunately, lots of people in this country like gutsy moves.

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