rant09 Nov 2004
Some late-night rambling ranting, since I’m in the mood. Beware.
Brad Delong has a post on social security reform that starts off well enough, until he starts talking about how it might possibly be a good idea, but hey. There are some good comments in the thread, though, some interesting and some infuriating:
An interesting (long) comment from “azurite”:
You’re leaving out a few things from your assessment: the Social Security program is more than a retirement program. It also provides disability insurance with (if the WE-wage earner has paid in sufficiently) benefits to dependents as well. A wage earner must be “fully and currently insured” at the time he/she becomes disabled. A disabled adult child (became disabled prior to the age of 22) may be entitled to receive benefits based upon the wage earner’s record of a parent (see below). The dependents of a deceased wage earner may receive survivor’s benefits–dependents can include a spouse, children (including children born after the death of the wage-earner–how long after depends on state law), even grandparents (if they are taking care of a deceased WE’s child). An unmarried disabled adult child (who becomes disabled prior to age 22) may receive benefits on the record of a wage earner who is deceased or disabled or receiving retirement benefits. Thus, if you are going to talk about the possibility that any “private” plan is going to be equivalent to the current program, you would have to propose a plan that provides similar benefits to the those now provided by Social Security.
How many people currently have an equivalent disability insurance policy through his/her employer or can afford to purchase a “private one”? How much are the premiums? Will any private plan be Guaranteed to produce enough income to purchase an equivalent disability insurance policy? In addition, premiums for disability policies are sure to go up if Social Security is ‘privatized’ at all–since most of the ones I’ve seen require people receiving benefits to apply for Social Security disability benefits and pursue benefits up to at least the hearing level AND if SS disability benefits are awarded, to repay benefits paid from SS retroactive benefits. If you want a policy w/out those provisions, you pay considerably more (that’s if you’re buying a private policy, if you got a policy through an employer, you might not have that option). Some of the standardized policies pay a pretty low benefit, some do not compensate for some conditions (some exclude disability resulting from a mental disorder)and some only pay out for 3-4 years. I paid for a private policy for 3-4 years (I’m self-employed), no health problems, policy was cancelled out of the blue, no reason given. Unless Congress changes the Social Security statutes (as Bush wants Congress to do) that can’t happen with Social Security. If you are “fully and currently insured” when you become disabled, you get the disability benefit for as long as you are disabled. Not to say it’s a perfect program–as you can end up with almost nothing if you don’t have a competent attorney and also happen to get a big WC award around the onset date (date of onset of disability).
It’s important in the “privatizaion” debate to understand what’s at issue or at stake–and to take all issues into consideration. It is NOT just retirement benefits. It’s easy to see why the Bushies and their Congressional cronies/allies prefer not to discuss (or think about) ALL the benefit programs involved but I fail to see why anyone else would–so why are you, Professor DeLong, and so many other people?
Some years ago, Social Security predicted that more people would be filing for disability benefits–because the number of people who become disabled increases with age (the frequency starts increasing in the mid to late ‘40’s) and the baby boom generation is getting older. Add to that an increasing number of people unable to find and keep jobs, plus a health care system that’s better at keeping badly injured people alive (but not well or healed) and you’ve got more people filing for disability benefits. Those of the Iraqi vets who have managed to accumulate sufficient quarters of coverage (to be fully/currently insured) will probably file for disability benefits too (interesting to see who can take longest to award benefits, the VA or SSA).
It turns out that SSA’s projection was correct, more people are filing for benefits. Quite a few people, because of the length of time it may take to get benefits (may take years), or because quite a few people do not want to be “disabled”, may have very little left in the way of savings, real property, etc., by the time they are awarded benefits. Many owe relatives and friends money. Like the retirement benefit, the disability is not meant to replace one’s working income. So the average disability benefit isn’t very large. How good an idea is it to make that monthly benefit amount even smaller? And unlike money in a retirement account, the sum you’ve paid into Social Security isn’t included in bankruptcy proceedings and Social Security benefits, up to a certain amount aren’t subject to garnishment except for specific purposes (child support is one). Whereas 401(k)s, etc., are much easier to get at (by creditors, etc.). Can’t imagine the Bushies defying their corporate handlers/puppetmasters to make any “private” account as protected.
This comment was amusing:
I love economic calculus like this. 😉 I have a Republican friend (I think) who wants to privatize all of SS and when I say what about your benefits, he says he doesn’t plan on living long enough anyway to collect, thus he’s doing his part to make things cheaper for all of us.
I tell him he should die right now; hey, let’s save as much money as we can.
You have to admit, his logic is compelling. This comment questions DeLong’s logic as I would have:
Partial privatization would have been a good idea when the country was running over a $200 billion federal budget surplus back in the Clinton days. The 2004 federal deficit (about -$415b) includes the Social Security Trust Fund surplus over payments to current beneficiaries. Every dollar the government puts into private accounts reduces government tax revenue by a dollar and increases the deficit by the same amount.
Partial privatization may increase annual deficits by almost $200b. Unless there is a requirement that all the money saved in the new private accounts is used to purchase U.S. Treasuries, the federal government will need to increase borrowing from foreign lenders, leading to a higher likelihood of a dollar crash as Prof. DeLong has well documented in this forum.
As suggested in a previous posting, the only sensible way to finance is to raise the cap on payroll taxes well beyond the current $87,900 level. But this would result in a tax increase on upper-income Americans, so don’t expect this complementary idea to be seriously considered.
The truth of the matter is that Wall Street is pushing hard for partial privatization. This will increase the purchase of stocks and management fees for brokerage-managed mutual funds. As soon as we see 2% privatization, the chorus will start for a 4% privatization.
To answer a previous posting, many years ago the Supreme Court ruled that individuals who pay into Social Security have no legal right to the money that they contributed.
What boggles my mind is that, you know, if we really have a bug up our butt to “fix” this fictional crisis with social security (without employing any of the crazy, hare-brained solutions like, you know, raising taxes, or at least not cutting them), then I could maybe, maybe see an administration attempting privatization when we were running a surplus. But when we’re running a $400+bil deficit. Say wha? What is Bush gonna pay for it with, his good looks?</blockquote>
The worst comment was this one. It’s mind-numbingly stupid:
Even if the equity risk premium were zero, PARTIAL privatization might make public policy sense. Everyone’s future well-being should be “at risk” with respect to the country’s economic growth. If productivity growth remains robust and if we get our economic policies reasonably right, then we’ll all be better off than we would be otherwise. If we mess up, we’ll all be worse off than we might have been.
Wow, that’s brilliant. Let’s take this social program designed to protect the disabled and retirees from their own stupidity and the volatility of the market economy and .. tie it to the market economy. BRILLIANT! Because, you know, we don’t have any vested interest in the country’s economic growth as it is – what’s it done for me lately, anyway?! He continues:
Under the current system future social security recipients are sheltered from this risk; real payments won’t get lower. So the current system transfers the risk from future recipients to future taxpayers. Private accounts invested in equities would partially redress this inequity. The question is whether the benefit of putting future recipients at some risk is worth the transition cost.
Yes. That’s the whole point. That’s the whole point of social security. Current taxpayers pay for Current recipients. There’s an implicit debt – hence the difficulty in suddenly jerking it off the tracks into the land of privatization. Sadly that most people don’t understand this is fairly common. For anyone interested in learning more about how social security works (and about government fiscal policy in general), Krugman’s short book Fuzzy Math is pretty good in that respect. It focuses on criticizing the Bush tax plan, but in the process, gives a very good run-down of how it all works.
I’m done ranting, now.