The Social Security privatization con game

December 15th, 2004 – 9:20 pm
Tagged as: Uncategorized

While looking around the web for good articles about the Social Security privatization scam, I came across this excellent piece by economist Nouriel Roubini:

As widely reported by the press, a partial privatization of Social Security via the creation of private accounts is one of the top policy priorities of the Bush II administration.

But when you carefully look at the facts, it becomes clear that the proposed partial Social Security privatization is literally a Con Man Smoke-and-Mirrors Shell Game that – in the form it has been proposed – will not lead to any of the alleged benefits argued by its supporters. It is amazing the amount of misinformation that one reads about social security privatization; apologists argue that:

– The current pay-as-you-go (PAYGO) Social Security system is bankrupt.
– Privatization would increase national savings and the accumulation of capital and thus lead to higher long run income and growth.
– Privatization would lead workers to be able to invest into higher return equities rather than the low return public debt of the current system.
– Privatization would be self-financing and have no long run transition costs as you reduce the large future implicit liabilities of the current system, in spite of the fact that you are creating large transtion costs via privatization. So, it is a free lunch.

Each of those statements is incorrect once you do the math; of course, as Alan Murray has argued in the WSJ you may need a “Ph.D. in accounting” to make sense of the non-sense that is been spewed daily on the topic of social security privatization. But let me try to put in simple, if a bit complex terms, what are the tradeoffs at stake when you consider privatization. To clarify these myths, we need a few points of clarity .

It’s a long and complex article, but well worth the time and effort if you really want to grasp just what’s going on with the huge lie that is the “need” for privatization.


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  1. 1

    I have an idea about how privatization of Social Security might work:

    A worker could have an account (“ISSA”) like an IRA– choose his own brokerage (or other financial institution(s)) at which to hold it, choose whichever investment vehicle(s) (except certain high-risk ones) he wanted, and pay the brokerage fees for making the investment transactions in the account. However, the brokerage would merely be holding the funds for the Social Security Administration of the government. The worker would retire and start collecting Social Security, and take distributions, just like from his IRA. The government would still continue to calculate the amount to which the worker would be entitled every month, and the SSA (through the brokerage) would pay it out. There could be special rules for a worker who bankrupted his ISSA, like by buying all stocks that went bankrupt– there would be some formula whereby his Social Security check would be reduced proportional to his losses.

    Comment made by S Friedman on January 7, 2005 @ 9:01 pm

  2. 2

    I’m confused about how this benefits anyone other than the brokerage firms who are collecting the fees. How is the worker better off?

    Comment made by Michael on January 7, 2005 @ 9:48 pm

  3. 3

    ok, well i have been reading, what it is that you wrote down and i was wondering? Where is your side of the arguement. All i have been able to find is you saying that it does this and does that, but i see in no way or fashion any type of opposeing facts. Just you saying that it would not work. If anyone would like totell why it is that it would not work than that will be good! I am just wanting to know because i got stuck with a school project on this and i need to know why it is that it would not work!

    Comment made by corweno1 on February 18, 2005 @ 2:01 pm

  4. 4

    Well i have been reviewing everthing so far and i think that it would be a awsome thing to have priviization of social security. It would help boost the economy. It will also raise stock market like 60 billion dollars, so why not?
    It seems the only reason to not have it would be education on it and also haveing the people that are on it right now would suffer other than that i think that it would be a great idea.

    Comment made by corweno1 on February 22, 2005 @ 8:32 pm

  5. 5

    Let’s see, it forces workers (via payroll taxes) to invest their money in a limited number of government -chosen investments, and in return gives them no guarantee of benefits when they retire, because those investments have risks. And even assuming a decent rate of return on the investments, workers will end up with less money then they’re guaranteed under the current system. Oh, and none of this will do anything to help fix the current program, on which lots of people depend for luxuries like food and heat. If that’s your idea of a great idea, then you must be either independently wealthy or a complete sucker.

    Comment made by Michael on February 22, 2005 @ 10:50 pm

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