Thursday, June 16, 2005
Topic of the Day: Social Security
I've wanted to talk about Social Security for awhile now. John Tierney's column the other day, makes an interesting argument for private accounts. Unfortunately he takes the mother of all logical leaps by merely describing how bad the current system is (ie, what Bush has been successful at doing) and describing how, in a perfect world private accounts would be better (as if, in a perfect world, we'd be so worried about our retirement).
Men in their 70's raced on bikes for 40 kilometers in this month's National Senior Games in Pittsburgh. A 68-year-old woman threw the discus 85 feet, and a 69-year-old man hurled the javelin nearly half the length of a football field.I think everyone who's been following the Social Security debate closely, both Democrats and Republicans, can agree up to this point. The fact is that if you raise the retirement age you get a duel benefit--people paying into the system longer and benefiting from it less. Alas, this cuts into the AARP's dues, so we can't have that.
Is it possible that people this age are still physically capable of putting in a full day's work at the office? I realize I'm being impolitic. In the Social Security debate, the notion of raising the retirement age is the elephant in the room, as Robin Toner and David Rosenbaum reported in The Times on Sunday. Both liberal and conservative economists favor the change, but politicians are terrified to even mention it to voters.
If the elderly were willing to work longer, there would be lower taxes on everyone and fewer struggling young families. There would be more national wealth and tax revenue available to help the needy, including people no longer able to work as well as the many elderly below the poverty line because they get so little Social Security.
Tierney then makes the most common columnist line of argumentation: tell a cute story, tell about the problem, tell another cute story, tell your solution, brilliant!
He goes into the Chilean scheme and points out all of its successes, as you'd expect him to do. Unfortunately, he ignores the financial nightmare that a conversion to a private account plan would take. If people have private accounts, you're essentially giving them their money back. But since current retirees get checks straight out of current worker's pockets, this would cause the Social Security surplus to come down hard and fast. And considering how long people are living nowadays, it could very well easily stop paying out 100% of the promised funds while those who are currently 55 are still alive. Uh-oh, those are the very people that aren't supposed to be affected by the privatization scheme.
The only way to overcome that possible nightmare is to then transfer from the General Fund, which means we'd likely be eating straight out of the National Debt. The more the Debt goes up, the more likely taxes will have to be raised in order to pay it off. That means all the extra money I might make with my private account will go to pay for the tax increase required in order for me to have my private account. Uh-oh.
If only somehow the numbers could work, I'd be all for private accounts. I do believe that people would get a much better retirement. I do believe that over time, at least 10 years according to the Bush plan, the money would make a better ROI than Social Security. It would encourage people to work longer since with Social Security there's really no benefit to working past the retirement age. Our economy would be aided by the dual productivity gain and financial investment.
If only somehow the numbers could work. The fact that Bush won't put the numbers out there suggests to me they won't. There are a lot of variables. If you're 55 and 1/3 of your Social Security check goes into the personal accounts, you'll get pennies from it for the rest of your life and you'll probably have to give up a huge chuck of your Social Security check. You'll likely lose money. If you increase the percentage of your payroll tax that goes to the account, then you drive the solvency of the program into the ground and your Social Security check won't earn you much anyway.
If only somehow the numbers could work. The people who stand to gain the most (people my age) also stand to lose the most. The Debt is skyrocketing, our trade deficits are skyrocketing, which mean we'll likely have to increase taxes to pay for non-governmental services.
If only somehow the numbers could work. Imagine they could. Do you trust Congress to get those numbers right? These people couldn't balance a 15 year old's checkbook.
There's really only one thing that can save Social Security. Glenn Reynolds hints at it: "...increased longevity, with (at the very least) much higher retirement ages, could be the salvation of many nation's pension systems...".
In other words, the baby-boomers, who are gearing up to retire in their early 60's, need to realize that they didn't have the same kind of jobs their parents did. Boomers will have spent 20% of their lives getting an education and almost 40% of their lives as a retiree. That means they'll have not only spent only 40% of their lives working, but they'll draw from Social Security for just as long as they contributed to it. What will they do sitting around for 30 or 40 years? That can't be healthy.
Tierney: "And not healthy for your country, either."