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guy44 · 12-16-2004, 11:05 AM

I'm going to let two men, Josh Marshall and Michael Kinsley, who are much smarter than I, explain why A) There is no Social Security crisis, and B) Bush's plan is beyond awful:

First, Marshall on the SS "crisis:"

http://www.talkingpointsmemo.com/arc..._12.php#004236

Quote:

As Paul Krugman, Kevin Drum and many others have been making clear in recent days, the entirety of the president's argument is based on a series of well-constructed lies. The president's advisors were never more truthful than they were when they compared the coming round of disinformation and fear-mongering to their public campaign in support of the Iraq war in 2002.

The Social Security "crisis" is manufactured; there is no crisis. To the extent there are long-term financing problems, the president's plan will gravely worsen them. The problem we face isn't over Social Security, which continues to run up huge surpluses (just as it was intended to under the early-80s reform), but that our non-Social Security budget continues to run massive structural deficits. Or rather, it has returned to running massive structural deficits after getting into the black in the late 1990s through the combined exertions of a Democratic president and a Republican congress. Social Security isn't the problem, but rather George W. Bush's reckless fiscal policy.

In any case, as I say, the whole thing is lies. This isn't about the program's problems but about its success. That's why the president and his allies want to phase it out. It's not about financing but about ideology.

Secondly, Kinsley explains why Bush's plan is stupid at best:

http://www.talkingpointsmemo.com/arc..._12.php#004237

Quote:

My contention: Social Security privatization is not just unlikely to succeed, for various reasons that are subject to discussion. It is mathematically certain to fail. Discussion is pointless.

The usual case against privatization is that (1) millions of inexperienced investors may end up worse off, and (2) stocks don't necessarily do better than bonds over the long-run, as proponents assume.But privatization won't work for a better reason: it can't possibly work, even in theory. The logic is not very complicated.

1. To "work," privatization must generate more money for retirees than current arrangements. This bonus is supposed to be extra money in retirees' pockets and/or it is supposed to make up for a reduction in promised benefits, thus helping to close the looming revenue gap.

2. Where does this bonus come from? There are only two possibilities: from greater economic growth, or from other people.

3. Greater economic growth requires either more capital to invest, or smarter investment of the same amount of capital. Privatization will not lead to either of these.

a) If nothing else in the federal budget changes, every dollar deflected from the federal treasury into private social security accounts must be replaced by a dollar that the government raises in private markets. So the total pool of capital available for private investment remains the same. b) The only change in decision-making about capital investment is that the decisions about some fraction of the capital stock will be made by people with little or no financial experience. Maybe this will not be the disaster that some critics predict. But there is no reason to think that it will actually increase the overall return on capital.

4. If the economy doesn't produce more than it otherwise would, the Social Security privatization bonus must come from other investors, in the form of a lower return.

a) This is in fact the implicit assumption behind the notion of putting Social Security money into stocks, instead of government bonds, because stocks have a better long-term return. The bonus will come from those saps who sell the stocks and buy the bonds.

b) In other words, privatization means betting the nation's most important social program on a theory that cannot be true unless many people are convinced that it's false.

c) Even if the theory is true, initially, privatization will make it false. The money newly available for private investment will bid up the price of (and thus lower the return on) stocks, while the government will need to raise the interest on bonds in order to attract replacement money.

d) In short, there is no way other investors can be tricked or induced into financing a higher return on Social Security.

5. If the privatization bonus cannot come from the existing economy, and cannot come from growth, it cannot exist. And therefore, privatization cannot work.

Q.E.D.