Social Security – Some Views, Hoisted From Comments
Yesterday I noted that there is a blog carnival on Social Security coming up, and I suggested that readers might like to to write some guest posts on the topic which I would then post and submit to the blog carnival. Even the comments to that post were very instructive – I’m going to cut and paste some pieces (and hopefully encourage commentators flesh these out into full posts):
Bruce Webb notes that the Social Security going bust theme depends on productivity being very low:
No one has explained to my satisfaction why a mid-range estimate of 2.2% Real GDP in 2013 is a good faith projection. As a possible outcome certainly but is there really a 50% chance that the economy will actually perform worse than that? Forever? In fact no one has even tried to justify this number. For one thing it makes hash out of tax cut claims.
If someone came to me and suggested that it would be very optimistic to assume that the economy in the next 45 years could match growth rates of the last 45 years and that 3.3% Real GDP should be a ceiling, 2.8% should be a midrange and 2.3% a floor I might grumble a little because all of those are low by historical standards 2007 Report: V.B2 column 4. As it is I am being told that over the fairly short term that the ceiling is 2.8%, the midrange is 2.2%, and the floor 1.6% and sinking. Well I cry bullshit, whatever happens near term no one really believes that 2.2% Real GDP number.
There are some who think all this can be finessed simply by taking SS money and investing it in “the market.” They are wrong. Certainly they have made no case that does not depend on the illusion that what you can do with a calculator you can do in real life. Hint: where do you suppose the money to pay big dividends, or higher stock prices, comes from?
The answer would be growth… so your challenge is to show convincingly how SS money will contribute to meaningful growth…and how you will feed the elderly while you are doing this.
but to restate the bottom line: the Trust Fund is NOT Social Security. It can go exponential as Bruce expects, paying not only for SS but for the rest of the government, or it can be stolen by a flying saucer. SS is simply a plan to pay for the elderly by having saved their own money when they were working.
M. Jed disagrees…. he points out that he doesn’t argue that SS is going bust, but he does think privatization can help:
So with real GDP growth of 2.0-2.5%, ( I believe this is the Intermediate cost 75-year assumption) it isn’t unreasonable to assume real domestic equity returns can reach 6%. Thus with 2-3% inflation, nominal returns would be 8-9%.
Terry Gardiner also looks at privatization, and excerpts from a letter he sent to his congresscritter:
My own experience as a CEO of a company with hundreds of employees trying to invest their 401K in the market cast grave doubts on the viability of millions of Americans individually investing private accounts. The average employee works very hard at his job, has little time to become a genius investor, examine thousands of investment options, track the markets and project macro economic trends impacting investments. Most employees end up being very frustrated, gyrating from one strategy to the next and recording earnings below the market average. Investment fees and costs end up being a very large percentage of the total earnings of the 401k owner. There are many investment professional who take advantage of individual investors – the investment professional takes no risk. It would be much safer and meet the retirement goals of millions of Americans, if independent, accountable experts with no conflict of interests were used to invest the private accounts. The goal of private accounts investing in the stock market can be achieved, but without unnecessarily risking the irreplaceable retirement of American citizens.
Its clear that there are a lot of smart people who have put a lot of thought into this. To the folks that I excerpted, and to others… if you write it the odds are extremely high I will post it.