Bush's plan to turn America into an ownership society

How can a people without a habit of thrift save for their own retirement?

If social security is privatized, there will be no money for retirement.

Furthermore, one of the reasons why social security was created in the 1930s as part of the second new deal is that too few companies offered pension plans. . . and people in the early part of the 20th C had a tradition of thrift. Rolling Eyes

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It's crazy to assume that people who have never invested for themselves will somehow do a good job of it if SS allows them to do so.

SS should be there as a safe and secure component of people's retirement. No the whole thing, but something guaranteed. People with the wherewithal can always invest for themselves, too--and accept the risk.

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Bah.

The real point of Bush's 'ownership society' is to increase profits for the rich at the expense of the poor.

His privitization of Social security does just that.

Cycloptichorn

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Quote:

SS should be there as a safe and secure component of people's retirement. No the whole thing, but something guaranteed.

My understanding is that privitization would be voluntary, and would cover only a portion of social security.

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I still don't like the idea. I'm convinced that some people will opt for whatever privatization offers, never realized the risk involved. That's just human nature. Should the gov't be facilitating this?

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D'artagnan- My pension is nothing to talk about, and my husband has none, because he was self employed. We always believed in living under our income. (Actually, I didn't believe in it in the beginning, but my husband straightened me out on that issue ).

Anyhow, little by little, over the years, we have invested the money that we did not spend. At first, we took other people's advice, and found that it was not profitable. We then used our own brains and resources, and chose the investments that we thought would meet our needs. We are not traders, but bought for the long haul.

A few years ago, the market tanked, and we lost a lot, but we were still ahead of the game, and had all those nice dividends coming in. Now the market has recovered, and we are doing very nicely. We collect a nice chunk of change, at a much higher rate than what is doled out by social security.

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Phoenix, I'm not saying one can't do better than SS. Of course we can. But we can do worse, too. I'm doing more or less what you and your husband have done. I still like the idea of SS being there the way it is, especially if the markets tank for a few years just as I'm ready to start drawing on those market-based annuities!

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D'artagnan - I have never heard a word being said about Social Security being phased out. It just that for the more adventurous amongst us, there will be another option.

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I guess we'll just have to see how this plays out....

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Phoenix32890 wrote:

Quote:
SS should be there as a safe and secure component of people's retirement. No the whole thing, but something guaranteed.

My understanding is that privitization would be voluntary, and would cover only a portion of social security.

That was my understanding as well. If people are inexperienced investors, they don't need to devise their own investment strategy. I also don't buy that this is Bush's ploy to make the rich richer and the poor poorer. Not everything is net-zero game. Why assume as much?

As far as I'm concerned, the real question is whether it would be fiscally responsible to finance such an expensive program before getting this country's current financial situation under control. No matter the case, I can't fault Bush for trying to make something out of a program that is teetering on the edge of nothingness. Remember that Kerry presented no clear alternatives (did he present anything?).

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Phoenix32890 wrote:

D'artagnan - I have never heard a word being said about Social Security being phased out. It just that for the more adventurous amongst us, there will be another option.

And your solution for when a portion of the more adventurous tank out, and there is no doubt that some will is??

I can see losers on both ends of the investment scheme. Some will go too conservative and be eaten alive by inflation and fees. Some will go for high risk and get out at the wrong times (buy high sell low).

You are really kidding yourself if you think that the reason for the privatize plan is anything other than getting the money managers a huge new source of revenue.

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Quote:

And your solution for when a portion of the more adventurous tank out, and there is no doubt that some will is??

I can see losers on both ends of the investment scheme. Some will go too conservative and be eaten alive by inflation and fees. Some will go for high risk and get out at the wrong times (buy high sell low).

You are really kidding yourself if you think that the reason for the privatize plan is anything other than getting the money managers a huge new source of revenue.

Absolutely.

It's a variation on the same old republican theme, with new wording on it: the Gov't is too inept to properly manage your money, so let's let the market forces sort it out.

What they convienently forget is that 'market forces' are inevitably going to leave a percentage of the population eating dust, because they will lose money. Add to the fact that you will need many thousands of new businessmen to run this system, all of whom have to be paid, and you can see how this is an attempt to bolster the profit of businesses at the expense of the taxpayer.

Social Security is seriously screwed. I've been paying into it for years, and I'll never see any of it. But that doesn't mean we should just trash the system and go private like Bush wants to....

People will be starving because of this before too long, you do realize this, right? starving. Because there are a lot of adventurous, stupid people out there who are going to lose money.

And heaven forbid we have another 9/11 style attack. Can you imagine what that will do to this market?

Cycloptichorn

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It occurs to me that there was a stock market Americans could invest in when Social Security was invented. Has the market become such a safe place to invest that we can change the rules for SS?

If anyone thinks so, I have some shares of Enron I'd be willing to sell at a great price!

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I'm beginning to understand why the Congress has been so derelict (under both political parties) over the last two decades in failing to act on the clear, unambiguous evidence that our existing Social Security system is going broke, leaving us only a few alternatives to save the system. The longer we wait to implement reform, the more drastic will be the required actions. The time factor is much more important than continued debate over how to perfect te system.

When the Social Security system was enacted the life expectency of Americans was about 67. Our population was growing fast due to both high fertility and steady immigration. The result was the projected analysis showed a large steady surplus of taxpayers paying in to the system and a relatively small pool of retiree drawing money from it - and for only a short period at that. In the last two decades life expectancy has increased to 77.5 years. This represents an enormous increase in the money the average retiree will draw from the systen over his/her lifetime. Worse, our population is levelling off and, as the baby boom generation retires, the ratio of retirees drawing money from the system to the number of workers paying into it is falling fast. So we have a double hit: more retirees being supported by fewer workers, and for a much longer period of time. The result will be the rapid financial collapse of the system, at a fast, accelerating pace beginning in less than fifteen years.

There are only a few possibilities for our government in this situation. We can do some combination of the following (1) Reduce the dollar amount of benefits paid; (2) Delay the retirement age at which benefits begin; (3) Increase payroll or income taxes to make up the deficit. (4) Restructure the system to create a capital fund invested in the economy, and, in effect, use the financial reserves to generate wealth to meet future needs, either on an individual basis (as Bush has proposed), or on a collective basis.

There really are no other possibilities. It doesn't matter much if you don't happen to like or favor any of these remedies. Some combination of them must be implemented very soon or the system will collapse, and poor Montana up in Canada won't get her benefits - and you won't either.

The Republic of Chile privatized its Social Security system about 12 years ago and so far the new scheme has worked well. This idea is beng implemented in other countries as well.

France and Germany face much more immediate and catasthrophic collapses of their social systems due to even older populations, a much lower birth rate, and higher benefits in their current systems. They will fall over the cliff before we will, but that is a poor consolation.

Unfortunately the Democrats are as yet unwilling to face up to this issue, and are leaving Bush to take the heat for what must be done. Judging by the unwillingness of most posters here to face up to the facts, perhaps theirs is the "smart" political strategy. (Smart for a little while, that is).

My proposal would be to gradually delay the age at which benefits begin (to about 70 years), and develop some variant of the ownership options as proposed by Bush. This will provide tolerable options for those who wish to direct their own plans and for those who don't.

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Great post, georgeob.

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Thanks, George, for your kind mentioning of the German (and French) situation.

But the very same happens in e.g. Austria (there, they just start to think about it), Italy (the very same) and other European countries as well.
(I suppose, Germany is always mentioned, because we were the very country to have Secual Security - from 80's of 19th century onwards.)

I don't know a lot about the Chilenean system, but do prefer the Swiss one:
Swiss Secual Security. (Seems, we might head to that as well.)

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Phoenix32890 wrote:

First of all, you don't pay into SSI. That is a completely different program, designed for very poor people. You pay into SSA. And yes, you ARE entitled to it. And nobody is taking it away from you.I don't know where you got that idea.(Oh, maybe I do!)

Phoenix,

The notion that Social Security is under threat is not a farfetched one and is a concern voiced by both liberal and conservative economists (as well as the Chairman of the Federal Reserve (a straight shooting Republican economist).

http://www.foxnews.com/story/0,2933,112438,00.html

Quote:

Federal Reserve Chairman Alan Greenspan, stepping into the politically charged debate over Social Security, said Wednesday the country can't afford the benefits currently promised to the baby boom generation.

Democratic presidential candidates denounced his proposals, and President Bush and other Republicans sought to distance themselves from the Republican Greenspan.

The central bank chairman also repeated his view that Bush's tax cuts should be made permanent to bolster economic growth. He said the estimated $1 trillion cost should be paid for, preferably, with spending cuts so the deficit would not be worsened.

This is a Republican telling it like it is. He favors the tax cuts but says that spending cuts will need to be made. He accurately points to a place where said cuts may well be made (that Republican politicians distance themselves from the painful cuts doesn't say anything about their possibility).

He recommends changing the retirement age, adjusting the way inflation is calculated to lower social security payments to the baby boomers and more.

This does not consitute elimination of the social security benefits that baby boomers expected throught the time they paid into the program but it does consitute the possibility that what was promised to them will not be paid in full.

Furthermore, because Social Security is a flawed system in which the currently paying generation pays for the past generation's benefits the effect of privatizing it and making people pay toward their own retirement (something I agree with) will inevitably cause a gap and a gap that D'artagnan rightly notes nobody has proposed a viable solution for.

It's not unrealistic to worry about Social Security. It was already on shaky ground before the tax cut, spending increase obsession.

Here's more from Greenspan:

http://www.cbsnews.com/stories/2004/08/27/national/main638921.shtml

Quote:

Federal Reserve Chairman Alan Greenspan said Friday that the country will face "abrupt and painful" choices if Congress does not move quickly to trim the Social Security and Medicare benefits that have been promised to the baby boom generation.

Returning to a politically explosive issue that he has addressed a number of times this year, Greenspan said that it was wrong for the government to hold out the promise of more retirement benefits than it is capable of providing.

He said this issue was particularly critical given the impending retirement of 77 million baby boomers born in the two decades after World War II.

"As a nation, we owe it to our retirees to promise only the benefits that can be delivered," Greenspan said in opening remarks to a two-day conference sponsored by the Federal Reserve Bank of Kansas City on the challenges posed by aging populations.

"If we have promised more than our economy has the ability to deliver, as I fear we may have, we must recalibrate our public programs so that pending retirees have time to adjust through other channels," Greenspan said. "If we delay, the adjustments could be abrupt and painful."

http://www.msnbc.msn.com/id/4371103/

Quote:

That last sentence in plain English:

Alan Greenspan is saying that he thinks the only way to solve the problem is in reduction of social security benefits to the baby boomers and subsequent retirees.

This isn't a farfetched concern at all. Politicians tend to avoid it, as hammering on this bad news is really bad politics but most economists will agree that currently promised social security benefits face risk.

Changing the system from the current generation paying toward the current retirees retirement to the current generation paying for their own future retirement would create a pinch whose solution I've seen no bright ideas for from the administration.

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georgeob1 wrote:

I'm beginning to understand why the Congress has been so derelict (under both political parties) over the last two decades in failing to act on the clear, unambiguous evidence that our existing Social Security system is going broke, leaving us only a few alternatives to save the system. The longer we wait to implement reform, the more drastic will be the required actions. The time factor is much more important than continued debate over how to perfect te system.

It's not difficult to understand, as it's typical of political systems like ours.

Politicians invest their political capital on short term projects, in Brazil, come election time it was always building roads, overpasses and the like. This is usually done by borrowing the future's money and ignoring the future's benefit.

I was listening to a song today, by "Gabriel the Thinker" that said, "the future is a present that we choose ourselves". Unfortunately we allow our politicians to go for instant gratification on tomorrow's tab.

For example, education usually got the short end of the stick because the benefits are long term.

Same with problems that are looming, if they aren't going to come to bear soon, politicians will put off painful (read costly for political capital) change.

Quote:

Unfortunately the Democrats are as yet unwilling to face up to this issue, and are leaving Bush to take the heat for what must be done. Judging by the unwillingness of most posters here to face up to the facts, perhaps theirs is the "smart" political strategy. (Smart for a little while, that is).

I think your criticism is very one-sided.

Bush is exacerbating the situation with tax-cuts and record deficit. As you state, there are a handful of solutions. Some are on the "outlay" end (as Greenspan phrased it) and some are on the income end.

Democrats would generally lean toward the income end. Republicans would generally lean toward reducing the outlay end.

For the layman, cuts on the outlay are not favorable. This is why they are downplayed by those who favor them.

For the layman, tax breaks are, at the same time, pretty neat.

You can blame the Democrats, but that's about as fair as blaming them for not agreeing to do it the Republican way.

This administration's actions are tantamount to forcing the fix to come from the outlay. i.e. reducing the social security benefits.

This administration's fiscal policies made for record deficits, and this administration was very agressive in reducing the income that is needed to pay social security benefits while at the same time increasing spending on the budget items they preferred.

This administration is setting the stage for the change on the fiscal conservative's terms. This administration is ignoring the liberal cautions against tax-cuts and deficits (yes, it's ironic that liberals are giving a conservative government advice that is 50% fiscal conservative). This administration is setting the stage for the changes to need to be on the outlay end.

It's only fair that the conservatives introduce their changes themselves, as they really have teh choice in the matter by the short and curlies. And I applaud the integrity of Alan Greenspan in having the balls to tell it like it is and say that Americans may well get reduced benefits, even if Conservatives avoid saying it so clearly while their actions lead on a collision course with outlay reduction.

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Walter Hinteler wrote:

Thanks, George, for your kind mentioning of the German (and French) situation.

But the very same happens in e.g. Austria (there, they just start to think about it), Italy (the very same) and other European countries as well.
(I suppose, Germany is always mentioned, because we were the very country to have Secual Security - from 80's of 19th century onwards.)

Walter is correct. The problem is endemic to most of the developed world. The French and German problems are visible mostly because ther political leaders are making some tentative attempts to deal with the problem, and are encountering similar public resistence because of it. It will be very interesting to see what evolves there. Italy (like Brazil) seems able to magically dance on economic air - I didn't even think of them.

If I'm not mistaken Social Insurance of this kind was first introduced by Bismark, soon after the first unification. The wily old Junker was wise in many ways.

I'll read the link on the Swiss system. However the Swiss are much richer than either of us - and sometimes a bit hard to love, perhaps because of it.

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Quote:

This does not consitute elimination of the social security benefits that baby boomers expected throught the time they paid into the program but it does consitute the possibility that what was promised to them will not be paid in full.

Craven- Oh, I understand that. (It's just that you can explain it better than I do! ) And that is precisely why the privitization concept was promulgated. What I was attempting to do was allay the fears of some members who apparently thought that social security was going away completely, in favor of private retirement programs.

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Bush's plan to turn America into an ownership society

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