Avoiding Disaster (Social Security)

Investor's Business Daily ^ | August 31, 2004

[MikeJ75]

Economy: Alan Greenspan used unusually blunt words to warn again last week that the U.S. is headed for a fiscal train wreck unless it fixes Social Security. Unfortunately, only one political party seems to be listening.

Why is Greenspan sounding off? As Fed chief, he has broad responsibility for the health of the nation's banking system and economy. And as head of the National Commission on Social Security Reform from 1981 to 1983, he also has more credibility than most.

He's alarmed because he understands the math. The over-65 population is growing fast. The average worker now pays 12.4% of his salary to fund Social Security. But starting in 2018, that won't be enough. That means benefit cuts, tax hikes or both.

These trends are really beyond dispute, as any honest economist or actuary will tell you.

Yet here's what Democratic candidate John Kerry said during the Democratic National Convention in July: "As president, I will not privatize Social Security. I will not cut benefits."

In an election year, such a statement should properly be taken with a grain of salt.

But if it represents Kerry's ideas on Social Security, it's scary. In effect, Kerry says he'll do nothing — just let the disaster happen. And make no mistake, it will be a disaster, because inaction would lead to massive tax hikes on the next generation of workers.

Massive, we say, because the total amount of the deficit (see chart) will keep growing, forcing taxes ever upward. By 2070 or so, the total Social Security and Medicare deficit will be 5.5% of that year's GDP — an estimated $11 trillion. That's quite a tax hit.

When President Bush speaks at the Republican Convention in New York Thursday, he's expected to outline plans for an "ownership society" — one that we hope includes at least partial privatization of Social Security.

That, in our opinion, is the only way to avoid catastrophe. It would ease the current pressure on the system from retiring boomers and give today's workers a chance to build private wealth and an independent income.

You'd think that Kerry, for all his frequent and pointed criticisms of U.S. budget deficits, would be able to recognize reality when it comes to Social Security. That he can't is both disappointing and unnerving.

We expect better from Bush.

[Uncle Vlad]

Anything less than total privatization is not enough. Social Security is one of the biggest frauds ever perpetrated on the American public. If someone in the private sector tried to perpetrate such a farce, it would rightly be labeled as a pyramid scheme, and the perpetrator would be sent to prison.

[gunnygail]

We need to dump this PONZI Scheme NOW!

It is as big a fraud as KERRY!

[MikeJ75]

I believe it will never be reformed until we have total budgetary implosion thirty years from now. There's no political willpower. Worse, the average voter is both wildly ignorant about the issue and also absolutely self-centered and selfish about the question. One can't blame the politicians for fearing the idiot rabble.

I think that's one of the best summaries I've read. You said it much better than I could have.

[uncbob]

Economy: Alan Greenspan used unusually blunt words to warn again last week that the U.S. is headed for a fiscal train wreck unless it fixes Social Security.

I got news for Allen ALL pension plans are headed for a train wreck

They ALL depend on an expanding population and on the fact people don't live as long during retirement years
The demographics have changed

HINT
you have IRAs invested in the market
What happens when there are too many trying to sell( cause all you have is a piece of paper saying you own such and such) to get $$$ to live on while retired and not ENOUGH buying

[OldFriend]

Kerry immediately issued a statement disagreeing with Greenspan about his warnings on Social Security.

It was such a stupid and uninformed statement that the media ignored it completely.

They are doing all they can to hide the jackass from the country.

[neutrino]

Precisely!

Demographics is destiny. Privitization cannot succeed; neither can the present system of transfer payments.

There are only two solutions. Either (1) cut payments, or (2) increase retirement age substantially.

Neither will happen.

[Red Boots]

I believe it will never be reformed until we have total budgetary implosion thirty years from now. There's no political willpower. Worse, the average voter is both wildly ignorant about the issue and also absolutely self-centered and selfish about the question. One can't blame the politicians for fearing the idiot rabble.

Well said. I'd change just one word: wildly. I'd change it to: willfully

I cannot believe how many fellow baby boomers just absolutely refuse to see beyond, "I paid in all these years, and I want MY money", as if somehow, just demanding it will make it happen. It's not wild ignorance, it's willfull refusal to face facts.

[Wolfie]

I got news for Allen ALL pension plans are headed for a train wreck.

Yep. And the taxpayers will be left holding the bag.

[uncbob]

There are only two solutions. Either (1) cut payments, or (2) increase retirement age substantially.

There are two is right

1. Put your $$$ in a mattress
2. Live with the kids

[Extremely Extreme Extremist]

Best way to dismantle Socialist Security? Let workers voluntarily opt out of the system and give them a lump sum payment of one-third of what they put into the system.

[tnlibertarian]

ping

[No-Compromise Conservative]

Voluntarily? No, it should be MANDATORY. It should be divided among age groups the amount of lump sum payment a worker shall receive.

65 and over: 75% of what they put into the system
50-64: 50% of the amount
35-49: 25%
18-34: 0% (They're not going to see that money anyway)

[redgolum]

In the coming generations, how many have kids to live with?

Basically, I will be working till the day I die. Retirement is a myth that I do not believe in.

[Iwo Jima]

I have said for at least a decade that the only plausible solution to the enormous social security debt which will eventually exist in our lifetime is to apply the same general bankruptcy principles to the federal government as are applied to other enterprises.

The fed.gov't. has or will have debts to social security recipients which it cannot ever hope to pay under any anticipated circumstances. But it does have substantial assets. For one thing, it owns 1/3 of all the real estate in the United States.

The fed. gov't. should:

1. Inventory all of its assets.

2. Do an appraisal of its assets (assess a value).

3. Itemize all of its debts.

4. Assign a value to its debts.

5. Prioritize its assets in order of what is necessary to conduct its essential functions.

6. Prioritize its debts in order of which classes have a greater entitlement to repayment.

7. Dispose of non-essential assets.

8. Pay off higher priority claims - 100 cents on the dollar if possible but otherwise as close as can be done.

9. Pay off lower priority claims at a lesser rate or declare them defaulted upon and discharged in bankruptcy.

Any bankruptcy lawyers out there could expound upon the recognized bankruptcy process and how it might be applied to an admittedly bankrupt federal government.

Embarking down this road will require a recognition that the government has debts -- social security payments -- which it cannot hope to pay. Either cutting payments or raising retirement rates (same thing) or increasing taxes is not an option. There is only so much blood in the turnip.

However problematical applying bankruptcy principles to this situation might be, it is far preferable to the only other likely outcome: intergenerational warfare.

How much am I bid for the Grand Canyon?

[Red Boots]

Do you remember John Stossel on 20/20 explaining to an elderly gent about ten years ago that he (the old man) had put in for 3 years worth of social security but had received 17 years worth? Stossel asked whether the man thought it was fair, especially to his grandchildren, to receive much more than he had put in. The old man grew indignent and exclaimed, "That's my social security. I earned it."

I do remember that actually, and I used that agrument on my in-laws. They said the same thing.

[television is just wrong]

So why does he want to give illegal aliens social security benefits?

[sphinx]

There's no political willpower.

If put to a vote tomorrow, 80% (my guesstimate) of the Republicans in the House and Senate would damn the torpedoes and forthrightly support privatization. Unfortunately, there would be no more than a scattering of Democrats.

There is probably additional hidden support from the finger-in-the-wind types on both sides of the aisle. If it became apparent we had the votes to pass reform, the margins could be substantial. But to win it, we need 60 votes in the Senate. This is a Nixon going to China issue. We need a prominent Democrat to break the deadlock. Whether one emerges is a make-or-break question.

Is there any national Democrat who is willing to put the clear national interest over narrow, short term partisanship? One would think intelligent Democrats, especially the younger ones who will be around in a dozen years when the reckoning comes, must be pondering the question. If, that is, there are any honest ones left.