Relentless Pursuit of Wisdom and Liberty

The weblog companion of, dedicated to pondering, "If Patrick Henry could see us now..."

Monday, January 17, 2005

More on Social Security

Can you tell what issue is becoming more and more important to me?

This column (by a regular guest commentator at the OC Register) is, while not as wildly antagonistic as many others, nonetheless sympomatic of some of the arguments used by opponents of privatization:
Other 'experts' agree that the crisis is real but suggest that the required solution is far less draconian - just a little tinkering with the tax rates, benefits and retirement age. An additional few tenths of a percentage in the tax, an increase in the wage ceiling, a couple of years tacked on to the retirement age, and quick as you can say 'New Deal,' the fund is solvent through the end of the century.
Why just to the end of the century? And what happens then? A little more tinkering with the tax rates? Why don't we pursue a path that will either a) keep it solvent forever or b) eliminate the need for it completely?

More from the same:
The president's idea for privatized accounts is to provide an opportunity for taxpayers to invest a portion of their Social Security taxes in securities such as stocks. In so doing, the logic goes, the funds will earn a higher return providing more for a taxpayer's retirement, thereby relieving some of the future burden from the Social Security trust fund.
However, a basic tenet of investment theory is the higher the return, the higher the risk. Further, the theory holds that the closest investment to risk-free is U.S. Treasury securities. Shifting Social Security funds to higher-yielding equities, even in mutual funds, carries far greater risk than leaving the funds in government-backed securities. Remember, the "I" in F.I.C.A. stands for "insurance" and the purpose of insurance is protection from risk. It doesn't make sense to increase the risk of a program that is designed to do just the opposite.
It makes me wonder if this guy is aware that no existing proposal for privatization (and the official Bush administration proposal still hasn't been detailed and released) makes it mandatory that people divert some of their contributions, nor that they purchase stocks or even mutual funds with their accounts. If people don't like risk, they can use the funds in their own accounts to purchase T-bills, which is what their Social Security contributions already purchase, therefore avoiding any unwanted additional risk. Even those people would come out ahead because unlike the T-bills purchased by their SS contributions - which they may or may not ever get back, and may decidedly NOT bequeath to their heirs - these personal account T-bills will belong to them, so they (at no additional risk, remember) will receive back 100% of the value and 100% of the growth of those T-bills, and/or leave them to their children and grandchildren when they die.

Be on the lookout for another LttE to the Register on this one, or I might just try my hand at a full-length Reader Rebuttal.


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