Thursday, February 17, 2005

Social Insecurity

The Social Security Crisis is classic Bush Administration:

Establish your goal: Preservation of Republicans in power in perpetuity. Is the date predicted for the insolvency of Social Security a surprise? Hardly. Note that it won’t run out in the lifetime of any current 50+ Bush voters, oh no – can’t have that. How convenient to have it run out just about the time the young (oh, say 20 year olds), who mostly don’t vote, will be retiring. Republicans live off the votes of the old. When the young vote at all, they pretty much don’t vote Republican. If you are looking to ensure the future of the Republican party (and make no mistake the Republicans have been extremely effective and organized in building up their base and policy platforms) you need to find a way to bring the young into the Republican fold. A nice fat bribe would work.

Create the Crisis: Take a perfectly good, solvent benefit that everyone loves. Make draconian assumptions as to the performance of the US economy over the next 40 years (why 40 – see above) in order to show that this benefit will run out (Note: make assumptions required to get the desired outcome, even if they are completely contrary to the assumptions used, for example, to justify tax cuts or pass prescription drug benefits). These assumptions will crop up again later. Let’s be clear: social security is perfectly solvent: the funding issues were dealt with in the 80’s. The Trust Fund currently takes surpluses (yes surpluses – even Bush can’t invoke a crisis today) that will fund the shortages when the Boomers retire en masse. Of course, I don’t know about you, but the last time I checked, economists, never mind the Government, can’t predict what will happen next month (look out – here comes the next Iraq appropriation!) never mind 40 years from now. A funding crisis in 40 years?! Gimme a break; worry about the debt we have today.

The Bribe: Point to the crisis you invented and tell the 20 years olds that the Government will blow their money. Brilliant – who’s going to question THAT argument?! After paying into the system for their entire lives they won’t see a nickel of that money. Then offer the bribe: KEEP your money. Don’t give it to the Government, invest it yourself. Join the “Ownership Society”. Hmmm… money in pocket today or maybe nothing 40 years later. Well that’s a no-brainer isn’t it? Especially to a 20 year old. Somebody who didn’t lose their shirt in the Tech Wreck.

Spin like a Whirling Dervish: Social Security is a pay-as-you-go system. People working today, through payroll taxes, fund the benefits of today’s retired. The excess, and there is a lot of that these days, goes into a Trust Fund that will be used to make up any shortfall in the future should the number of retirees (more correctly the dollar value of benefits to) exceed the number of workers (dollar value of tax receipts). The Bush Bribe causes several really, really big problems. First and foremost is how to pay for it. Being Republicans, and therefore having no idea that money does not, in fact, grow on trees, there is NO PLAN for how to pay for the Bribe. Allowing workers to take a portion of their Social Security payroll taxes out of the system simply castrates the pay-as-you-go system. It takes money from current retirees, and the Trust, and gives it to people to blow in the stock or bond markets. It is, in fact, a self-fulfilling prophecy: the Bush plan creates the very conditions required to ensure the insolvency of Social Security (in the short term, mind you, not 40 years from now). This is the so-called “funding gap”. But this is a detail. After all it is entirely plausible that the elimination of Social Security is exactly the outcome the Republicans desire. There are actually several big problems the Administration must be concerned with:

(1) Where will the money come from? The Bush Administration insists that they will not increase taxes or reduce current or future benefits. Response: Drum roll please… “That is a Detail. I just make the proposals. It’s up to Congress to figure out how to make it happen”. Well I suppose it’s as good an answer as any. It IS a Republican Congress after all… see previous comment about money growing on trees.
(2) Retirees, a majority of whom voted for Bush, are screwed. Unless additional income is found, benefits will de facto decrease. Response: Raise taxes. You say “But wait! Bush said no increase in taxes!”. He did, and still does. But just this week Bush allowed that he might consider raising the $90k income cap on payroll taxes. Note: Retirees don’t pay payroll taxes. Read my lips: No new taxes.
(3) The young will blow their retirement money speculating in Harkin Energy stock. Response: the Government will create tightly controlled investment options specifically for these investments. Huh?! So let me get this straight: we’ll take some payroll tax money, say the amount that currently goes into the Trust Fund, which is invested in T-Bills, and invest it in… T-Bills?! I bet you thought that “Ownership Society” meant owning corporate stocks or real estate or something, not… US Government debt.

And finally, back to the initial assumptions. What happens if you use the same economic assumptions that create the Social Security crisis in 40 years, but this time assume that people have the private accounts that the Bush Administration wants to implement? Surprise! Those investments under perform, for the same reasons the Social Security Trust Fund gets used up, and retirees end up living in poverty. Conversely, if you make assumptions that ensure that the private accounts perform well, the Social Security insolvency vanishes in a puff of economic prognostication.

So WHY, you ask? I have three hypotheses. It’s kind of fun to think these up, add ‘em to the comments if you like:
(1) Republicans WANT to kill Social Security, presumably replacing it with a faith-based retirement.
(2) As suggested above – buying young voters today using a crisis tomorrow as bait.
(3) It’s all just a big, colorful, noisy diversion. Not from Iraq; that’s even bigger and noisier, but from something else that they are slipping past us while we are all looking at the fireworks.
(4) Fees. It would be such a crime that all this was about fund management fees. The Social Security Trust Fund fees are currently 0.06% of assets. The Bush fund fees will be 0.3%. Not bad you say. But it’s just a bond fund. And 0.3% of a trillion dollars is 3 BILLION dollars a year. That’s a LOT of money to pay a guy to buy T-Bills.

For the rather scary details on the Bush plan: Note especially the somewhat buried comments on the fees this fund will incur.
The warm and fuzzy official SSA FAQ site is: