Left, Right, Social Security

Why Are Democrats Intent on Alienating Young Workers?
James Lileks
Newhouse News Servic
http://www.newhousenews.com/archive/lileks120804.html

Borrow, Speculate and Hope
Paul Krugman
http://www.nytimes.com/2004/12/10/opinion/10krugman.html

Why the Left Should Favor Social Security Privatization (and the Right Should Oppose It)
Arnold Kling
http://www.techcentralstation.com/121004A.html

Wall St Group Says Social Security Reform No Feast
Herbert Lash
http://www.reuters.com/newsArticle.jhtml?type=reutersEdge&storyID=7045258

Another right-wing rant from the Newhouse Network…

Everyone knows the system will explode in a shower of shredded promissory notes at some point. Every year the drop-dead date gets massaged and moved around, but you have a great number of people who read the new Projected Year of Doom, run the numbers in their head, and think: Well, I’ll be dead.

… except, Paul Krugman agrees

First, financial markets would, correctly, treat the reality of huge deficits today as a much more important indicator of the government’s fiscal health than the mere promise that government could save money by cutting benefits in the distant future.

After all, a government bond is a legally binding promise to pay, while a benefits formula that supposedly cuts costs 40 years from now is nothing more than a suggestion to future Congresses. Social Security rules aren’t immutable…

But then again, Krugman might not be too reliable…

Second, a system of personal accounts, even though it would mainly be an indirect way for the government to speculate in the stock market, would pay huge brokerage fees. Of course, from Wall Street’s point of view that’s a benefit, not a cost.

v. the “right wingers” at Reuters

NEW YORK (Reuters) – Plans to reform the U.S. Social Security system by allowing people to invest in stocks are unlikely to result in a feast for Wall Street if a retirement plan for federal workers is copied, a report on Thursday said.

If investment choices are limited to a small selection of index funds along the lines of the Thrift Savings Plan, those accounts will generate a modest $39 billion in fees over the first 75 years, the Securities Industry Association said in a report.

That represents just 1.2 percent of estimated revenue for the entire financial sector during that span of time, said Rob Mills, director of industry research at SIA, in the report.

Perhaps a compromise from Tech Central Station?

To be fair, Krugman and other economists on the Left would like to see Social Security paid for in part by “general revenues,” meaning income taxes. If that were done, it would serve to reduce the regressivity of Social Security.

However, there is one important difference between keeping Social Security as it is and switching to privatization. Under the current system, Social Security’s liabilities will continue to be funded by payroll taxes. However, under privatization, the transitional debt would be repaid using — guess what? General revenues! In other words, privatization is a vehicle for changing Social Security’s medium-term funding mechanism from payroll taxes to income taxes. It is exactly what the Left presumably wants, and what the Right presumably opposes.

Creating private accounts for social securities allows young workers to actually receive their benefits, protects older workers, and gives us a much more stable pension system. Nations and corporations with “defined benefit” systems, such as France, Russia, and the dying steel mills, are in terrible shape. I’m thankful we have a Ppresident like George W. Bush who is willing to take risks to give us a better way.

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