* Doug Pensinger ([EMAIL PROTECTED]) wrote: > Erik wrote: > > >I guess I haven't been clear (or perhaps you are confusing my position > >with Bush's confusing rhetoric). > > Or maybe I'm somewhat dense when it comes to this stuff. Thanks for > clarifying things for me.
I don't think you were being dense. Previously I thought you jumped to an amazing conclusion about what I was saying (the erroneous conclusion that I said the government would default on the SS trust fund obligations); however, in this case, I think I probably wasn't as clear as I should have been. It doesn't help that Bush has been misrepresenting what private accounts will do. It is clear to almost everyone who has studied the matter that private accounts will have only a slight effect in the near-term (10 years, say). If SS were privatized, the equity component should be no more than 40%, and I would suggest only 33%, of the portfolio (otherwise the security part wouldn't really be true). With TIPS yielding a real 2% now, and equities giving a long term real return of 4%, a 60% bond / 40% stock portfolio would be expected to return 2.8%, which is a premium of only 2.8% over government bonds (the government can essentially obtain a bond return on its "investment" by paying off the national debt held by the public). So privatization, with my suggested portfolio allocation, only gains us 0.8% per year. In the long term, that will make a big difference, but compound interest takes decades to make a big difference. Also, my prediction is that over the next 10 years, equities will return less than their long term 4%. We need to fix the system NOW by not promising any new benefits beyond what has already been promised . My favored way to do that was elaborated in the PSS system suggested by Kotlikoff that I summarized here earlier (basically, every dollar that anyone has already paid into the SS system will be paid out fairly in benefits, but no new benefits would be accrued and no new contributions would be made). Thus, no one is cheated out of their fair return for contributions already made, but we don't continue with the unfair system where current young workers are almost certain to pay in more than they ever receive in benefits. Even so. today's young taxpayers would still get a raw deal, because some sort of new tax would have to pay for the benefits of people 50 and over who are expecting benefits, but at least we can avoid sticking it to the generation being born now if we fix it now. If we can introduce privatatization at the same time as making the immediate fix that we need to make, that would be great, because although 0.8% per year won't help much in the next 10 years, in 50 years an extra 0.8% compounds to almost 50% of extra accumulated savings. So we can partially compensate today's younger taxpayers for the raw deal they've been given. -- Erik Reuter http://www.erikreuter.net/ _______________________________________________ http://www.mccmedia.com/mailman/listinfo/brin-l
