Posted on 01/21/2005 7:54:19 AM PST by liberallarry
id they believe they would be welcomed as liberators? Administration plans to privatize Social Security have clearly run into unexpected opposition. Even Republicans are balking; Representative Bill Thomas says that the initial Bush plan will soon be a "dead horse."
That may be overstating it, but for privatizers the worst is yet to come. If people are rightly skeptical about claims that Social Security faces an imminent crisis, just wait until they start looking closely at the supposed solution.
President Bush is like a financial adviser who tells you that at the rate you're going, you won't be able to afford retirement - but that you shouldn't do anything mundane like trying to save more. Instead, you should take out a huge loan, put the money in a mutual fund run by his friends (with management fees to be determined later) and place your faith in capital gains.
That, once you cut through all the fine phrases about an "ownership society," is how the Bush privatization plan works. Payroll taxes would be diverted into private accounts, forcing the government to borrow to replace the lost revenue. The government would make up for this borrowing by reducing future benefits; yet workers would supposedly end up better off, in spite of reduced benefits, through the returns on their accounts.
The whole scheme ignores the most basic principle of economics: there is no free lunch.
There are several ways to explain why this particular lunch isn't free, but the clearest comes from Michael Kinsley, editorial and opinion editor of The Los Angeles Times. He points out that the math of Bush-style privatization works only if you assume both that stocks are a much better investment than government bonds and that somebody out there in the private sector will nonetheless sell those private accounts lots of stocks while buying lots of government bonds.
So privatizers are in effect asserting that politicians are smart - they know that stocks are a much better investment than bonds - while private investors are stupid, and will swap their valuable stocks for much less valuable government bonds. Isn't such an assertion very peculiar coming from people who claim to trust markets?
When I ask privatizers that question, I get two responses.
One is that the diversion of revenue into private accounts doesn't have to lead to government borrowing, that the money can come from, um, someplace else. Of course, many schemes look good if you assume that they will be subsidized with large sums shipped in from an undisclosed location.
Alternatively, they point out that stocks on average were a very good investment over the last several decades. But remember the disclaimer that mutual funds are obliged to include in their ads: "past performance is no guarantee of future results."
Fifty years ago most people, remembering 1929, were afraid of the stock market. As a result, those who did buy stocks got to buy them cheap: on average, the value of a company's stock was only about 13 times that company's profits. Because stocks were cheap, they yielded high returns in dividends and capital gains.
But high returns always get competed away, once people know about them: stocks are no longer cheap. Today, the value of a typical company's stock is more than 20 times its profits. The more you pay for an asset, the lower the rate of return you can expect to earn. That's why even Jeremy Siegel, whose "Stocks for the Long Run" is often cited by those who favor stocks over bonds, has conceded that "returns on stocks over bonds won't be as large as in the past."
But a very high return on stocks over bonds is essential in privatization schemes; otherwise private accounts created with borrowed money won't earn enough to compensate for their risks. And if we take into account realistic estimates of the fees that mutual funds will charge - remember, in Britain those fees reduce workers' nest eggs by 20 to 30 percent - privatization turns into a lose-lose proposition.
Sometimes I do find myself puzzled: why don't privatizers understand that their schemes rest on the peculiar belief that there is a giant free lunch there for the taking? But then I remember what Upton Sinclair wrote: "It is difficult to get a man to understand something when his salary depends on his not understanding it."
Exactly.
If you think you can do well investing in stocks the first thing you must do is raise money to do it. Which means earn money beyond your living expenses and tax obligations - including social security. Or talk others into giving you the money.
If you can't do that then your chances of being able to deal successfully with the glorified Encyclopedia Britannica salesmen who peddle stocks (stock touts, Grubmans) are ZERO. Social Security is the best you can do. THE BEST.
Get a job larry
The "privatization" of SS is making a grab for "a giant free lunch"?
This guy is a complete idiot. He can't even understand the irony of his argument.
Ha! Nice one.
Your advice makes about as much sense as the rest of your posts.
Just goes to show us that age doesn't make wisdom...If your so smart, why are you liberal?
I'm a classical liberal, a Teddy Roosevelt liberal...as you would know if you'd taken the trouble to read my previous posts. I chose my screenname to provoke guys like you, to see what you really thought, and how you argued your positions.
To learn, in other words.
Well said! From what I've seen, liberals seem to prefer that scenario.
That's a good idea...if you can convince others to agree with your definition of useless. In my book that certainly does NOT include social security.
Then do the math on SS.
What is the average ROI on SS? About .9%.
What could I expect out of a one year CD? 2.7% (at my credit union, your mileage may vary.)
Government big spenders can easily get their hands on my SS.
They have a more difficult time getting their grubby mitts on my CDs.
For someone who "worked" 40 years, you haven't learned much. Sorry...
Get life, Larry. You are the poster child for the nanny state.
SS has not provided a "safety net". What it has done is make millions of people believe they had a seperate account that they could draw money from. This is a lie and a lie that prevented most from investing in other retirement accounts.(not all employers provide the oportunity to sign up for programs such as 401K). SS is a giant pyramid scheme that is failing because the base of the pyramid is getting smaller, not larger. If we had had privitization from the start of this terrible socialist blunder, people would be receiving a lot more from their SS "real" accounts than they are now. This system has to go. As far as wall street, if I had put the money into wall street that the Gov ripped away from me in SS funds to pay someone else, I would be much better off than I am today!!
Social Security is a safety net - meaning one trades ROI for guaranteed return. If you think you can do better by all means do so. But history teaches that many - or most - cannot and that it is in society's interest to provide them with some sort of dignity in old age. Every citizen is required to participate in providing that dignity.
I'm sorry to hear you don't want to. Too bad.
If you are too stupid or lazy to save and grow a retirement account that is your problem. Don't shove your problems off on to everyone else. The average person is capable of saving and retiring with an income, they are not as stupid and helpless as liberals dumbsh**s such as yourself would have us believe. If you think the human race is so pitiful that the government has to take care of them, then maybe you should just jump off a cliff and end it now. I, for one, do not want the government taking care of me, I don't want them in my life at all if I can help it. Get real. You know you are full of Sh** and that your arguments have been proven false all over the world. Not one socialist state has survived and thrived. The ones still going are failing and will eventually collaspe. Socialism only works if your propulation continues to grow and then it doesn't work well. Population numbers are falling over most of the world and this is having a devastating effect on socialism, which wasn't that great to start with. Keep it for yourself liberal, I don't want to give my money to the government so they can give it to you!
What it has done is provide millions of people with a reasonable monthly income during retirement.
SS is a giant pyramid scheme that is failing because the base of the pyramid is getting smaller, not larger.
All insurance plans are pyramid schemes. If the base is getting smaller increase it by raising the retirement age, not by making the entire pyramid smaller.
If we had had privitization from the start of this terrible socialist blunder, people would be receiving a lot more from their SS "real" accounts than they are now.
What are you talking about? Do you really think that companies just sit around with your investments? They use it to try to make money. Often they fail.
As far as wall street, if I had put the money into wall street that the Gov ripped away from me in SS funds to pay someone else, I would be much better off than I am today!!
That's moronic.
You arrive at that conclusion by looking at the average ROI during a period that supports your contention. What if you'd been one of the losers (there were, and are, millions and millions of these)?
Tell you what, lets say the government approaches this from a variety of angles.
Quit funding Amtrak, if there is a demand for passenger trains, someone will happily invest their money to make more money than they invested.
Savings: $1.2 billion (and BTW, they are still failing and want MORE money)
Gak, just got a call from the school and gotta go get pukey kid. I'd like to continue later though, larry.
I'll be back.
The government takes care of you constantly, dumbsh**s. That's what police and armies are for. What you really mean is that you're too stupid to know it and too selfish to want to provide for those less fortunate than you.
You know you are full of Sh** and that your arguments have been proven false all over the world
Ever single modern state has a social safety net including a form of guaranteed income during retirement. No advanced society has survived which didn't provide one.
Socialism only works if your propulation continues to grow and then it doesn't work well.
Oh yeah? Can you imagine capitalism without growth? It would collapse in two seconds. You have no brains at all.
Everyone recognizes this but do you think it's easy to achieve? HAH!! No one wants to give up their power, prerogatives, or jobs. It takes bankruptcy, or near bankruptcy, to force them to do so.
Multiply this by a thousand or a million when one considers national issues. That's the world we live in.
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