Bush's new math

There are many impeachable offences, but being a fool is not among them.

No, but Krugman should be impeached anyway.

JW, For what crime should Krugman be impeached?

Of course, that is merely my opinion.

According to this morning's newspaper article, Bush is gonna have trouble pushing his agenda on revising the social security system during his second term, cause there ain't no money to back it up without increasing the national debt.

Privatize social security, anyone?
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Buying Into Failure
December 17, 2004
By PAUL KRUGMAN

As the Bush administration tries to persuade America to
convert Social Security into a giant 401(k), we can learn a
lot from other countries that have already gone down that
road.

Information about other countries' experience with
privatization isn't hard to find. For example, the Century
Foundation, at www.tcf.org, provides a wide range of links.


Yet, aside from giving the Cato Institute and other
organizations promoting Social Security privatization the
space to present upbeat tales from Chile, the U.S. news
media have provided their readers and viewers with little
information about international experience. In particular,
the public hasn't been let in on two open secrets:

Privatization dissipates a large fraction of workers'
contributions on fees to investment companies.

It leaves many retirees in poverty.

Decades of
conservative marketing have convinced Americans that
government programs always create bloated bureaucracies,
while the private sector is always lean and efficient. But
when it comes to retirement security, the opposite is true.
More than 99 percent of Social Security's revenues go
toward benefits, and less than 1 percent for overhead. In
Chile's system, management fees are around 20 times as
high. And that's a typical number for privatized systems.

These fees cut sharply into the returns individuals can
expect on their accounts. In Britain, which has had a
privatized system since the days of Margaret Thatcher,
alarm over the large fees charged by some investment
companies eventually led government regulators to impose a
"charge cap." Even so, fees continue to take a large bite
out of British retirement savings.

A reasonable prediction for the real rate of return on
personal accounts in the U.S. is 4 percent or less. If we
introduce a system with British-level management fees, net
returns to workers will be reduced by more than a quarter.
Add in deep cuts in guaranteed benefits and a big increase
in risk, and we're looking at a "reform" that hurts
everyone except the investment industry.

Advocates insist that a privatized U.S. system can keep
expenses much lower. It's true that costs will be low if
investments are restricted to low-overhead index funds -
that is, if government officials, not individuals, make the
investment decisions. But if that's how the system works,
the suggestions that workers will have control over their
own money - two years ago, Cato renamed its Project on
Social Security Privatization by replacing "privatization"
with "choice" - are false advertising.

And if there are rules restricting workers to low-expense
investments, investment industry lobbyists will try to get
those rules overturned.

For the record, I don't think giving financial corporations
a huge windfall is the main motive for privatization; it's
mostly an ideological thing. But that windfall is a major
reason Wall Street wants privatization, and everyone else
should be very suspicious.

Then there's the issue of poverty among the elderly.


Privatizers who laud the Chilean system never mention that
it has yet to deliver on its promise to reduce government
spending. More than 20 years after the system was created,
the government is still pouring in money. Why? Because, as
a Federal Reserve study puts it, the Chilean government
must "provide subsidies for workers failing to accumulate
enough capital to provide a minimum pension." In other
words, privatization would have condemned many retirees to
dire poverty, and the government stepped back in to save
them.

The same thing is happening in Britain. Its Pensions
Commission warns that those who think Mrs. Thatcher's
privatization solved the pension problem are living in a
"fool's paradise." A lot of additional government spending
will be required to avoid the return of widespread poverty
among the elderly - a problem that Britain, like the U.S.,
thought it had solved.

Britain's experience is directly relevant to the Bush
administration's plans. If current hints are an indication,
the final plan will probably claim to save money in the
future by reducing guaranteed Social Security benefits.
These savings will be an illusion: 20 years from now, an
American version of Britain's commission will warn that big
additional government spending is needed to avert a looming
surge in poverty among retirees.

So the Bush administration wants to scrap a retirement
system that works, and can be made financially sound for
generations to come with modest reforms. Instead, it wants
to buy into failure, emulating systems that, when tried
elsewhere, have neither saved money nor protected the
elderly from poverty.

E-mail: [email protected]

http://www.nytimes.com/2004/12/17/opinion/17krugman.html?ex=1104289267&ei=1&en=39e03c28ab4f010d

Copyright 2004 The New York Times Company

G.O.P. Divided as Bush Views Social Security
By RICHARD W. STEVENSON

Published: January 6, 2005


WASHINGTON, Jan. 5 - As he begins deciding on details of his plan to add personal investment accounts to Social Security, President Bush is confronting a deep split within his own party over how to proceed.

Two Republican camps are pitted against each other over how big the accounts should be and whether the president should embrace cuts in benefits.

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Mr. Bush intends to step up his involvement in the issue in coming days. He is meeting with Republican leaders at the White House on Thursday and giving a speech next week.

In addition, he is dispatching his Treasury secretary, John W. Snow, to New York to reassure Wall Street that his approach, which could involve trillions of dollars in new government borrowing, is consistent with efforts to reduce the budget deficit and improve the nation's financial condition.

But even as groups opposed to Mr. Bush's call for personal accounts intensify their efforts, the White House is still trying to develop a plan that can hold Republicans together while attracting at least a handful of Democrats in Congress, say administration officials, conservative activists, members of Congress and economists.

The main issues, they said, are whether Mr. Bush should back a proposal to reduce substantially the guaranteed government retirement benefit through a change in the way the benefit is calculated, and whether workers should be allowed to contribute all of their Social Security payroll taxes into their accounts or only a part.

The indications so far, they said, are that Mr. Bush will stick with his inclination to reduce scheduled benefits to assure the retirement system's long-term solvency, and that he will back smaller accounts than many of his supporters would like. But to bridge the gap between the sides in the debate, they said, the administration is considering several proposals, including phasing in increases in the size of the accounts over many years or allowing lower-income workers to invest a higher proportion of their wages in private accounts than upper-income people would be permitted to invest.

One group of Republicans is pressing the administration to make the accounts as big as possible, preferably permitting the investment of all or nearly all of the 6.2 percent levy on wages that individuals contribute to Social Security. (Under all proposals, employers would continue to pay an additional 6.2 percent tax on each employee's wages up to a wage cap that this year is $90,000.)

Many of the same Republicans have also come out forcefully against a proposal to deal with Social Security's long-term financial problems by reducing the part of future retirement benefits that would come from the government.

Their approach is embodied in legislation introduced in Congress by Senator John E. Sununu, Republican of New Hampshire, and Representative Paul D. Ryan, Republican of Wisconsin. Their plan would allow investment of 6 percent of the wages subject to the payroll tax and would not mandate across-the-board reductions in scheduled benefits.

That approach is viewed warily by many other Republicans. Those Republicans say that diverting money that would otherwise go to pay benefits into the private accounts would lead to a sharp spike in the budget deficit in the short run. They say the approach would also raise what they say is a false expectation that Social Security's problems can be addressed without any painful steps.

But the approach has been embraced by some other high-profile Republicans, who say it would be a bold move to harness the power of markets to address social and economic issues and would in the long run leave the nation in much stronger financial condition.

"The president should go for a very large account because it's going to take exactly the same amount of energy to get a large account as a small one, and you get a dramatically bigger reward with a large account," said Newt Gingrich, a Republican and former House speaker. "And anything that changes benefits on an involuntary basis will allow the Democrats, the AARP and the unions to beat our brains in. It isn't politically doable."