Friday, May 20, 2005

Another hack argument from pro-privatization forces.

In his last press conference, George Bush cited Robert Pozen as an inspiration for his Social Security plans. When Pozen expressed disagreement with Bush on some (not all) important issues, conservatives couldn't very well reverse course and say Pozen is dumb. So they resorted to that tired old argument: liberal media deception.

Adviser Splits With Bush on Social Security Accounts

Robert Pozen still likes private accounts, but he thinks they should be smaller, accompanied by tax increases, and not a deal-breaker if everything else in the package is correct.

From the NYT:
Unlike Democratic lawmakers who oppose on principle including investment accounts as part of Social Security, Mr. Pozen believes some form of private accounts could be useful.

But explaining his position in an interview after the forum at the Treasury, he said the president's plan to let workers divert up to 4 percent of their payroll taxes to private accounts would reduce tax revenues and lower guaranteed retirement benefits too much.

"The accounts are just too large," Mr. Pozen said.

He suggested Mr. Bush consider a surcharge on payroll taxes for people who earn more than $90,000 a year, currently the ceiling on which Social Security taxes are paid, and the possibility of using some of that added revenue for private investment accounts.

"I believe some new revenue in the system is probably necessary for a legislative solution," Mr. Pozen said at the Treasury Department forum, which was called to generate enthusiasm for the Bush administration's approach to Social Security.

Sunday, May 15, 2005

The $4.7 Trillion Pyramid.

Prof. Michael Hudson argues in Harrper's that the Bush Administration's Social Security plan is to create a stock market boom that will provide impressive returns that will -- temporarily -- solve a multitude of problems, such as bailing out the Pension Benefit Guarantee Corporation (PBGC), which unlike Social Security, is in terrible fiscal condition. The problem, of course, that that financial bubbles collapse:
Given the widespread problems confronting pensions outside the embrace of the federal government, now would seem an odd time for the administration to campaign for Social Security privatization. Why would anyone want to invest America’s last line of pension defense in so perilous a market? Are Bush and his advisers unaware of the odds?

Probably not. Therefore, they must have a particular idea in mind. Presumably they believe that some kind of market recovery is needed not only to rescue the PBGC but to rescue the pension funds, to rescue the stock market, and, for that matter, to rescue the political fortunes of the ruling party—that what is needed, in fact, is a Bush boom. After all, such a boom would allow us to “grow our way out of trouble,” as we have done so many times before.

(via Robot Wisdom)

Wednesday, May 04, 2005

Who is Charlie Munger and why is he saying these things?

From a Bloomberg story:
"The Republicans are out of their cotton-picking minds on this issue,'' said Munger, a self-described right-wing Republican. Social Security is "one of the most successful things that the government has ever done.''

Charlie Munger is the Vice Chairman of Berkshire Hathaway -- you know, that little company Warren Buffett runs. Not that they could possibly know as much about finance and investing as the geniuses in the Bush Administration. (via Brad DeLong)

Tuesday, May 03, 2005

How Bush's version of "progressive indexing" would kill Social Security.

In Slate, Brad DeLong argues that "when you combine Pozen's progressive indexing with Bush's separate proposal for private accounts, it becomes something different: a way of phasing out Social Security altogether."

Surprise, surprise.

He argues, and I agree, that Bush's latest tactic is designed to weaken support for Social Security among middle- and upper-class Americans. Once they get tired of paying for something from which they don't receive much benefit, they'll want to kill it too.

Update: On his blog, DeLong says, "I actually don't think it's a plan to kill Social Security -- it's floundering around in the hope of gaining traction by proposing something progressive." Uh, ok.

Monday, May 02, 2005

Why you can't fairly compare Social Security returns with those of private accounts.

Here's another tidbit from the same article in The Hill. It's an important enough point that it deserves its own post: the answer to those who argue the Social Security provides a weak return on what users pay into the system, compared with private investments:
Note 144 also states that making rate-of-return comparisons with private investment plans is inadequate because Social Security offers benefits that most private plans do not, such as guaranteed cost-of-living adjustments based on the consumer price index and benefits for life in the event of disability.

I found this so interesting that I decided to hunt down the original document, Note 144. Here's what that official document says (emphasis added):
Internal rate of return does not reflect the full value of insurance in reducing the risk for extreme outcomes, like death or disability at very young ages or survival to very old ages. In addition, calculations of the internal rate of return from Social Security benefits are not fully adequate for making comparisons with private-sector plans, since many features of Social Security benefits are not typically available in private-sector plans. Examples include guaranteed cost-of-living adjustments based on the Consumer Price Index, and benefits for life in the event of disability.

So the next time a privatization advocate argues that he can do better playing the stock market, ask him if the stock market will provide benefits like COLA and disability insurance.

Treasury experts split on Social Security plan.

The Hill reports that career economists at the Treasury Department question the assumptions made by political appointees and other supporters of Bush's plans:
The conflict emerged last week when Edward Prescott, a winner of the Nobel Prize in economics, briefed Treasury Department economists to discuss Social Security privatization as part of the department’s effort to build support for its plan in academia and on Capitol Hill.

But sources familiar with Prescott’s presentation said that Treasury’s professional economists sharply questioned Prescott’s findings that private retirement accounts would increase the incentive to work longer, which would lead to higher economic growth.

Research by government economists contradicts some of President Bush’s assertions, especially his claim that African-Americans fare poorly under the New Deal. That research shows that blacks earn similar rates of return as whites under Social Security.


A former Social Security official said, “I don’t think there is any question if you look at the estimates that the administration is putting together for long run economic growth and how those tie into the return on private accounts, there is a disconnect there.”

The administration is assuming a 4.6 percent return on private accounts.

“That’s the basic contradiction,” said Shapiro [Robert Shapiro, an economist and former undersecretary of commerce in the Clinton administration]. “In order to get that kind of return, the economy would have to be growing fast enough so that most of Social Security’s financing problem would have gone away.”

We've noted that before. Many times. (via Talking Points Memo)