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:: Tuesday, January 20, 2004 ::

Prognosticating Bushie's Bad Ideas

Brad Delong post a link to an article on Social Security Reform that does a good job of explaining why privatising Social Security is a very bad idea. Not that this'll stop Shrub from including it in the State of the Union.

...[T]he privatization plans can only work by imposing huge additional expenses on the federal government...

Let?s put things another way. According the SS Administration, the total deficit that the SS Trust fund is facing over the next 75 years is currently about $3.5 trillion in terms of today?s dollars (present discounted value). As it stands, that deficit will have to be made up through other government taxes. Meanwhile, the SS Administration estimates that the Graham privatization proposal will increase that deficit to $4.9 trillion. The estimate of the Ferrara plan's deficit is even bigger, at $6.9 trillion. The lesson is simple: the bigger the privatization proposal, the more expensive it is.

There?s a simple and unavoidable reason for that, by the way. Any privatized SS system requires that each individual?s own retirement benefits come out of their own contributions, unlike the system today where much of the benefits paid to retirees actually come directly from taxes paid by people who are still working. To switch to a privatized plan, today?s workers will have to pay both for current retirees? benefits and also will have to fully provide for their own future retirement. Instead of honestly forcing workers to pay for such increased costs directly through higher SS taxes, the deceptive privatization schemes effectively propose paying for it through other taxes. But the result is the same.

Privatization of Social Security has numerous other potential problems, of course, including the inherent riskiness and variability that it would add to retirement income, a reduction in the ability of the SS program to serve as a safety net, the huge transfers in resources that it will entail to a handful of investment firms, the potentially huge and poorly-understood effects that it could have on the stock and bond markets more generally, and the vast scope that it would allow for fraud and abuse.

My own opinions on Social Security are lukewarm at best, as all predictions point to Social Security becoming insolvent long before I'm elligible for them (thanks Mom and Dad!). Even so, privatising Social Security is just another one of Shrub's bad ideas.

:: The Squire 4:21 PM :: email this post :: ::


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