Am I understanding correctly: 1. The whole of Social Security will not be privatized. Only a portion of the roughly 12% in payroll taxes directed towards SS will be set aside in private investment accounts. Effectively, this should divert attention away from the government program and make it easier to starve, which is what happens when the principle of universality is breached, which is in a sense what is happening with this competing plan.
2. In reality, the reform is designed to address present problems rather than future ones. Ostensibly, workers are being encouraged to save for their own retirement. But the American worker is on a debt treadmill, barely able to meet or catch up on mortgage payments and consumer loans. So they will quickly draw down these accounts to satisfy their debts. This transfers risk from the banks, who are increasingly worried about defaults by Americans spending at a far greater rate than they are earning. The real estate industry will also be relieved that housing prices won't collapse in a wave of foreclosures. The US stock and bond markets will welcome the much-needed domestic savings these accounts will provide. The Bush administration will crow to voters and investors that it is taking determined action on the deficit. 3. It will be difficult to get US workers to fight the proposal, because they were mesmerized by the 90s bull market, and are awaiting an imminent return to those heady days. They will be told, and will accept, that they'll earn far better returns from the equity funds in their private accounts than their contributions are presently earning in the stodgy bond-heavy public account. And they will like it that they, not government bureaucrats, will have control over their retirement savings. 4. The future can take care of itself. Government economists probably know there will still be enough to pay out Social Security in the future because the actuarial assumptions being used to forecast deficits are generally flawed (future revenues underestimated, expected payouts exaggerated). And if there is not enough, so what? Benefits can simply be cut. And raised again if purchasing power and political protest demands it. Social Security was introduced for these two reasons during the depression, not as a magnanimous act. Some leftists think the capitalists and their state don't care about reducing the elderly to a cat food diet and selling pencils in the streets. But the seniors and their families wouldn't tolerate it, and the system knows it. 5. Above all, don't adopt more realistic assumptions about inflation, salaries, labour force growth, etc. which could lead you to project an actuarial surplus. Then the population will demand you spend it on more and higher benefits and/or reduce contribution levels. Can't have that. Marvin Gandall
