Jumping on...

Count me on the Webb bandwagon. A real American hero who actually gets the impending security challenges.

Social Security v. Individual Accounts

Sen. Grassley was on CSPAN today talking about Bush's great white whale, private accounts. I know the administration has been having difficulty keeping Republicans in line lately, but for now I'll assume he was using his talking points from Rove. His two arguments I want to address were 1) Private accounts will allow poorer Americans to "own" something, and 2) All federal money is fungible, and therefor removing 1/3 of social securities income from the government will starve the beast back to fiscal sanity. I'll take them one at a time.

Private accounts will allow poorer Americans to "own" something

Of all the arguments for privatization, this one always SOUNDS the best. Poor young people become poor old people for one simple reason: they don't have "assets". If only the working poor could take a chunk of that money that is unfairly regressively taxed each year and put it into stocks then when they retire they wouldn't poor anymore! Asset building is a great idea and certainly one of the best ways to help the working poor finally earn a little bit off somebody else's sweat. There's only one problem: this idea doesn't do it. Grassley did a good job laying out exactly how the program should work:

•Throughout an individuals working career a certain fixed percent of their wage would be set aside in some kind of government monitored fund. Once a year they would be able to determine how aggressively their money is to invested, with the risk decreasing as they get older. This fund would grow over the years and be owned explicitly by the worker.
•When the worker hits the "retirement" age they would use the proceeds of the account to buy an annuity that would pay out each month until they die.

First, the entire system requires huge (presumably private sector) underwriters to sell all of these annuities (a major built-in fee). Social security currently serves as a giant annuity with risk pooled over the entire elderly population of America; in essence it allows the government to write one standard "policy" for everyone in the country and assume the dead-by age is whatever the current average longevity for 62 year olds is. The private sector does this a whole different way, because they look at the individual.

As Bush says, this is a great deal for obese african americans, since the actuarial tables have them in the ground first, and thus will get their annuity assumed to be over the shortest number of years. But for people like my grandmother, who is in excellent condition, has no major health problems, and can be expected to live a lot longer, it is going to be a raw deal. Moreover, whereas the US government can deal with people raising life expectancy, private companies inherently have to hedge against that bet by offering a lower payout than what the math justifies (though I suspect that were one of the behemouths to actually face bankrupcy the government would have no choice but to offer a helping hand).

Finally, let's move on to the asset argument: that it leaves something for us to "leave to our kids". If we have to use the whole lump sum to buy an annuity what is left over? The only way we even theoretically have money is if we die pre-retirement (note to self: great way to wipe out survivor benefits), as the day we hit retirement we have to cough up the whole thing for an annuity.

All federal money is fungible, and therefor removing 1/3 of social securities income from the government will starve the beast back to fiscal sanity

So because Bush and Reagan can't keep their hands out of America's piggy bank we should stop putting money into it? This (from a man who has supported every adminstration tax cut) would be laughable if it weren't such a harbinger of the conservative movements real budget agenda. Starve the beast indeed, so that we can finally cut the safety net from under the trapese act known as life.