Open thread July 28, 2015 Dan Crawford | July 28, 2015 12:54 pm Tags: open thread Comments (24) | Digg Facebook Twitter |
Lifted from July 24 comments:
Amateur socialist says….
Capitalism today about Billionaire hedgie John Arnold’s scheme to privatize retirement savings via GRAs…
More evidence that mainstream Dems like Madame Secretary are probably more dangerous to retirement security than the GOP. In case you needed it.
Dan and Amateur, leaving aside that Clinton might propose to supplement rather than replace or reduce Social Security (maybe a public TSP?), the odd reference in Clinton’s platform to “especially for women” caught my eye and reminded me of THIS article: http://www.democracyjournal.org/2/6484.php
I sort of dismissed this article at the time because the key challenge has been to defend/protect Social Security as it currently exists. Kornbluh, who worked for both the Clinton and Obama administration, opposes any Social Security privatization and, instead, proposes to modernize/improve/enhance it, especially for today’s modern woman.
This is what makes me want to gouge my eyes out. From Dan’s link to NC to Theresa G’s proposal:
“Ghilarducci’s big idea is to create government-run, guaranteed retirement accounts (“GRAs,” for short). Taxpayers would be required to put 5 percent of their annual income into savings, with the money managed by the Social Security Administration. They could only opt out if their employer offered a traditional pension, and they wouldn’t be able to withdraw the money as readily and early as with a 401(k). The government would invest the money and guarantee a rate of return, adjusted to inflation”
The current payroll gap is 2.68%. Even if we assign the employer half of FICA to the employee these people are arguing for a fix cost TWICE as much and then not giving anyone the alleged benefits of a personal account. Because it is the goverment, indeed Social Security, investing it and guaranteeing a return, and by the way limiting withdrawals. In other ways just valorizing the idea of individual accounts apparently because it makes Neo-Liberal Third Way types happy.
Rather than this happy horseshit lets say we require workers to put 2.68% of their pay, half of that each from employer and employee, into traditional Social Security and close the entire 75 year gap. And THEN open up options for add one accounts. For example I always thought that opening the Federal Thrift Savings Plan (TSP) to the Public was a fine idea. But this is just insane. Or at least it simply ignores the actual numbers in play.
A better plan for women would be to adopt the Social Security Works ‘All Generations Plan’. Which starts by backfilling the current gap and then uses additional revenue to add on credit for childcare and senior care and some other changes to both enhance and expand Social Security.
But the key is that builds off a renewed core. And doesn’t set up a new and expensive system of personal accounts.
Interesting article at IBD re SS this afternoon:
Thanks Bruce for keeping up with the bad ideas.
I am not familiar with the details of Ghillarduci et al. I would not be opposed to an add on. .. like TSP which I am not familiar with, or like the Oregon PERS which I am. In fact just applying the State retirement systems to every employee in the state would be a fine additioin to SS. Might even make the state taxpayers show some sympathy for public employee pensions.
As for Social Security Works, I frankly have bad personal feelings toward them (If you think I am rude, you might listen to the way they talk to me) but if they can work their proposal so “Traditional SS” stays intact, and their various be kind to everyone proposals are added on like SSI as frank welfare, and kept separate from SS as “worker paid insurance” I’d buy that too.
Interesting articles by the same author. Basically endorsing the Bush-Ryan approach of personal accounts.
http://news.investors.com/051415-752658-social-security-retirement-age-rising-hitting-early-retirees.htm?p=full This one from May
and the next from 2010.
In this one Graham proposes penalties for early retirement that would unwind, plus some adjustments for lower income workers to take less of a penalty. But basically adds up to retirement age increase. In the last paragraph he kind of admits this wouldn’t do the whole deal and suggests maybe reversing the Carter era change that indexed initial benefits to wages which implies price indexing.
Graham is not a neutral analyst. He wrote a 2009 book along these lines called “A well tailored safety net” and in that spirit offered his well tailored article suggesting SSA is just too optimistic and we should instead just accept CBO.
It is no surprise Krasting found this interesting, Graham is simply echoing his own argument from the other day and so BK is working on the assumption “Great Minds Think Alike”.
But as I told him in an e-mail exchange a few minutes ago, my estimation of Grahams mind doesn’t QUITE reach to ‘great’.
I just prepared a spreadsheet for someone who was sounding interested in the one tenth percent per year increase in the payroll tax.
But I probably shouldn’t have. Here’s why:
In order to make it “simple,” I dropped the “trigger” and just said raise the tax one tenth percent (each) each year starting in 2018. By 2035 the tax will have increased to 16.0% (combined) and SS will be “solvent” for the (current) 75 year window. (at a tax increase of 1.8% after 18 years for the average worker).
What’s wrong with that. Well, it partially violates the whole point of the gradual tax increase. It speeds up the “fix”, and while it stops at a lower tax rate, it leaves open the “infinite horizon” question, and leaves the plan open to “kicking the can down the road.” It is also arguably unfair to the people paying the increase too soon.
Better to just pay the increases when they are needed and as people have more money to pay for them, and as the people paying for them are the people who will get (need) the increased benefits.
Pretty much the same applies to all fixes “immediate and permanent” they are high enough “immediate” to scare people, and the not needed yet money will just go to build a new Trust Fund of “worthless iou’s” and we can expect another 75 years of “Looming Bankruptcy”,
SS is broke, flat bust.
Dale as to SSW. Well Nancy A still speaks fondly of you, but yes her staff not so much.
The Thrift Savings Plan is an investment system open to Federal employees that allows them to select from different mixes of investments with different risk /returns. Kind of like a Federal Vanguard. The advantage is that there are few if any fees, people just find a fund they like and pay in. With the added security of knowing that it is overseen by the Feds in ways that outside investment opportunities are not.
my bad feelings are not directed at NA.
the Oregon PERS has the advantage of letting the state invest the money for you. they are smarter than i am. or As TIAA-CREF says: the mutual fund for people who have better things to think about.
Arne has prepared a spreadsheet showing a 0.2% increase at work.
if you ask nicely, maybe he would let you look at it.
I wonder when I see the “TSP” answer since, with the exception of a stable value fund like the one SS uses, the other funds are indexes like those found at all brokers (Barclays Capital U.S. Aggregate Bond Index, Standard and Poor’s 500 (S&P 500) Index, Dow Jones U.S. Completion Total Stock Market Index, and MSCI EAFE (Europe, Australasia, Far East) Index, Or, in other approximate words: a US bond fund, US large cap fund, US other than large cap fund, and a developed market international fund.
The major thing that recommends the TSP over, say Vanguard, is the lower fees of the TSP. This would probably not be sustained if the TSP were privatized since there would be an outcry to spread the wealth around to all brokers and advisors and not just a single contract bidder. In short, the TSP would be “privatized”. Some critters on both sides of the isle have been obsessed with throwing the TSP into the high fee skim realm. (More for critters to promise lobbyists in quid-pro-quo arrangements, I suppose.) Same name, but, ultimately, different plan.
It’s kind of like all the hype about the government’s wonderful health care plan which is wonderfully expensive and would become Medicaid lite if opened to people who needed subsidies. Same name, but, ultimately, different plan.
To add a winning program for workers would be more than critters hell bent on destroying “all things worker” could bare.
Also, I would watch out for any candidate with no more imagination than to use talking points that sounds good except for the obvious problem that they don’t seem to know what they are talking about.
(From the TSP website – “You Should Know
The FRTIB Executive Director currently allocates the selection, purchase, investment, and management of the assets contained in the F, C, S, and I Funds to BlackRock Institutional Trust Company, N.A.”)
There is already a first step toward a brokerage window within the TSP. Interesting times ahead for workers.
thanks. isn’t Blackrock a Peterson company?
I never understood what the big advantage these gov-securities based retirements was supposed to be. Proponents act like something is going to be created that wasn’t going to be there anyway. It’s the same economy pumping out the same goods and services — depending on how we cut up the pie for retirement purposes isn’t going to create anything extra. ???
Peterson’s company was Blackstone.
Anna, I wasn’t clear. I was proposing that we adopt some version of Northwest or other revenue based plan to back fill the current projected gap in Social Security and also open existing TSP to the public, i.e. not privatizing it.
And for Krasting. Arne sent me a copy of his spreadsheet in the same e-mail as he did Coberly. It works. Once we get some things worked out on the back end I hope he will allow it to be published to the web. But just like earlier versions it shows the Trust Funds never decreasing in nominal terms even as the TF ratio goes to 118 over time. So no redemption of principal needed. EVER.
Dale, “isn’t Blackrock a Peterson company?”
No, or rather, I don’t think so, Peterson is a Blackstone I think. I don’t know if there is any genetics between blackrocks and blackstones.
Denis it is that old black magic of the Equity Premium. Which works if you can raise and risk the money while forgoing the consumption. Like paying for rent and food.
It reminds me of a Frank and Ernest cartoon:
Ernest tells Frank: You know the secret to getting rich? It takes money to make money.
Frank: Well then why aren’t you rich?
Ernets: Because I could never afford it.
Which is the working class dilemma in a nutshell. You can’t pull yourself up by your bootstraps if you can’t come up with boot money.
Bruce, All I was saying was that any move to “open” TSP, would probably “privatize” TSP. The critters spend more time trying to get a piece of worker’s money for their owners, uh, I mean friends, than they do governing.
Bruce re Arne
thanks, i hadn’t seen it was attached.
the problem for workers was always that they couldn’t afford to save. and they couldn’t afford the risks of “investing,” including the losses to inflation from “safe” investments.
SS fixed all that. Somehow it finds a way to save money the workers never knew they had, and saves it very, very safe from inflation and market losses. it also lets them insure each other against a lifetime of wages so low that even saving 12.4% of every paycheck is not enough to buy even a basic retirement. it does that by skimming some of the “earnings” on the “savings” of the high earners and giving it to the very low earners. this “skim” is a quite reasonable cost of the insurance value of SS… those high earners could have ended up low earners (it can happen to you.)
SS does not add anything to “the economy”, except of course the security and what comes from security. but it doesn’t take anything away either. the SS “tax” does NOT subtract from net investment. even real investment vehicles have to use part of “new money” to pay back the earlier investors who are cashing out. that is exactly what SS does except it skips the investment part (that would never have been invested). But the added security probably does allow a lot of people to take risks with the part of their money that is not saved by SS for them. This probably does “add to” the economy. Or would if there were enough real investments to demand the extra money. Currently investments seem to be pure gambling, or even… gasp… giant Ponzi schemes that collapse every ten or twenty years and leave everyone wondering where are the yachts.
as for “government securities” not sure that’s the right word. in any case the “program” does provide a vehicle for more or less protected savings. and if that doesn’t add anything, at least it means you get something back at the end of the day that your probably would not have without the government program.
the bad guys are smart enough to run a casino so “everybody wins”. why else would anyone gamble there?
but somehow the player ends up poorer and the mob ends up richer. if you talk to people long enough about money you will begin to see how that can happen.
GRA sounds like an annuity scam.
Might work if: US treats the stock market like the PRC does, i.e. when it goes down shackle short sellers, and declare a holiday, and 2 run the printing press when the GRA gets like the current SSTF, that is invested in junk like F-35’s……….
Can someone explain how this Ghilarducci GRA plan is any safer, better, or whatever, than is the Social Security program as it is? Workers will be required to set aside, (more likely it will be set aside for them) 5% of their pay and the SSA will administer and manage their accounts. Yes, I know, they will be identifiable as individual accounts and the disability aspect of SS will not be present, nor will the slight advantage to lowest paid workers benefits be present. So we start out with a GRA and it leaves out the Social character of SS and in the near future we find our political class arguing for the replacement of the SS program with the GRA program with FICA melded into the 5% GRA deductions. And then when the SS program is no longer needed, heaven forbid that we have a retirement program that helps the lowest paid workers and the disabled, the SSA will be disbanded and the GRA’s will need to find a new manager for all that money in all those accounts. I bet we can all guess how that new money management scheme will play out. And workers will then be contributing nearly 12% of their income so the employer’s half of FICA will no longer be needed. Win, win, win all around. Except for the workers whose GRAs are suddenly burdened by money management fees.
” GRAs are suddenly burdened by money management fees.”
AHH!!! And there is the whole purpose of GRAs.