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| quote: | | Go Jayhawks,then! My Dores will be lucky to see any NCAA action this year. A real heartbreaker last night. |
Eh, KU got a 3 seed – but it’s in Okla City so we got a good break. You a G Tech fan? Glad to see they got in.
Anyways, I’ll admit right off that the details of stocks and mutual funds are not my strong point – course you knew that. So I’ll attempt to hit your points as best I can. I’ll say right off, however, that admittedly this particular argument against Bush’s privatization plan is probably the weakest argument (i.e. saying that Bush’s stocks will not return higher %). This really is the result of 2 underlying problems:
1. Bush hasn’t revealed shit about his plan – i.e. the details. We are therefore left to only speculate on the bits and pieces he has revealed.
2. There’s a real difference in philosophy on what Social Security really is to the Democrats (and the majority of the citizens according to all polls) vs. the privatizers supporting Bush’s plan.
To the majority of folks, SS is and always has been an insurance program set up as a safety net to keep the elderly, the widowed and their children, and the disabled out of poverty. To the privatizers, well actually I think they know this – however they’re attempting to spin it as an investment which doesn’t give a very good return.
Most folks don’t see it as a mere investment which could become “personal”, and the privatizers are trying very hard to spin it around. The problem, however, is that people are realizing that in order to turn it into privatization, a substantial cost (i.e. transition) will ensue, plus a severe reduction in benefits will occur, and then the risk of the stock market takes a foothold (i.e. winners and losers, downturns do occur which hurt everyone retiring at that given time). This isn’t appealing at all, which is why Bush is currently getting his ass handed to him not by the Democrats, but by the citizens themselves refusing to buy into his scheme. The ACTUAL problem that we face and must be addressed, IMO, is twofold
1. The deficit
2. The dwindling of solid retirement plans and pensions
I haven’t discussed #2 yet, but this really is a growing problem, one that hasn’t been addressed enough in this debate. Anyway, on to your points…
| quote: | | Wowzers--just like a mutual fund! Oh wait, that's right--Bush's plan would offer mutual funds to people, only my understanding is that the management fees on government sponsored funds would be significantly lower than that of the average mutual fund, which is typically in the 1-2% range. Hey, the people who manage, maintain, and keep the records for the accounts(they don't run themselves ya know) have to get paid. |
To be honest, I’m not sure exactly on the details. A significant part of the problem, of course, is that Bush himself has not revealed the details of his plan. To the credit of this liberal think tank, they did give a high AND a low estimate on the Management fee cost. I haven’t read the nitty gritty details of Plan 2 of the 2001 “President’s Commission to Strengthen Social Security” report, which by all accounts is what Bush is basing his privatization idea on. Is this where you are assuming the 1-2% range of those “Thrift Savings Plan” type funds? According to the CBO, they estimate the Administrative costs of the Thrift Savings Plan to be at around 5%, (See page 2 or Table 1-1 here):
http://www.cbo.gov/ftpdocs/52xx/doc5277/Report.pdf
not to mention the estimated cost of annuities which I’ll get to later.
| quote: | | In fact, in that statement alone, hasn't this liberal think tank essentially dressed up a sheep in wolves clothing? Notice that they're more interested in telling you how much money someone is going to make for managing your money than in telling you how much more you might potentially earn on your assets. |
Well I think the point of this passage was the mention the pitfalls of the costs or potential costs with privatization. So it’s not that they’re more “interested” in saying the pitfalls versus the potential gain – rather it is their INTENT to demonstrate the pitfalls only.
| quote: | | Furthermore, are they trying to say that there are no employees getting paid to work for the Social Security Office? |
Gotta admit you lost me on that question.
| quote: | | As far as the first part of this statement goes, they've basically said, and let me paraphrase, "Of all of the mutual funds that only had a 2% return, the average management fee was 1.09%". Well golly gee, funny they didn't mention the thousands of other funds out there that vastly different returns(bad or good). Seriously, alls I'm saying is that is a distinctly deceptive sentence. Furthermore, the latter part about the 23% reduction doesn't make a whole lot of sense to me, but of course, they've only posed a hypothetical based on a deceptive sentence, but I digress. |
Well they are attempting to compare apples to apples here. IOW – they’re comparing identical rate of returns between the current SS system and a mutual fund, and THEN compare the associated management fees with each. Now admittedly, having a mutual fund with a higher rate of return would obviously offset the management costs much better, but then we must also consider the higher rate of risk associated with higher rates of return. And we must also consider the considerable higher administrative costs with a mutual fund, which the CBO outlined in their report that I posted earlier (Table 1-1).
Besides, the argument of privatizers for higher rates of return is a bit misleading to begin with. This is a paper co-written by 3 authors, one is a pro-personal accounter, which takes this particular argument in detail:
http://www.cbpp.org/3-11-99socsec.htm
| quote: | | I dunno about this one. The writers admit that they have no idea how expensive it will be, and I imagine they then go on to give a "worst case scenario" sort of hypothetical. Sure there will be certain costs involved. If you want to make an omelette, you've got to break some eggs. I believe the theory is that if you can make a smooth transition, the long-term benefits(think generations to come) will far outweigh the upfront "load" to use a mutual fund term. |
Well I think this really is a crucial element of the argument altogether – the annuity costs. Another paper by the Century Foundation addresses the annuity argument in terms of inflation:
| quote: | Social Security privatization plans, including all three recommended by the President’s Commission to Strengthen Social Security, require retirees to convert the lump sums in their personal accounts into annuities that provide them with monthly payments until their deaths. The reason for that is that otherwise retirees could outlive their nest eggs, or even squander them, requiring taxpayers to bail them out. The market for annuities, which are financial contracts sold by insurance companies, is small now, with relatively few bought and sold. Such a market would probably develop under privatization, but it is unlikely that those annuity payments would increase in line with inflation, as today’s Social Security benefits do.23 Without inflation protection, the purchasing power of retirees’ pensions would fall precipitously during times when prices are rising rapidly. Because insurance companies would bear significant new risks for offering inflation protection, they would be likely to charge very substantial fees over and above the already steep 10 percent that they now charge.
-23. Greg Anrig and Bernard Wasow, “What Would Really Happen Under Social Security Privatization? Part III: Millionaires One and All?” The Century Foundation, New York, December 10, 2001, available online at http://www.socsec.org/publications
.asp?pubid=325.
http://www.socsec.org/publications.asp?pubid=503 |
Furthermore, I believe they are referring to the CEPR report when they state the “typical” costs of annuities. From the following passage they make the case that annuities usually cost an extra 10-20% of total savings:
| quote: | In addition, under Social Security workers automatically get an annuity (a life-long monthly payment) when they retire. By contrast, financial firms typically take 10 to 20 percent of workers' savings to provide an annuity when they reach retirement.
http://www.cepr.net/publications/fa...al_security.pdf |
I see no reason why we would assume annuity costs would be any different under Bush’s plan. Unless, of course, he actually decides to address the nitty-gritty details such as this, rather than continue to talk in generalities to a “yes”-man Town Hall crowd.
Digressing. Sorry.
| quote: | | Well, now we're into "Potential Fees". I could think of a ton of other potential fees. With nothing in concrete, have these guys considered the possibilty of a Plan 3 or 4, or even 8? There are plenty of ideas on the table, and plenty reason to believe that someone might think of an innovative alternative that hasn't been considered yet. Doesn't mean it's a bad idea. |
Well again if you’re going to beat someone up on this, I suggest you take it out on Bush himself since he refuses to give any true details on his plan. Again by all accounts his plan looks and acts like Plan 2 under his 2001 Strengthen SS Commission, so that’s exactly what we’re going on here. And under that plan, major benefit cuts must occur. And the higher returns on the privatization scheme will NOT offset the drastic cuts in benefits:
http://www.epinet.org/content.cfm/i...urityprivfaq#62
And that’s using some rosy numbers too, which they explain further below the graph.
The problem is the cuts in benefits, and Bush cannot get around this dilemma. Keep in mind that some 17 million folks who receive SS benefits are NOT retirees, but are either/or disabled, the widows and/or children. Slashing the benefits is going to really fuck these people over.
There was an article in the WaPost that outlined the problem with Bush’s plan and slashing benefits:
| quote: | …under the proposal, workers who opt to invest in the new private accounts would lose a proportionate share of their guaranteed payment from Social Security plus interest. They should be able to recoup those lost benefits through their private accounts, as long as their investments realize a return greater than the 3 percent that the money would have made if it had stayed in the traditional plan.
That 3 percent level is the interest rate earned by Treasury bonds currently held by the Social Security system.
http://www.washingtonpost.com/ac2/w...anguage=printer |
Here’s the example they used:
| quote: | | If a worker sets aside $1,000 a year for 40 years, and earns 4 percent annually on investments, the account would grow to $99,800 in today's dollars. All of that money would be the worker's upon retirement. But guaranteed benefits over the worker's lifetime would be reduced by approximately $78,700 -- the amount the worker would have contributed to Social Security but instead contributed to his private account, plus 3 percent interest above inflation. The remainder, $21,100, would be the increase in benefit the worker would receive over his lifetime above the level he would have received if he stayed in the traditional system. |
So they’ve got 3% reduction of benefits going against them should they opt for the privatization Plan2 idea Bush is pushing. The cut in benefits is very real:
| quote: | | Yes, but won't it also involve the phasing out of Old infrastructure over time? |
Absolutely not because Bush has said the Old infrastructure, i.e. old SS program is to remain intact. This new program is supplemental to the Old one. Hence the huge known costs (transition and long-term maintenance) and hypothetical costs (i.e. what we’re talking about now) of funding for both.
| quote: | Perhaps a new one would be less beaurocratic since it will be new. Perhaps it won't be as corrupt as some current government systems. Perhaps it will. Nobody can know. I admittedly do not want more or bigger government by any stretch, and this may just be a cleverly worded statement to create the illusion that this would create massively bigger governemtn. And perhaps not.
Certainly not on an individual basis, but in large volumes, you're still talking about a percentage of a pie, so does this argument really matter? Besides, I don't think a financial service company would have the option of turning them down. Either way, don't liberals like to see the "white collar financial services guy" struggle to make a living? |
Well again to be honest, I don’t know, but I’ll again refer to the Century Foundation’s paper for why exactly this could be problematic. They refer to a supervisor of the Thrift Savings Plan:
| quote: | Many workers’ accounts would be so small that they would be of no interest to profit-making firms. The average taxable earnings of a worker are roughly $25,000 (in 1997, the last year with complete data, the average taxable earnings of the workers who paid into the system were $22,400). Two percent of $25,000 comes to $500 per year. Francis X. Cavanaugh, who has supervised the thrift savings program for federal employees, a program that privatization advocates often point to as a model, has argued that the costs of administering so many small accounts would overwhelm any benefits to be gained from the stock market. For example, he estimates that the government would need to hire ten thousand highly trained workers just to oversee the accounts and answer questions from workers. In contrast, today’s Social Security has minimal administrative costs amounting to less than 1 percent of annual revenues.
http://www.socsec.org/publications.asp?pubid=503 |
Again I don’t know exactly how problematic this would be, and I do admit I am appealing to authority here a little bit. If anything I think this is a minor point to consider, at least for now. But if anyone, especially conservatives, do not want the government bigger than it already is at present, I think this argument should be at least slightly considered.
| quote: | | Business costs money to stay in business. If they could quantify it on an individual level, I bet it's really not that much, but admittedly I don't know. All they've said is that it will cost money to run the program. I don't know that it's clear yet how much of this kind of expense a company would have to eat and how much might be subsidized by Uncle Sam. |
Again I think this simply carries over from the previous argument – granted it is a bit hypothetical, though there is some weight to the argument. But let’s just think about it for a second – wouldn’t it be almost somewhat similar to the IRS, if you will, around tax time –except 365 days/year? People will be retiring everyday, of course, and they’re gonna need some personal advice on their investment.
This will definitely consume a great deal of time and $.
So the obvious questions are:
Who would pay for the $? The obvious answer, of course, is the taxpayer.
Who would pay for the manhours and crew helping out with financial advice? Would it not be the taxpayer again, since we are, in fact, dealing with a government-run program?
And I do think it is a bit misleading to lump it all together and state we can handle this in one cohesive unit, which is what we have now with the current SS system. Indeed, if Plan 2 were to take place, we’d have 5 different investment plans based on risk, which ultimately require more individual consulting, time, and $. I think the authors here are rightly arguing that this will ultimately cost the taxpayers AND the retirees/beneficiaries $.
Like the think tank said:
| quote: | | Administration officials have indicated that the government would manage new accounts and small accounts with balances under $5,000 because financial companies would not be interested. (Edmund Andrews, Wall Street Hears Pitch for Social Security Plan, in The New York Times, January 11, 2005). |
But granted, we are moving to the hypothetical.
| quote: | | I guess it's about what I expected. Try to present the worst possible outcome and let fear do the rest. |
Well I must respectfully disagree. Given what we know so far on Bush’s plan and what he is proposing, which is right in line with Plan 2, these estimates and problems are pretty much right on the money really, or so it seems.
| quote: | | Seriously, of course there are going to be costs in creating something like we're talking about. I doubt I like that fact anymore than the next person, but in the end I just think it's a really good idea that could really benefit us all significantly down the road. I would like to see something like it put in place, provided it is well thought out and properly managed. |
Just out of curiousity, how warm are you to the idea of a government retirement plan in addition to the current SS program, one that does not take money out of SS but could still be used as a retirement investment-like 401K/pension/etc.?
| quote: | | How's that for an Opus-like reply? |
Hehe, not too shabby!
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Whence September dusk grows crisper still,
with leaves all crimson conquered,
I yearn to shout,
and dance about,
and stick pickles in my honker...
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