my own opinions on the matter.

That said, there was an interesting historic consequence (in mho) to this that I think I may have discussed with you before.

FDR's "social security" freed the sons and daughters of America from having to support the elders in their family. It therefore broke the bonds of extended family life (aunts, uncles, grandma, grandpa, sons, daughters, grandkids all in one house) that was so common prior to the Depression and helped to prepare the way for the little "nuclear family" post World War II boom where everyone got their own little new house in the suburbs (also probably further fueled the long-occuring rural to urban march.)

It really did help significantly change the American way of life. (As with most groundbreaking historic changes, definitely not all positive results--Betty Friedan going crazy in the suburbs was one result. I am just the opposite; as an independent/loner/individualist type, I do not think of it as a negative at all; I for one am grateful that I don't have to live in what I would consider a suffocating environment of an extended family. I read stories about women in Afghanistan or China or India having to deal with mothers-in-law in the house and I shudder! :-) These days, with many of the 'greatest generation' getting a payout way beyond what they put in, many of them have a better lifestyle than their kids, and end up supporting the 'kids' rather than the other way around!)

If so, strong support here for elevating it to Agonist front page!

What a wonderfully thoughtful piece of work! Thank you.

at one point the thought of doing some of the research you did occurred to me, but I just lay down and rested until the thought of work on

a project just went away :-)

there is a Duke University paper that is worth reading:

http://www.econ.duke.edu/Journals/DJE/dje2002/baecher.pdf

Also, I had,, until recently, a 3-year-old Newsday article that tied in the increasing freedom for women to work outside the home (rather than being bound to the traditional female roles of "caring for parents") not only to Social Security but also to Medicare, which is in a more financially precarious position.

Imagine paying for our parent's health (or not)

This is why the issue of fundng has to be handled as part of what we want our society to look like from cradle to grave.

If government won't help, relgious and other charitable organizations and women confined to homes to care of aging relatives(and there's enough of that already) will have to take up the "slack"

Artappraiser highlights a theme that really was at the core of Franklin Roosevelt's campaign in support of Social Security - the concept that the reduction of personal risk for retired workers and their families led to greater freedom overall for society. This crops up in many of FDR's speeches to Congress and also in his fireside chats, and was summarized in his 1941 address where he introduced his Four Freedoms, including the freedom from want.  

In reading the Duke University paper, which is really an excellent history of the economic and philosophical debates over Social Security from 1930 to the present, FDR is shown as someone who wanted to bridge the gap between the "institutionalist economic theory" that underlined many of his policies, and the mercantilist theory of personal freedom that critics of Social Security relied upon for their arguments.  Institutionalist economic theory argued that there were flaws in capitalism that only the government could fix.  One of them was the tendency for capitalism to isolate individuals and break up the cohesion of the extended family that existed in rural economies.  Another was a tendency for inequality as individuals pursued their self interest at the expense of others.  Critics of this aspect of capitalism referred to it as "rugged individualism", though today we would probably call it Objectivism because Ayn Rand took over the whole rugged individual philosophy as her own invention.

As you read through the history and debates over Social Security, you can see how masterful Roosevelt was in tying together these disparate philosophies.  He emphasized that providing for the social good did not absolve the individual of the need to plan for the future.  "Personal responsibility was critical" he would say, and he mentioned that his social programs would help preserve the United States as "God's country".

With Roosevelt's death the nation lost that voice of moderation, and the competing philosophies were allowed to drift into opposition.  Bill Clinton didn't exactly help matters.  He opposed individual investment accounts, but he endorsed the idea of the government investing Social Security payroll taxes into equities rather than Treasury bonds.  No one today really is speaking with ardor about the benefits to capitalism of providing for worker's dignity and basic needs in retirement.  There is no sound discussion about how capitalism has flaws, partly because the long history of economic success since the Depression has weakened the public's perception of capitalism as an economic model involving tremendous personal risk. In fact, the Republicans have done everything to enshrine capitalism as the most perfect economic system possible and the evolutionary end of economic development.  In would be interesting if at least one Democratic politician  made the argument that capitalism has been successful all these years precisely because the federal government has moderated its excesses and ameliorated its failings.  All the fervor in the current debate is on the side of the mercantlists and rugged individualists who place personal freedom ahead of any considerations for social cohesion or morality.  And yes, FDR did point out how his programs fostered a more moral society.  Odd, isn't it, that the Republicans now have a monopoly even on morality.

from the top of The Hill's weekly newsletter, just delivered to my email:

From :  The eNews <enews@thehill.com>

Reply-To :  enews@thehill.com

Sent :  Friday, January 7, 2005 11:11 AM

To :  <enews-html@thehill.com>

Subject :  The Hill e-News

The Tipsheet for January 7, 2005

Status quo?

With the president apparently letting Congress work out the details of Social Security reform, don't be surprised if Republican leadership in both the House and Senate cool their support for this political hot potato. Social Security has been a long-time political graveyard for Republicans -- see Speaker Tip O'Neill's battle with President Ronald Reagan. In addition, House Majority Leader Tom DeLay (R-Texas) might be reluctant to twist arms within the conference after forcing so many members to make a tough vote on the prescription-drug benefit.

is continued with other stuff.

Keep on making it "a political hot potato" and this may suffice! :-)

Thanks.

http://www.msnbc.msn.com/id/6789700/site/newsweek/

see page 2: On Social Security

http://www.msnbc.msn.com/id/6789775/site/newsweek/

NYT 1/8

OP-ED CONTRIBUTOR

Women and Children First

By MICHAEL C. LARACY

It would be a disaster if Congress were to reform Social Security in a way that would slowly swell the ranks of the poor and welfare-dependent.

http://www.nytimes.com/2005/01/08/opinion/08laracy.html

excerpt:

...Understandably, almost all of the debate about Social Security reform has focused on the effects on future retirees or on the federal budget deficit. This overlooks the role of Social Security as a life and disability insurance program, one that provides vital benefits to spouses and more than five million American children in families whose breadwinner died prematurely or became disabled. Benefit changes that may be tolerable for future retirees could have devastating consequences for these survivors.

When the federal government created both welfare and Social Security during the Great Depression, it envisioned welfare as a temporary program. Eventually, policy makers believed, Social Security would replace both welfare and the numerous underfinanced state programs for widows and orphans. They were wrong about welfare, but they were right about Social Security....

investing in that the basic concept of insurance (which social security is) is that it is a promise.  You pay a premium in and are guaranteed a payment of your claim.  To make certain that there are funds to pay that claim, the state agency insurance regulators all have enacted strict rules concerning how insurance companies invest the funds set aside for claim payment reserves.  While these rules vary widely in their terms, generally speaking they require that insurance company reserves investments are of the highest quality and involve the least risk.  Typically these investments are restricted to treasury bills and other government guaranteed instruments.  

So despite the fact that insurance companies are extremely sophisticated investors who employ highly qualified full-time investment professionals with state of the art tools and are overseen by investment committees from the most senior echelons of management, their regulators don't let them muck around with that part of your premium dollar that is set aside to pay your claim.

You may draw your own conclusions as to the wisdom of proposing that ordinary taxpayers be given more power to make decisions concerning the investment of what are in essence premiums than insurance regulators give insurance companies.

Would it be possible  To get permission to print this in my local paper? all credit going to you of course and this site

Very interesting article and thread. EOM :)

Caribdude

Numerian states:

"If you search through FDR's various speeches on Social Security, the descriptive that comes up most frequently is insurance. Social Security was proposed and established as an insurance program, whereby workers would pool their resources to help those who had already retired..."

What Numerian fails to know or acknowledge is that in the 1930s there were two distinct schools of thought on how "social insurance" should operate. Thus, noting that FDR talked about "insurance" in his speeches does not answer the question of whether he supported pay go cost spreading Social Security old age support. And the correct answer is that he did not.

The "Ohio" model of social insurance was redistributive in nature. However, the "Wisconsin" model of social insurance was conceived of as an annuity established by the pre-funding contributions of workers themselves who would thereby establish their own support in old age. The story of these two schools of thought on social insurance and how they impacted the development of Social Security is well described by Social Security Advisory Board member Sylvester Schieber (see http://www.ssab.gov/members.html ) in his book "The Real Deal: The History and Future of Social Security" (Yale University Press 1999). See e.g.,

>>"By the time FDR had created the Committee on Economic Security, two major schools of thought had evolved in the United States on how to approach the design and implementation of such programs in this country. One of these, labeled the Ohio model, evolved from the work of Issac M. Rubinow and his student Abraham Epstein. The other, labeled the Wisconsin model, evolved from the work of John Commons and John Andrews. ... "

>> "Commons and Andrews' thinking on social insurance had evolved over the years along the lines of a relatively pure insurance model. With this approach, one insures against a specified risk by accumulating a contingency fund that can be used to cover the expense when the contingency insured against actually occurs. ... It was considered "social" insurance because it was mandated by the government and provided protections that would not arise naturally in a free market environment. ... "

Id., pp. 28-29.

(continued)

1935 - FDR and Social Security Adopt a Worker Pre-Funded Mechanism of "Social Security"

FDR and the original 1935 Social Security Act legislation stood for social insurance as contemplated by the Wisconsin model.

FDR's Message to Congress

President Roosevelt's January 17, 1935 Message to Congress presents the intended foundation of his Social Security as a fully pre-funded compulsory contributory annuity system. Here's what he said:

>>" "In the important field of security for our old people, it seems necessary to adopt three principles: First, non-contributory old-age pensions for those who are now too old to build up their own insurance. It is, of course, clear that for perhaps thirty years to come funds will have to be provided by the States and the Federal Government to meet these pensions. Second, compulsory contributory annuities which in time will establish a self-supporting system for those now young and for future generations."

http://www.ssa.gov/history/reports/ces/ces3.html

Report of the Committee on Economic Security (January 1935)

President Roosevelt's Committee on Economic Security, which drafted the 1935 Social Security Act legislation, presented Social Security to Congress as a "compulsory, contributory system of old-age annuities".

Here's what the Committee's Report to Congress said:

>> "It is only through a compulsory, contributory system of old-age annuities that the burden upon future generations of the support of the aged can be lightened. With an increasing number and even more rapidly increasing percentage of the aged, the cost of supporting old persons will be a heavy load on future generations regardless of any legislation that may be enacted."

>> "... Explanation: The plan outlined above contemplates that workers who enter the system after the maximum contribution rate has become effective will receive annuities which have been paid for entirely by their own contributions and the matching contributions of their employers."

http://www.ssa.gov/history/reports/ces/ces5.html

This isn't like a system in which "workers would pool their resources to help those who had already retired".

How Social Security Changed From FDR's System In Which Benefits Were to Have Been Fully Pre-Funded By the Contributions of the Workers Who Were To Receive Those Benefits

Read this description of the change in Social Security from a Congressional Budget Office Report titled "Social Security: A Primer" (Sept. 2001):

>> "From Social Security's earliest days, a contentious issue was whether the benefits that workers and their families received should be prefunded using the taxes that those workers paid, rather than the taxes paid by current workers. As the program was enacted in 1935, revenues dedicated to Social Security would have exceeded outlays by enough to build up very large surpluses. In effect, those excess revenues would have helped fund, in advance, the benefits that the same workers would receive later. Opponents of prefunding argued that such an arrangement would result either in pressure to increase spending or in federal government ownership of private assets. Later expansions to the program, along with postponement of increases in the payroll tax rate that were originally scheduled to occur during the 1940s, essentially moved Social Security to a pay-as-you-go basis."

CBO, "Social Security: A Primer" (Sept. 2001)

http://www.cbo.gov/showdoc.cfm?index=3213&sequen [...]

FDR OPPOSED THE SHIFT OF HIS PRE-FUNDED SOCIAL INSURANCE SYSTEM TO THE PAY GO INTERGENERATIONAL TRANSFER SOCIAL SECURITY THAT WE NOW HAVE

>>> "The repeated onslaught of legislative repeals of scheduled increases in the payroll tax moved the program inexorably toward the pay-go approach. Not everyone was sanguine about this development. Although President Roosevelt had gone along with the 1939 Amendments' three-year delay in increasing the payroll tax, he opposed the subsequent delays. When Congress was considering the delay in the tax increase scheduled for January 1, 1943, FDR wrote to the chairmen of the Senate Finance and House Ways and Means Committees. He argued that "a failure to allow the scheduled increase in rates to take place under present favorable circumstances would cause a real and justifiable fear that adequate funds will not be accumulated to meet the heavy obligations of the future and that the claims for benefits accruing under the present law may be jeopardized." President Roosevelt vetoed the Revenue Act of 1943 because it included a delay in the payroll tax increase, but the veto was overturned. At the end of 1944, in signing H.R. 5565, which delayed the increase in the payroll tax from January 1, 1945, to January 1, 1946, the president noted in his accompanying statement, "I have felt in the past and I still feel that the scheduled rate increase, which has been repeatedly postponed by Congress, should be permitted to go into effect. The long-run financial requirements of the Social Security System justified adherence to the scheduled increases." When President Roosevelt died on April 12, 1945, Social Security was well on its way to operating on the pay-go funding basis. Critics of the contemporary U.S. welfare state may have a lot to blame on FDR, but the documentary trail of historical evidence does not support their blaming him for saddling us with a pay-go Social Security system. He had condemned the immorality of running up large unfunded liabilities in the program in 1935."

Sylvester J. Schieber and John B. Shoven, "The Real Deal: The History and Future of Social Security" (Yale University Press 1999) pp. 85-86.

FDR OPPOSED THE SHIFT OF HIS PRE-FUNDED SOCIAL INSURANCE SYSTEM TO THE PAY GO INTERGENERATIONAL TRANSFER SOCIAL SECURITY THAT WE NOW HAVE

>>> "The repeated onslaught of legislative repeals of scheduled increases in the payroll tax moved the program inexorably toward the pay-go approach. Not everyone was sanguine about this development. Although President Roosevelt had gone along with the 1939 Amendments' three-year delay in increasing the payroll tax, he opposed the subsequent delays. When Congress was considering the delay in the tax increase scheduled for January 1, 1943, FDR wrote to the chairmen of the Senate Finance and House Ways and Means Committees. He argued that "a failure to allow the scheduled increase in rates to take place under present favorable circumstances would cause a real and justifiable fear that adequate funds will not be accumulated to meet the heavy obligations of the future and that the claims for benefits accruing under the present law may be jeopardized." President Roosevelt vetoed the Revenue Act of 1943 because it included a delay in the payroll tax increase, but the veto was overturned. At the end of 1944, in signing H.R. 5565, which delayed the increase in the payroll tax from January 1, 1945, to January 1, 1946, the president noted in his accompanying statement, "I have felt in the past and I still feel that the scheduled rate increase, which has been repeatedly postponed by Congress, should be permitted to go into effect. The long-run financial requirements of the Social Security System justified adherence to the scheduled increases." When President Roosevelt died on April 12, 1945, Social Security was well on its way to operating on the pay-go funding basis. Critics of the contemporary U.S. welfare state may have a lot to blame on FDR, but the documentary trail of historical evidence does not support their blaming him for saddling us with a pay-go Social Security system. He had condemned the immorality of running up large unfunded liabilities in the program in 1935."

Sylvester J. Schieber and John B. Shoven, "The Real Deal: The History and Future of Social Security" (Yale University Press 1999) pp. 85-86.

There is a difference between (a) workers paying contributions to build up the means for their own old age support and (b) workers paying (pooling) taxes to support the current elderly. FDR supported the first (i.e., pre-funding) and opposed the second (i.e., pay go intergenerational transfer).

And FDR opposed it because pay go regressive payroll tax old age support was known to be unsustainable over the long term. This is alluded to in the January 1935 Report of the Committee on Economic Security in the statement "With an increasing number and even more rapidly increasing percentage of the aged, the cost of supporting old persons will be a heavy load on future generations regardless of any legislation that may be enacted..." It is noted by FDR in his letters to the Congressional leadership when he stated "the long-run financial requirements of the Social Security System justified adherence to the scheduled increases."

The Known Excessive Cost to Workers of Pay Go Social Security: Arthur Altmeyer - 1944

They knew long ago that the Social Security old age support system could not rely indefinitely upon returns from human capital (i.e., regressive payroll taxes) alone. Here's what Arthur Altmeyer (see http://www.ssa.gov/history/collectalt.html ) said about this back in 1944:

>>" (3) It is a mathematical certainty that the longer the present pay-roll tax rate remains in effect, the higher the future pay-roll tax must be if the insurance system continues to be financed wholly by payroll taxes. Therefore, the indefinite continuation of the present contribution rate (assuming the system is self-sustaining, and the costs are shared equally by the employees and employers) will eventually necessitate raising the employees' contribution rate later to a point where future beneficiaries will be obliged to pay more for their benefits than if they obtained this insurance from a private insurance company."

>> "(4) Retaining the present rate creates a moral obligation on the part of Congress to provide a Government subsidy later on to the extent necessary to avoid levying inequitably high pay-roll tax rates in the future. This obligation is recognized in the recent Murray amendment incorporated in section 201 (a) of the Social Security Act reading as follows: "There is also authorized to be appropriated to the trust fund such additional sums as may be required to finance the benefits and payments provided under this title."

http://www.ssa.gov/history/aja1144a.html

As an aside, it can be noted that Arthur Altmeyer had a doctorate in economics from Wisconsin. There, he had been a student of John Commons, one of the founders of the Wisconsin model of social insurance.

I don't remember the last Depression, (I'm going to be 50) but I know at least three people personally who were barely able to survive with their present Social Security benefits.  We're talking $600 a month with heart meds and so on costing about $400.  I also have seen firsthand how diabetes- and stroke-induced dementia make the old and sick victims to every scam in the book.  What the Republican Party is advocating is their usual brand of criminal cruelty and exploitation of the already suffering, and I will fight this with all I have no matter what was in FDR's brain at the time.

Numerian, beautiful work.

While I oppose mere "partial" privatization or any reform that continues paying current old age support benefits with regressive payroll taxes, even "liberal" authorities have reform plans utilizing private financial securities.

>>> (Aaron/Reischauer/Century Foundation) The Fiduciary Corporation. Organizational reforms could all but eliminate the risk that Social Security reserves cold be used to interfere with private investment decisions. Management of Social Security reserves could be placed in the hands of a private, not-for-profit entity created under federal charter - the Fiduciary Corporation (FC). The directors of the FC would consist of selected executives from the private sector and an independent government agency. Each would serve ex officio. For example, the federal charter might specify that the FC directors would include the president of one of the nation's largest insurance companies, the CEO of a major financial institution, the head of one of the leading stock exchanges, and the comptroller general from the General Accounting Office. .... To manage the trust funds' reserves, the power of the FC would be statutorily limited to selecting fund managers on the basis of competitive bids. The fund managers would be authorized to make passive investments in securities - bonds or stocks - of companies chosen to represent the broadest possible indexes. These investments would have to be merged with funds managed on behalf of private account holders. To prevent the FC or its fund managers from exercising any voice in management of private companies and FC share ownership from diluting control of private shareholders, Congress could insist on either of two precautions...

From: Henry J. Aaron & Robert D. Reischauer, "Countdown to Reform" (Century Foundation 2001 rev.), p. 122.

WASHINGTON | January 10, 2005    

As White House Begins Social Security Push, Critics Claim Exaggeration

By EDMUND L. ANDREWS   (NYT)   News  

excerpt:

....But opponents of Mr. Bush's approach say he is greatly exaggerating the problems to sell his plan to scale back Social Security, the government's biggest and oldest social program.

Outside analysts say Social Security's long-term financial gap, which the government estimates to be $3.7 trillion over 75 years, is smaller than the projected cost of Mr. Bush's tax cuts or the Medicare prescription drug program that he pushed through Congress in 2003.

The Social Security trust fund has accumulated more than $1.5 trillion in reserves, held in Treasury bonds. Even if no changes are made, the government's actuaries predict that the program will be able to pay full benefits until at least 2042 and at least 70 percent of benefits after that.

That is a far brighter outlook than in 1983, the last time Congress shored up Social Security, when the trust fund was just days from insolvency....

http://www.nytimes.com/2005/01/10/politics/10social.html?ex=1263013200&en=140b4fb05eb60c5d&e
i=5090&partner=rssuserland

Graphic: An Urgent Crisis or a Fixable Problem?

NYT

OPINION | January 11, 2005    

The Iceberg Cometh

By PAUL KRUGMAN   (NYT)   Op-Ed

http://www.nytimes.com/2005/01/11/opinion/11krugman.html

beginning excerpt:

ast week someone leaked a memo written by Peter Wehner, an aide to Karl Rove, about how to sell Social Security privatization. The public, says Mr. Wehner, must be convinced that "the current system is heading for an iceberg."

It's the standard Bush administration tactic: invent a fake crisis to bully people into doing what you want. "For the first time in six decades," the memo says, "the Social Security battle is one we can win." One thing I haven't seen pointed out, however, is the extent to which the White House expects the public and the media to believe two contradictory things.

The administration expects us to believe that drastic change is needed, and needed right away, because of the looming cost of paying for the baby boomers' retirement.

The administration expects us not to notice, however, that the supposed solution would do nothing to reduce that cost. Even with the most favorable assumptions, the benefits of privatization wouldn't kick in until most of the baby boomers were long gone. For the next 45 years, privatization would cost much more money than it saved.

Advocates of privatization almost always pretend that all we have to do is borrow a bit of money up front, and then the system will become self-sustaining. The Wehner memo talks of borrowing $1 trillion to $2 trillion "to cover transition costs." Similar numbers have been widely reported in the news media.

But that's just the borrowing over the next decade. Privatization would cost an additional $3 trillion in its second decade, $5 trillion in the decade after that and another $5 trillion in the decade after that. By the time privatization started to save money, if it ever did, the federal government would have run up around $15 trillion in extra debt.

These numbers are based on a Congressional Budget Office analysis of Plan 2, which was devised by a special presidential commission in 2001 and is widely expected to be the basis for President Bush's plan.

Under Plan 2, payroll taxes would be diverted into private accounts while future benefits would be cut. In the short run, this would worsen the budget deficit. In the long run, if all went well, cutting benefit payments would reduce the deficit.

All wouldn't go well; I'll explain why in another column. But suppose that everything went according to plan. Even in that unlikely case, privatization wouldn't even begin to reduce the budget deficit until 2050. This is supposed to be the answer to an imminent crisis?....

Bush to Congress: Pass Social Security Reform or Risk Your Jobs

By Nedra Pickler Associated Press Writer

Published: Jan 11, 2005

WASHINGTON (AP) - President Bush tried to increase pressure on members of Congress who are leery of his ideas to change Social Security by telling them Tuesday they could be risking their jobs.

"I happen to believe people who have been elected to office who ignore problems will face a price at the ballot box," Bush said during a forum with voters who support his goal of creating private investment accounts to partly replace guaranteed benefits.

Democrats say that they, too, will make an issue of Social Security in the midterm elections. "Republicans should be worried," said Democratic National Committee spokesman Jano Cabrera. "Whether Republicans are cutting benefits, raising taxes, or further exploding the budget deficit, Democrats intend to make Social Security a key issue in 2006."

Social Security is projected to start paying out more in benefits than it collects in taxes in 2018, according to Social Security trustees but will be able to pay full promised benefits until 2042. The nonpartisan Congressional Budget Office has projected the program will be solvent until 2052.

The president wants to revamp the government retirement program by letting younger workers divert some of their Social Security payroll taxes into personal investment accounts, although he has not provided details of his proposal. Many Democrats are unwilling to give Bush a chance to cut guaranteed benefits and question how setting up personal investment accounts will fix the system's solvency problem.

Bush said he realizes some lawmakers see "too much political danger" in changing the nation's retirement system. With renewed political confidence after re-election, Bush has said he will try to give cover to those who support an overhaul and make it politically risky for those who oppose him.

"Members who will work, constructively work with us will be able to look back and say, 'I did my duty. I came to Washington to be more than just a place holder,'" Bush said.

"Some are afraid to touch it, some don't want to touch it, some provide excuses not to touch it," he said. "I know, I've heard it before. But I believe that the president has a responsibility for setting the agenda." He said members of Congress have "an obligation to confront problems head on."

more at:

http://ap.tbo.com/ap/breaking/MGBROHYOU3E.html

a lotta privatize pointyheads and a coupla antis all yellin at the same time:-)

http://www.ncpa.org/video/trans/404.html

DebatesDebates

#404 Should Social Security Be Privatized?

July 14, 1999

-----------------------------------------

(no replies on this bedlam needed)

reported from my diary. The proof of the pudding is in the tasting:

--------------------------------------------

Gustavo González | December 20,2004  |IPS | Santiago,Chile

http://www.ipsnews.net/africa/interna.asp?idnews=26744

Changes to pension systems in Latin America have heightened gender-based discrimination and will lead to greater poverty and vulnerability among women if corrective measures are not adopted, according to Sonia Montaño, chief of the ECLAC Women and Development Unit.

Montaño and Flavia Marco, another specialist from the Economic Commission for Latin America and the Caribbean (ECLAC), coordinated studies in six countries of the region that confirmed the negative impact on women of one of the principal forms of "modernisation" promoted by the free-market, "neoliberal" economic model.

By nymole in Diaries on Mon Jan 3rd, 2005

The beginning of this thread starts with the following quote from FDR:

>>> (FDR) "No greater tragedy exists in modern civilization than the aged, worn-out worker who after a life of ceaseless effort and useful productivity must look forward for his declining years to a poorhouse. A modern social consciousness demands a more humane and efficient arrangement."

[Albany, N.Y., - February 28, 1929 - Governor Franklin D. Roosevelt, Message to N.Y. State Legislature]

The irony is that pay go Social Security will be the primary cause of just this result for millions and millions of elderly members of the baby boomer and younger generations.

By depriving these generations of critical first dollar resources needed to build their own families, lives, businesses and savings for their own old age support - in order to provide excess, unprovided for above poverty level support to the elderly of prior generations, pay go Social Security will condemn them to just the fate FDR decried.  

I've been away so's I just skimmed this thread. wmhart1 appears to be intelligent, well-spoken, knowledgible, if opinionated on the issue.  I am indeed interested in SS, but you gotta admit it is essentially a sleep-inducing issue.  We'll hear much much more in the coming months; maybe boredom is Bush's ace up the wazoo.  

Dear Numerian

I didn't quite have the time to get to my responses to the last of your six areas of questions presented to me above... and now it seems that a number of persons here don't want to see me post any more answers.  

Perhaps this isn't the place for the discussion.

Best regards

Dear MoveOn member,

Social Security is the crown jewel of progressive government -- a singular achievement that has reshaped what used to be penniless old age. Now George Bush and Republican leaders have made phasing out Social Security as we know it through privatization and massive benefit cuts their top priority for 2005.

Even House Republicans are skeptical about the scheme. According to a recent Washington Post article, as many as 40 Republican members are considering voting against it. So the final vote is likely to be extremely close, and Bush and the Wall Street firms that stand to make billions are pulling out all the stops. According to some reports, they're raising up to $100 million for advertising to apply pressure.

Bush started his publicity blitz on Tuesday, and now the clock is ticking for House and Senate members to state their position. We need to send them a message before it is too late. Let your members of Congress know that you want them to protect Social Security by signing our petition at the link below:

http://www.moveon.org/socialsecurity/

Our goal is to deliver 200,000 signatures on a petition to Congress when they return after the January 20 inauguration. That is a big goal in such a short time but we know that you can help make it happen by forwarding this alert to your friends, family and coworkers.

In pushing this issue, Bush is working out of the same play book that he used for the war in Iraq. First, he's manufacturing a crisis, by grossly distorting the scale of the threat. Then, when Americans are convinced that the problem is clear and imminent, he'll propose a reckless solution -- privatization -- which just happens to help a lot of his corporate friends.

And of course, the gap between Bush's rhetoric and the truth is enormous. Social Security is a complicated issue, but the basics are really pretty simple:

Social Security provides monthly benefits to some 44 million Americans who are retired, disabled or the survivor of a deceased parent. It provides most of the income for older Americans -- some 64 percent of their support. It has lifted generations of seniors out of poverty.

Social Security is not in crisis. That is an outright lie perpetrated in order to create the urgency for radical changes. Under conservative forecasts, the long-term challenges in Social Security do not manifest themselves until 2042. Even then Social Security has 70 percent of needed funds. That shortfall is smaller than the amount needed in 1983, the last time we overhauled Social Security. George Bush's Social Security crisis-talk is an effort to create a specter of doom -- just like the weapons of mass destruction claim in Iraq.

Phasing out Social Security and replacing it with privatized accounts means one thing: massive cuts in monthly benefits for everybody. Social Security privatization requires diverting taxes used to pay current benefits into privatized accounts invested in risky stocks. Without that money, Social Security benefits will inevitably be cut -- some proposals even cut benefits of current retirees. These benefit cuts are inevitable, since diverting Social Security money into privatized accounts means less money to pay current and future benefits.

Every serious privatization proposal raises the Social Security retirement age to 70. That might be fine if you're a Washington special interest lobbyist but it is incredibly unfair to blue-collar Americans with tough, physical jobs, or for African Americans and Latinos with lower life expectancies.

Privatization means gambling with your retirement security. There is probably an appropriate place for a little stock market risk in retirement planning -- but it isn't Social Security. Privatization exposes your entire retirement portfolio to stock market risks -- and the risk that you'll outlive any of your savings at retirement. You can't outlive your Social Security benefit.

So who does benefit? Wall Street. Giant financial services firms have been salivating for decades over the prospect of taking over Social Security. Wall Street would make billions of dollars in profit by managing the privatized accounts -- money that would come directly from your benefits.

So far, the Democrats are united in the cause of protecting Social Security. If the Democrats are going to show some real backbone we need to back them. Show your support by signing the petition at the link below:

http://www.moveon.org/socialsecurity/

And after signing the petition, please help debunk the misinformation that's circulating by forwarding this email on to your friends and family.

Thanks for all you do.

--Tom Matzzie and Eli Pariser

  MoveOn.org

  January 13th, 2005

P.S.: For more information, here are some good resources:

Campaign for America's Future on Social Security

http://www.ourfuture.org/issues_and_campaigns/socialsecurity/index.cfm

The Social Security Network by The Century Foundation

http://www.socsec.org/

"The Iceberg Cometh" by Paul Krugman. The New York Times. January 11, 2005 (registration required)

http://www.nytimes.com/2005/01/11/opinion/11krugman.html?ex=1263272400&en=a6842a621ebe11ad&e
i=5088&partner=rssnyt

"Bush Launches PR Campaign to change Social Security" by Richard Benedetto and Judy Keen, USA TODAY January 11, 2005

http://www.usatoday.com/news/washington/2005-01-11-bush-social-security_x.htm?csp=34

You have hijacked and ,yes,privatized this thread with a vengeance, whatever your motive.

Reexamine the concept of the "common good" and how it applies to public discourse here.

There is an empty diary in the agonist for wmhart1 that you can use, as many others including myself have used to express their detailed opinions on continuing topics.

The instructions are easy to follow and the location gives you a blog of your own.

NYT for 1/16 publication

Agency Running Social Security to Push Change

By ROBERT PEAR  12:13 PM ET

The Social Security Administration is preparing a major public relations campaign to market the idea that Social Security faces dire financial problems requiring immediate action and private accounts.

http://www.nytimes.com/2005/01/16/politics/16benefit.html?

Former U.S. Treasury Secretary Paul O'Neill is on the right track regarding Social Security Reform.  

See his op-ed article at the New York Times.

http://www.nytimes.com/2005/01/16/opinion/16oneill.html?hp

John M. Berry

Jan. 21 (Bloomberg) -- President George W. Bush's assertions that Social Security faces a crisis and is ``flat bust, bankrupt'' are patently false.

Bush and other administration officials are greatly exaggerating potential problems facing the program to push through changes that would undermine the most successful social insurance program in the nation's history.

The system is so far from crisis or bankruptcy that the truly prudent course at this point most certainly would be to make no changes in Social Security at all. Wait and see if even under conservative assumptions the date at which the system's trust fund would be exhausted keeps receding.

In 1994, Social Security trustees put that date at 2030 using their intermediate projection, the middle one of three. By 2004, 10 years later, the date had been pushed out 12 years, to 2042. And even after that, 75 percent of promised benefits could still be paid.

That's neither a looming crisis nor bankruptcy.

Bush has no intention of being prudent. Instead, he obviously wants to undermine confidence in the program to create a political climate in which Congress will approve diverting a portion of the payroll tax that funds Social Security to individual accounts for workers with the money invested in equities and corporate and government bonds.

By assuming unrealistically high returns on equities, the private accounts are being sold as a way to make up for the alleged inability of Social Security to pay promised benefits in the future.

Wehner Memo

Unfortunately for Bush, earlier this month a memo written by Peter Wehner, his director of strategic initiatives, appeared in the newsletter Congress Daily and has since been widely quoted.

``You may know that there is a small number of conservatives who prefer to push only for investment accounts and make no effort to adjust benefits -- therefore making no effort to address (the) fundamental problem'' in Social Security, Wehner said. ``In my judgment, that's a bad idea.''

In other words, private accounts would not fix the allegedly ``bankrupt'' system. Since no one working for Bush is about to suggest taxes be raised, the only alternative would be to reduce benefits. All the Washington chatter is about freezing the real value of benefits at their present average level of about $1,200 a month. Currently, benefits are indexed annually for both inflation and real wages.

More:

http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_berry&sid=aJ9dbBFwsZ1k

Paul Krugman | New York | January 21

NYT - Did they believe they would be welcomed as liberators? Administration plans to privatize Social Security have clearly run into unexpected opposition. Even Republicans are balking; Representative Bill Thomas says that the initial Bush plan will soon be a "dead horse."

That may be overstating it, but for privatizers the worst is yet to come. If people are rightly skeptical about claims that Social Security faces an imminent crisis, just wait until they start looking closely at the supposed solution.

President Bush is like a financial adviser who tells you that at the rate you're going, you won't be able to afford retirement - but that you shouldn't do anything mundane like trying to save more. Instead, you should take out a huge loan, put the money in a mutual fund run by his friends (with management fees to be determined later) and place your faith in capital gains.

That, once you cut through all the fine phrases about an "ownership society," is how the Bush privatization plan works. Payroll taxes would be diverted into private accounts, forcing the government to borrow to replace the lost revenue. The government would make up for this borrowing by reducing future benefits; yet workers would supposedly end up better off, in spite of reduced benefits, through the returns on their accounts.

The whole scheme ignores the most basic principle of economics: there is no free lunch.

There are several ways to explain why this particular lunch isn't free, but the clearest comes from Michael Kinsley, editorial and opinion editor of The Los Angeles Times. He points out that the math of Bush-style privatization works only if you assume both that stocks are a much better investment than government bonds and that somebody out there in the private sector will nonetheless sell those private accounts lots of stocks while buying lots of government bonds.

So privatizers are in effect asserting that politicians are smart - they know that stocks are a much better investment than bonds - while private investors are stupid, and will swap their valuable stocks for much less valuable government bonds. Isn't such an assertion very peculiar coming from people who claim to trust markets?

When I ask privatizers that question, I get two responses.

One is that the diversion of revenue into private accounts doesn't have to lead to government borrowing, that the money can come from, um, someplace else. Of course, many schemes look good if you assume that they will be subsidized with large sums shipped in from an undisclosed location.

Alternatively, they point out that stocks on average were a very good investment over the last several decades. But remember the disclaimer that mutual funds are obliged to include in their ads: "past performance is no guarantee of future results."

Fifty years ago most people, remembering 1929, were afraid of the stock market. As a result, those who did buy stocks got to buy them cheap: on average, the value of a company's stock was only about 13 times that company's profits. Because stocks were cheap, they yielded high returns in dividends and capital gains.

But high returns always get competed away, once people know about them: stocks are no longer cheap. Today, the value of a typical company's stock is more than 20 times its profits. The more you pay for an asset, the lower the rate of return you can expect to earn. That's why even Jeremy Siegel, whose "Stocks for the Long Run" is often cited by those who favor stocks over bonds, has conceded that "returns on stocks over bonds won't be as large as in the past."

But a very high return on stocks over bonds is essential in privatization schemes; otherwise private accounts created with borrowed money won't earn enough to compensate for their risks. And if we take into account realistic estimates of the fees that mutual funds will charge - remember, in Britain those fees reduce workers' nest eggs by 20 to 30 percent - privatization turns into a lose-lose proposition.

Sometimes I do find myself puzzled: why don't privatizers understand that their schemes rest on the peculiar belief that there is a giant free lunch there for the taking? But then I remember what Upton Sinclair wrote: "It is difficult to get a man to understand something when his salary depends on his not understanding it."

I was thinking about this very point when writing the article.  Since poverty among the elderly was already serious and endemic by the 1920's, I suspect something was already happening to dissolve the extended family.  The industrial revolution of the 19th century was one contributing factor, as farm families began to be broken up when young adults would leave for more attractive jobs in the cities.

Secondly, by 1920 the U.S. had experienced the greatest influx of immigrants of any nation up to that time.  This process was accomplished in steps.  A father or son would leave Italy to find a new life in New York, sharing rooms with other immigrants in overcrowded tenements in New York.  Eventually other members of the family would join them - but usually the elderly would be left behind in Italy.  In that respect, the extended family would not be created in the U.S. - or would be created only partway - and the elderly would be left without immediate family support back in Italy.

I suspect this pattern is continuing with today's immigrants to the U.S.  The elderly remain behind in Mexico while the sons and daughters support them through remittances of dollars.

But your point about Social Security causing or contributing to the break-up of the extended family must be true as well.  The mutualization of financial responsibility for one's parents by all of society's workers has to give the parents the flexibility to remain on their own for much longer into their retirement.  These days retired people rejoin their children only for reasons of bad health - not because they have run out of retirement money.

Notice too that there is something of a wealth transfer going on, since FICA taxes are taken out on salary up to $90,000.  Higher-paid workers are paying more into the system and thus providing for the retirement needs of parents of workers earning $40,000 or less.

Whatever these effects have been, they have been small compared to those resulting from women entering the work force in the 1970's.  The two earner family which is now so common has really put a strain on the nuclear family model of wife, husband and children.  Counterbalancing this is the introduction of a different type of extended family composed of in-laws, step-parents, etc.  Divorce and remarriage has brought about many families that are composites of unrelated children.  Maybe you could say that the nuclear family doesn't exist in substantial form, but as compensation people now have many more step-children to turn to for help in their old age.

You write: "FDR's "social security" freed the sons and daughters of America from having to support the elders in their family."

First, the pay go, intergenerational transfer, regressive payroll tax version of Social Security was principally a creature of conservative Republican opposition to FDR's plan for a fully pre-funded old age support system.  Conservative Republicans did not want the federal government to have control over so much of the nation's economic wealth as would have been necessary under FDR's collective investment account approach to old age support.

Second, it would be more accurate to state that pay go Social Security imposed the additional burden on children of providing support, not only to their parents, but also to those elderly who had never reared them and perhaps had never even reared any children.  In other words, pay go Social Security de-linked the required investment in the rearing of children from the "right" to receive the benefits of the support of "children" in old age.  

I was thinking on several of your points as well! Even to the point where I was going to recommend the movie "Avalon" as an enjoyable entertainment vehicle that sort of addresses some of them well:

http://www.rottentomatoes.com/m/1031472-avalon/

But I thought better of it and erased that, because I thought some might think it silly! But now that you bring up the immigrant thing, I do recommend the movie for those who haven't studied history on some of the mid-20th-century changes. (Television came at a crucial time, it was the new "hearth"--the movie addresses this well. But it also does a good job on the generational change from immigrant extended to nuclear.)

Sorry if I am taking this too far off-topic. It's just stuff that interests me. And I do want "social security" for the reasons I mentioned! I believe it helps furnish the "freedom" that conservatives are always yammering about!

I thought something basic was missing in all the Social Security discussion, which has focused so far on supposed funding crises in 2018 or 2042 or even further out. So I went back to the debates in the 1930's about the program and learned that it was always viewed by the Democrats as a form of old age insurance.  A nationwide insurance program involving all workers and employers is a very powerful form of risk reduction.  Somehow in their complete hatred for anything the federal government does, the Republicans missed out on the efficiency and you might even say intellectual beauty of the program, which has been enormously successful.  In fact modern Democrats seem to have forgotten the basic premise as well, and aren't doing a good job reminding workers that they already have 401k's and IRA's and don't need another investment program because none of these will ever guarantee them lifetime coverage (unless you are in that small minority who are very wealthy). Workers need a combination of national insurance for basic, lifetime living expenses in retirement (Social Security), plus their own investment programs which they already have.  Leave well enough alone, because if SS ceases to be a nation-wide program it falls apart and poverty slips back in through the back door.

"freedom" meme, perhaps provoke your own thought on it more, as you know this angle better.

In my first comment, the way I phrased it limited the idea that this social insurance gave "freedom" to people from extended families, but really, I was thinking it was also

freedom from risk.

as most insurance does!

Social security took some of the onus of worry about old age off of society, so that people felt free to take more risk with their savings and money!

There are upsides and downsides to the results, of course, but it certainly could be shown that it made for more "freedom" of the capitalist type that conservatives like to yammer about!

In my mind, there are certain basic needs that, if protected from the vagaries of the capitalist system, allow capitalism to be pursued more aggressively and healthily!

(I happen to think national health coverage would do this, too. If one thinks of car insurance, for example, required by law for people who want to drive--car insurance was necessary once there were a lot of cars in order to keep many people from being fearful of driving. If there wasn't car insurance, the more circumspect, careful types would not take the risk of driving, as they would be afraid of losing all if sued.)

Worthy of the Agonist Exclusive designation and a front page slot.

Dear Numerian

Pay go, regressive payroll tax, intergenerational transfer Social Security old age support is primarily a conservative Republican-originated program.

Conservative Republicans of the late 1930s and early 1940s, primarily Republican Senator Arthur Vandenberg, vehemently opposed FDR's vision for a Social Security collective account building huge reserves using worker contributions.  And it was principally conservative Republicans who killed FDR's vision for this type of fully pre-funded "investment"-based system of old age support.

Conservative Republicans, with the assistance of some liberal Democrats, killed FDR's vision for Social Security by postponing contribution rate increases scheduled by the original 1935 legislation.  Thus, instead of the collective account growing to pre-fund those workers' future benefits, it instead became a type of checking account in which benefit flowed in and then immediately out again to pay current old age support benefits.  

FDR opposed pay go intergenerational transfer old age support because it was known to be unsustainable over the long term.

To just drop the whole idea, but being close to retirement kept me motivated.

Robert Scheer | The Nation | January 3 web edition

The GOP's Sabotage of Social Security

[posted online on December 21, 2004]

http://www.thenation.com/doc.mhtml?i=20050103&s=scheer1221

Just my luck: I finally get to be a senior citizen only to discover that the President considers my longevity a grave threat to the nation. Apparently, my collecting Social Security checks for as long as I have left on this Earth is going to help bankrupt the economy and/or be an unbearable burden on young Americans.

That's why, after seven decades of unmitigated success in protecting seniors from the vagaries of market forces, the White House now wants to turn Social Security itself over to the vagaries of market forces. The conservative mantra, whether it comes to energy policy, war in Iraq or education, is to siphon public money into the private sector whenever and wherever possible, through such gimmicks as agribusiness subsidies, school vouchers and the hiring of private mercenaries.

Greed perfectly meshes with ideology in the Republican Party, and the attempted sabotage of Social Security is just another example. While the followers of Milton Friedman talk about the free market in religious terms, Wall Street is slavering at the possibility of one of the biggest potential windfalls in human history if the Social Security spigot is turned its way. The attendant investment fees alone would be enormous--certainly higher than the minimal 1 percent overhead costs the current Social Security system consumes.

What's astonishing is that despite the recent spate of abrupt corporate bankruptcies and Wall Street corruption scandals, the President would have us believe only stockbrokers can save Social Security, and the stability of the entire fund would be tied to a stock market that has been known to tank now and again. Further, even the President's key advisors admit that the short-run cost of "privatizing" Social Security would add trillions of dollars to the Bush legacy of federal government red ink.

While I am all for expanding opportunities to invest in tax- deferred retirement accounts (like 401k's), it does not follow that Social Security should be exposed to the same risks. Social Security is the safety net for the elderly that has since its inception protected millions from facing abject poverty upon retirement--even if their pensions should evaporate, as they did for the employees of Enron.

Along with Medicare, Social Security is the key reason seniors are no longer the most impoverished class in our society or a crushing burden on their children. This last needs to be mentioned to counter the argument that ensuring the security of baby boom seniors would impose an intolerable burden on younger workers. For who is going to replace those Social Security checks, should they stop coming because Grandpa picked the wrong stock? The kids and grandkids, that's who, if they have any real family values.

I speak out of an experience I'm sure many of you share. My mother retired after forty years as a garment worker, after which she lived with me until she died at the thankfully old age of 88. Her presence was of great emotional value to our family, but because of her two-decade bout with Parkinson's, it would have represented a serious financial burden on my wife and me had it not been for government support.

The President says the system that has served us well in the past is no longer sustainable. He, or rather those cooking the books for him, attempts to scare us with projections that the Social Security trust fund will begin to run deficits thirty-eight years from now.

But those numbers assume no dramatic change in the increasing ability of seniors to retire later and otherwise continue to earn income that is taxable. The anti-Social Security crowd is trying to make this a young-versus-old generational fight, even though seniors still pay taxes like anybody else. We even pay taxes on most of our Social Security earnings, if our household income rises above a pittance.

If the President is truly worried about the federal coffers running dry he should stop cutting taxes for us better-off folk and stop spending so much money on boondoggles like the occupation of Iraq. However, if it turns out that we need additional taxes to cover the obligations of the Social Security trust fund four decades from now, so be it. After all, money distributed to the elderly through Social Security is poured right back into the economy.

For three-quarters of a century, Social Security has guaranteed us all a life of modest dignity as we live out the end of this mortal coil.

So--if you'll pardon this senior's use of a curmudgeonly truism--I say if it ain't broke, don't fix it.

Dear Numerian

It is unfortunate that you did not come across "The Real Deal: The History and Future of Social Security" (Yale University Press 1999) by Sylvester Schieber and John Shoven, before writing your article.  In my opinion it is the best book, and perhaps the only book with the real history of how FDR's fully pre-funded system of old age support was corrupted into the pay go, intergenerational transfer system that we now have.  

As noted in another post here, Sylvester Schieber has been a member of the Social Security Advisory Board, having been appointed by President Clinton in 1998.  

FDR's Social Security system would have been a fully pre-funded "investment" type system of old age support, which would have utilized the Social Security Trust Fund as a "collective account", in contrast to the individual account systems now under consideration.  

...the plan to privatize social security makes allowances for streetside solicitations and will generously provide the pencil cups.

Supporters of the status quo for Social Security often tout the benefit of the program to younger generations. But this is propaganda.

First, they talk about Social Security Disability Insurance (DI).  But DI is a separate program funded with a 1.8% payroll tax rate, and most reform plans don't talk about eliminating DI.  The Old Age and Survivors Insurance (OASI) program is funded with a 10.6% payroll tax rate.

While OASI does include survivors' benefits for the minor children of deceased workers, the cost of all benefits that might flow to younger workers and their families under OASI totals less than .5% of payroll.  That's right, the benefits of the Social Security OASI program that go to younger workers and their families are a minimal cost component of the OASI program.

The Social Security Trustees project that Social Security will be able to pay only 73% of promised benefits by 2042, declining to only 68% of promised benefits in 2078.  http://www.ssa.gov/OACT/TR/TR04/II_project.html#wp105057

Don't let the tail wag the dog that won't hunt.

Best regards

Whereas an insurance company has strict safeguards imposed by regulators over how they can invest their premiums received, Republicans are proposing that these safeguards be eliminated and that - moreover - the beneficiaries be able to dictate how the insurance company invests each beneficiary's premiums.

All of this is dressed up in the cloak of "ownership" and "investor control", as if Social Security was your personal mutual fund.  Here's an example - the conclusion of David Brooks's column today in the NY Times:

First, Social Security reform should liberate our kids, not shackle them. It should eliminate the fiscal overhang so they have the money to tackle the problems that will arise in their own day.

Second, the reform should be transparent, so that people can see what kind of return they are getting on the money they put into the system. People should have information about their own lives.

Third, it should enhance people's control over their own retirement. In a self-governing democracy, citizens should do for themselves what they can do for themselves.

Fourth, people should be encouraged to work longer. In an age in which many live into their 90's, we should be making better use of people in their 70's and 80's.

Fifth, we need a savings revolution. The plan should encourage the nation to save more, to create more capital for America's future greatness.

The closest I can get to an analogy of "investment" for Social Security is the whole life insurance product.  But even here, your insurance component - the death benefit - typically expires at age 75, and the cash build up is paid out in a lump sum.  There is no promise to pay for as long as you live.  This is what makes the basic function of Social Security a unique form of insurance and not one the private sector could handle as efficiently as the federal government.

What David Brooks is describing completely misconstrues the role of Social Security.  And he's supposedly one of the more responsible conservative columnists.

I favor fundamental reform of Social Security to a system of mandatory individual retirement accounts. Regressive payroll taxes should no longer be used at all to provide current old age support benefits.

However, I believe that there should be substantial government regulation and oversight of such a system, as well as enhanced enforcement of existing and new corporate responsiblity legislation.  

I don't have personal experience with it, but I believe the Federal Employees Retirement System would provide a good model for a mandatory individual retirement account system.

It was known back in the 1930s and 1940s that it would take a long time for a regressive payroll tax funded pay go old age support system to fail.

In 1939, when Congress postponed the first scheduled rate increase, Edwin Witte, Executive Director of the Committee on Economic Security that drafted the 1935 Social Security Act, voiced his concerns about the postponement on the long term financing of the sytem to J. Douglas Brown.  

Brown was a Priceton economics professor and also a member of the Committee on Economic Security.

In response to Witte's expression of deep concern for the long term insolvency of pay go Social Security, what did J. Douglas Brown say?

J. Douglas Brown said: "We will all be dead."

You should mention though that you found this on the Agonist.org, which encourages thoughtful discussion of important issues.

Please don't republish this article.  It would only propagate more erroneous propaganda about the history of the system. I spend more time trying to correct erroneous information about the existing system and it history than discussing how it can be fixed.

I am finding that without an accurate base of information and understanding, meaningful discussion is impossible.  

Best regards

Thanks for providing some history on FDR's thinking as Social Security was inaugurated and later allowed to develop through the 1930's and into the 1940's.  One of your important points is that FDR did not want Social Security to evolve into a pay-as-you go mechanism, since he preferred the concept of an annuity that would be pre-funded by participants.  As you point out, he was worried that the payroll tax burden would become harder as retired workers comprised a larger portion of the population over time.  This is not a minor point, because that is partly what the debate is about today.  In fact, the 1983 reforms of Social Security were supposed to solve the problem of a population skewing every year to fewer workers supporting more and more elderly.  FDR's image of the pre-funded plan lives on, however.  Today many people think they are owed their Social Security monthly checks because they pre-funded them with payroll taxes that were more than enough to cover these checks.

Whether Social Security ever could have evolved into a pure annuity system where all obligations were pre-funded is something we might never know.  For one, the Social Security annuity is not exactly the type of product that can be purchased in the private market, since Social Security pays for the rest of your life however long that may be.  I think that reality was bumping up against FDR's ideal concept very soon into the program, though politically it was the Republicans in Congress who pushed for pay-as-you-go.  Now in fact Social Security benefits are indexed to increase annually along with the rate of inflation, so you have to wonder if FDR might have been opposed to that idea.  

The other way of looking at this is through the Ohio and Wisconsin schools of thought that you describe in your posts, the Wisconsin school being in favor of the pre-funded annuity approach.  Arthur Altmeyer's analysis in the 1940's, which you summarize, concluded that if the system continued to be funded solely by payroll taxes, then it "will eventually necessitate raising the employees' contribution rate later to a point where future beneficiaries will be obliged to pay more for their benefits than if they obtained this insurance from a private insurance company."

Altmeyer's framework is one in which Social Security is competing with private insurance (if such insurance were available).  For that matter, an annuity, which is what FDR might have preferred as the structural foundation of Social Security, is an insurance product.  Either way I keep coming back to the fact that the debates centered around Social Security as some sort of insurance for the retired worker, providing a guarantee of financial support in their old age.

The Republicans have muddied this discussion tremendously by convincing themselves that it is fair to compare Social Security to your everyday mutual fund, which they then can say provides superior returns.  Hence their justification for allowing payroll taxes to be siphoned off by the payer into their own private retirement account.  As was pointed out in an earlier post, this is tantamount to allowing beneficiaries to instruct their insurance company how their premiums are to be invested, circumventing the conservative rules on investment that insurance companies operate under.

Once you start weakening the national employee/employer contribution base of Social Security, you undermine the insurance guarantee of the system, probably to the point where it fades away and all the worker has for their retirement is their investment account.  Ultimately millions of Americans will be spending their retirement in poverty if all they have to rely on is their investments.  This applies not only to the 30% of Americans who make at best $10/hour for all their working lives (and will never create savings in the first place); it applies to many middle class or upper class workers who simply will not be that good at investing.  This to me is the important part of the Republican proposal that is missing in most public commentary and discussion.  However much pay-as-you-go is an intergenerational transfer, and regressive in the sense that workers are supporting elderly other than their own parents, it is far better than the social costs of large-scale poverty among the elderly.  The current system may involve a generational wealth transfer, but that is arguably better than a wealth transfer of 1-2% of the assets of the system annually to Wall Street for holding on to your investment account.

There is a lot of interesting information in the "The Real Deal" and in the other posts of its advocate here(who may even work for SSA).

What might not be apparent in the posts is that "The Real Deal" <snip>"criticizes proposals to privatize the program and argues that having a stable system that works today is worth much more than a risky system of private accounts." blub from  the Century Foundatation)

What we think of now as Social Security was part of a much larger document including the original proposal(never fleshed out) for a form of national health insurance , and the guarantee of work during all economic climates("In periods of depression public employment should be regarded us a principal line of defense.") .The 1935 report was one hell of a social document.

Many complainers about the Social Security tax don't realize that Social security taxes were, for whatever reason, instituted as a flat payroll tax (6.2% (Social Security portion) on earnings up to the maximum taxable amount ($90,000 in 2005) ) rather than a breakout of part of the(currently) progressive income tax.

The forumula for maximum taxable amount (usually an increase) was, alas, left for future generations to work out,

Also as we know, Social security payouts, while somewhat progressive, do not pay someone who earned 10,000 a year the same as someone who earned 100,000!

While "The Real Deal" is worth reading, the best antidote for nit-picking on support for federal social security is to read the entire text of the 1935 "REPORT OF THE COMMITTEE ON ECONOMIC SECURITY"

http://www.ssa.gov/history/reports/ces/ces5.html

(as quoted earlier)

and realize how luckly we were then to have such a group of progressive,imaginative people devoted to finding a long-term solution for the common good after the Depression made the issues all-too-visible.

>>>] (numerian) "Whether Social Security ever could have evolved into a pure annuity system where all obligations were pre-funded is something we might never know.  For one, the Social Security annuity is not exactly the type of product that can be purchased in the private market, since Social Security pays for the rest of your life however long that may be."

Under the type of reform I propose, workers would use 5% of payroll over the course of their work life to fund a government regulated and overseen mandatory retirement account.  Upon retirement, they would be required to purchase a life annuity, paying a guaranteed return, in an amount sufficient to keep them out of poverty for as long as they might live.  Guaranteed life annuities are available now, but if they came to be widely used in the context of such a reform, they too should be government regulated and overseen.  If a person, upon reaching retirement age, had a mandatory retirement account and insufficient other assets to provide a sufficient guaranteed life annuity, the government would provide a supplemental benefit so that that person would be kept out of poverty.

>>>  (numerian) "I think that reality was bumping up against FDR's ideal concept very soon into the program, though politically it was the Republicans in Congress who pushed for pay-as-you-go."

While pre-funding is a necessity of old age support, and FDR's Social Security was premised upon that principled basis, there was no adequate or ideologically acceptable mechanism in the 1930s or 1940s to accomplish pre-funding.  Putting that much of the nation's wealth into the hands of the federal government, through its absolute control of a huge "collective" account, would have amounted to "socialism."  That's why the Republicans killed it.  However, today we have the ability to track individual accounts through computer technology.  The correct pre-funding mechanism would be an appropriate blending of individual choice and government regulation and oversight of that choice.  It would also require enhanced enforcement of existing an new legislation aimed at corporate responsibility.  It would be a checks-and-balances control issue between the individual and government.

] (numerian) The Republicans have muddied this discussion tremendously by convincing themselves that it is fair to compare Social Security to your everyday mutual fund, which they then can say provides superior returns.  Hence their justification for allowing payroll taxes to be siphoned off by the payer into their own private retirement account.  As was pointed out in an earlier post, this is tantamount to allowing beneficiaries to instruct their insurance company how their premiums are to be invested, circumventing the conservative rules on investment that insurance companies operate under.

I agree that the Republicans have muddied the debate by seeking to compare "rates of return" when this comparison of financial rate of return is not the real issue.   The real fundamental issue of old age support is economic, not financial.  It is critical in discussing old age support to understand that "finance" and "economics" are not the same thing.  (For example, Social Security promises a financial benefit to the elderly in the future, but it will be able only to meet a certain portion of that financial promise in the future.) In brief, there are assets that can be considered "financial wealth" and there are assets that can be considered to be "real economic wealth."   The provision of old age support ultimately depends on the ability of the society to provide real economic wealth to the elderly at a time when they no longer work to create that wealth for themselves.

I define "financial wealth" as something not intrinsically valued for its own usefulness but which is acquired principally for its ability to obtain (immediately or in the future) though trade or exchange an item of real economic wealth. I define "real economic wealth" as anything a human being might find useful for itself and not simply useful for the purpose of obtaining through trade or exchange an item of real economic wealth.

The real necessity of old age support is pre-funding.   But it is not adequate merely to "financially" pre-fund, there must be "economic" pre-funding.  

What most people do not understand is that the real purpose of "privatization" is as a mechanism for financially representing economic pre-funding of future old age support through use of private financial securities.  The use of private financial securities for pre-funding is analogous to the use of U.S. Government bonds for pre-funding in the Social Security Trust Fund.   Both forms of financial securities, i.e., private securities and government securities, have components of "financial pre-funding" and "economic pre-funding".  

The problem with U.S. Government bonds is not in their "financial" inadequacy at pre-funding, but in their likelihood of not accurately representing a corresponding accumulation of real economic wealth needed for future old age support.  This is because the surplus Social Security taxes loaned by Social Security to the federal government probably are just used by the federal government to boost current economic consumption spending.

system to one that allows individual investment accounts while maintaining the benefits of the existing workers has been estimated at $1.5-2 trillion. (Who will pay this?  The current administration has already saddled my kids with enough debt.) Price indexing the initial benefit would buy quite a few years if an accomodation for lower wage earners could be worked out.

This system is not broken and with sufficient tweaks can work well for many decades, if not indefinitely. Social Security's greatest vulnerability is from those who want to shut it down for the ideological reason that it is a government program that helps poor people.    

Newguy - I'll leave it up to you what you decide to publish.  I think wmhart1 has added a lot of factual background to this discussion on Social Security, and it is certainly important to understand the history behind Social Security because we are now apparently reliving all those discussions 70 years ago.  Fortunately for most of us, and this is due in part to the success of the New Deal programs, we are living in a time when the one thing missing from the discussions is first-hand experience with poverty, hunger, and the fear of being homeless.  Some 10% of Americans today are said to be below the poverty line, but at the worst of the Depression 25% of Americans were unemployed.  If most of us had any idea of what this is like, we wouldn't be having any discussions about changing Social Security.

Obviously my article had a slant to it in favor of  keeping personal investment accounts out of Social Security, partly because I think the Republican Party is misleading people about the system and what it provides with all their talk about investment alternatives.  I've got no problem with tax-advantaged personal investments - I've already got a 401k and IRA - I just want to maintain the insurance supplement I'll get through Social Security.  And I don't mind its regressiveness or the fact that I support parents of people I don't  know.  Private charity can't do everything that is socially required and sometimes the federal government is the best vehicle.    

& the Real Motivations of Republicans AND Democrats.  

If the Democrats continue to oppose President Bush's partial privatization Social Security reform position with arguments that there is no "crisis" and that we should not "borrow" then they will end up looking like and actually being obstructionists and ankle-biters.

Social Security is Broken

The system is broken. In fact it was never set up to be sustainable indefinitely.  I don't want to repeat myself.  But focus on this.  The 2042 insolvency date projected by the Social Security Trustees means that there will only be enough workers earning wages and paying payroll taxes to meet 73% of promised benefits.  It will be a revisiting of the same problem that arose in 1983, when then promised benefits could not be met with then current payroll taxes.  Pay go regressive payroll tax Social Security is not a sustainable system.  Sure, you can tweak it by increasing taxes and cutting benefits, but all you really end up doing is decimating the middle class and destroying class mobility.

President Bush Won't Have to "Borrow" To Achieve His Mere "Partial" Privatization Proposal

President Bush's tiny partial privatization plan is said to involve allowing workers to direct up to 4% of payroll (up to a maximum of $1,000 - $1,300) a year to an individual retirement account.  I don't think he'll have to borrow anything to do this.  In 2003, Social Security had about $68 billion in surplus tax collections, meaning that tax receipts exceeded current benefits/administrative expenses by that amount.  This $68 billion represented about 12.4% of total Social Security tax receipts.  In payroll percentage point terms, the 2003 surplus amounted to a total of 1.5% of payroll.  It you limit the "partial" privatization to only 4% up to $1,000, what you are really saying is that only those making $25,000 or less really get to put the full 4% into an account.  To the extent surplus SS tax revenues are insufficient, President Bush would probably suggest using part of the bonds held in the SSTF to make up the difference.   (I think a big part of President Bush's reform is to inhibit further growth in the amount of US Bonds held in the SSTF.)  

It is time for the Democrats to take a principled position for substantial and fundamental reform of Social Security that will do equity and establish a sound, sustainable system of old age support.

Protecting the Wealthy Elite While Not Angering the Current Elderly

But I don't hold out much hope. A large part of me views all of this as so much political theatre, with both the Republicans and the Democrats really only looking to protect the long term interests of the wealthy elite class in America (who would have to repay the SSTF bonds or fund a transition to a sound system) while not pissing off the current elderly.

for your privatized pre-funded securities providing "guaranteed" wealth in any kind of safety net for the mass of elderly who are no longer able to work.

The best we may be able to do is provide a method for each generation of workers to support "their" generation of the elderly and expect that the next generation will do the same for them .

The US population is not currently at the 2 parents 1 child stage of many European nations and so it seems entirely possible to me that there is only a single generation crunch, not a  snowballing crisis.

The current system is certainly to some extent "pay as you go", rather than "pre-funded". It is ,however, a "social" security contract binding all working Americans and therefore is not limited to concepts like "individual", "private investment", "economics" and "wealth."

You object to the 'regressive" nature of the payroll tax but I do not see anything yet in your discussion  which will redistribute in a socially "progressive" manner the results of privatization.

This whole "FDR pre-funding preference" is a sidebar that was not promised in the 1935 document-(certainly "catching up and keeping up" using an annuity system was a hope- but not more than that) and is causing the thread to lose focus by your extensive and obscure references at a time in which everyone needs to be simple and clear.

I would suggest that if you want to explore the concepts of "pre-funding" and "full privatization" that you start a new thread either in Diaries or in the Economics section to discuss those aspects excusively.

simply in your own words in one paragraph and without extensive quotes from other sources.

You should be able to do that if what you want are responses from others expressing agreement or disagreement with your views, which seem to be extensively thought out and long-held.

The Agonist imho is not a lecture series to impress or suppress other posts with extensive quotations ,

It is a forum for people to try to understand alternative opinions and propose understandable views and sometime even solutions.

It would seem if I understand correctly throughout all the verbiage in these posts that pre-funding is a requirement for in your mind for your proposed system. That is ALL I have gotten so far.

One clear paragraph please.

NYT Editorial 1/10

For the Record on Social Security

It appears that the president and his aides are trying to sow ignorance to gain support for their flawed plan to privatize Social Security.

http://www.nytimes.com/2005/01/10/opinion/10mon1.html

>>> (NYT) Outside analysts say Social Security's long-term financial gap, which the government estimates to be $3.7 trillion over 75 years, is smaller than the projected cost of Mr. Bush's tax cuts or the Medicare prescription drug program that he pushed through Congress in 2003.

So (1) Social Security has a present value shortfall of $3.7 trillion as determined for the next 75 years; (2) President Bush's general income tax cuts total has a present value of more than $3.7 trillion over the next 75 years; and (3) the Medicare prescription drug program in 2003 has a present value cost more than $3.7 trillion over the next 75 years.  

So (1) how are these things related, and (2) what does it say regarding what should be done?  Is the author suggesting that the income tax cuts have been ploughed into the Social Security Trust Fund?  Is the author suggesting that the Medicare drug bill should not have been passed?  What exactly is being said here?  If they are arguing for general tax funding of Social Security benefits, then they should say so.  And as to Medicare, it is not a sound system either, so basically the 2003 drug benefit just means that it will be in the dust bin sooner as well.  

>>> (NYT) The Social Security trust fund has accumulated more than $1.5 trillion in reserves, held in Treasury bonds.

True.

>>> (NYT)  Even if no changes are made, the government's actuaries predict that the program will be able to pay full benefits until at least 2042 and at least 70 percent of benefits after that.

Actually (and this may seem a minor point, but I think it is telling), the 2004 Social Security Trustees intermediate projections show Social Security as being able to pay only 73% of promised benefits in 2042, with that percentage declining to only 68% in 2078.  I tend to think the author of this piece wanted to avoid the information showing that Social Security's condition continues to deteriorate even after the baby boomers are gone.

Moreover, is there any reason why I should rejoice over this?  I have two teenage children who will have to pay excessively high regressive payroll taxes and will be told their out of luck by the time they get to retirement age, assuming they haven't jacked that up to age 90 by that time.

>>> (NYT)  That is a far brighter outlook than in 1983, the last time Congress shored up Social Security, when the trust fund was just days from insolvency....

They jacked up regressive payroll taxes on the baby boomers enough to keep the last generation of elderly from losing out in this game of musical chairs, and they've build a trust fund filled with US Government bonds that represent a financial claim on future taxpayers that is probably not backed by any increased economic ability to pay off those bond.  

it to counter ignorance sowers in the future...(it appears they may be utilizing news blogs as possible fertile fields if you get what I mean :-) )

http://www.nytimes.com/2005/01/10/opinion/10mon1.html?ex=1263099600&en=24a380642da9ba1b&ei=5
090&partner=rssuserland

several members of opposing opinions to yours were also claiming NYT was "spinning":

http://agonist.org/comments/2004/12/26/18146/413/21#21

To me that fact says: their coverage is pretty damn fair1 highly recommended to all by moi, IF IF you read it day-to-day! They ARE trying to present all sides, and to present what all sides are saying, and they are leaving the editorializing to the editorial pages. The "spin" you report, if it can be called "spin", is simply reporting on what those who disagree with the administration are saying. You blame the NYT, whilst it is all of you out there who are doing it, and they are merely reporting on what all of you are saying!

It's incredibly disingenuous that whilst spinning, one calls newspaper coverage spin when it is trying to stand back and cover all sides of the spin so that readers might "decode" what is actually going on in the related political situation.

Your ardor, wmhart1, for posting vertually any article that seems to agree with your POV suggests to me (who has watched different posting styles for thousands of hours) that you yourself are a spinner. It's what spinners usually do: cherry pick stories out of context. You're not trying to learn, you've already convinced yourself you are right, and you cherry pick articles to prove your point. And you call ones that present others' POV "spinning".

I'm glad artappraiser put up the NY Times editorial on this topic because I was going to post it as an example of the "not a real crisis" argument, to which I subscribe.  But you have spelled out a number of counter-arguments that bring some questions to mind.

1.  You note that the Social Security system is now broken.  I don't agree with that description, but let's assume that one thing everyone can agree on is that there is a demographic challenge ahead with the baby boomers' retirement.  Any time one generation like the baby boomers comprises a large portion of the population, the generation after them is burdened with supporting this previous generation in retirement in a pay-as-you-go system.  Assume further that the baby boomers have not been putting away enough in FICA payroll taxes to cover all the promised payouts in their retirement.  Wouldn't it be proper either to raise taxes on baby boomers alone or otherwise announce reductions in their benefits beginning in say, 2012?  I realize under the compulsory, every-worker-is-equal approach to Social Security, you can't discriminate payroll tax rates among age groups.  That leaves reducing benefits to baby boomers as the other alternative.  I guess this is a moral question.  Why are the Republicans and some Democrats proposing only to burden the generation that follows with reduced benefits? I understand no one wants the next generation to have to pay higher taxes, which may as you say be so high as to decimate the middle class and destroy class mobility.  Still, under your pre-funding predilection, shouldn't the reduced benefits be on the shoulders of the baby boomers (I think that means you and me)?
   
2.  I've read that the inducement for younger workers to accept reduced benefits is that they will have the ability to opt out of a portion or all of their payroll taxes.  Assume for a minute that the next generation is left out of this altogether, and benefits are reduced for baby boomers here and now.  Would the privatization proposal then be necessary - setting aside any merits it may have on its own?  I'm trying to get at the motive for the proposal from the Bush administration.  If I follow your logic, though you like the privatization idea, your preferred objective for Social Security would be a fully-prefunded account.
   
3.  Going back to 1983 and the reforms of Social Security which led to higher FICA taxes for all of us, I understood at the time that these increased taxes were to take care of the population bulge posed by the baby boomers.  It certainly wasn't necessary to take care of the parents of the baby boomers, who were a much smaller segment of the population.  The proof of this seems to be that the increased taxes were put into the SSTF.  Wasn't this a form of pre-funding by the baby boomers for their retirement?  If I remember Alan Greenspan was involved in this commission and I recall that he said the baby boomer problem for Social Security was fixed once and for all.  So what went wrong?  Were their assumptions about population growth or longevity wrong?  Have benefits been increased beyond what they expected in 1983?  Were the securities in the SSTF diverted in any way to other federal government purposes?
   
4. When you refer to the 4% partial privatization idea, is this a nominal 4% tax rate?  If so, would that be about two-thirds of the total FICA taxes that could be diverted, less whatever amount is capped?
   
5. How would your idea work in the event of a shortfall in revenues, wherein you suggest Bush would use part of the bonds in the SSTF?  Does this imply that under partial privatization the SSTF would wind up overfunded?  If it is, ultimately where would this overfunding go - to the following generation, sort of like an inheritance from their parents?
   
6. In your ideal system workers would devote 5% of their payroll to purchase a life annuity, and you note these can be purchased from the private sector today.  I've looked at these guaranteed life annuities and they are awfully expensive.  My impression is that the cost has to do with pricing out the uncertainty of the life span of the beneficiary (sort of like a derivative with a very high sigma representing the uncertainty of death for that individual).  Obviously to get the cost down the insurance company would need to have a broad enough base of beneficiaries to price at the average.  Let's suppose Prudential was able to attract 20 million customers for this product - a pretty big customer base for a private company.  Would this still be cheaper than concentrating the risk entirely with the federal government?  I realize the government represents bureaucracy, but on the hand it doesn't have a profit motive to worry about.  Prudential has salaries and bonuses to pay everyone, and all of its insurance products rise and fall in price, to some extent, by the overall success of the firm, which often has to do with Prudential's investment earnings.  I think we all saw across the board after 2000 how life, auto, health, casualty, and home insurance rates soared following the stock market collapse, and how the insurance companies even today find ways to limit their customers or even kick some out when the shareholder returns aren't what Wall Street requires.  Isn't it at least conceivable that the federal government, which pays its people below the private sector, and which has no profit motive to dictate its behavior, is a better agent for a national insurance need?

Thanks for your attention to these questions.

Please see my proposal for transition and reform posted above in response to another of your posts.  

Dear Numerian,

You have presented a number of questions and it will take some time to respond.  

>>>] (Numerian) You note that the Social Security system is now broken.  I don't agree with that description, but let's assume that one thing everyone can agree on is that there is a demographic challenge ahead with the baby boomers' retirement.

Not a Mere Demographic Problem

If you will pardon me and not take personal offense, I don't think we can agree on this assumption.  My reaction to the "demographic challenge" language is that this is part of the propaganda of the politicians and the media who support the status quo of the system in that it misidentifies the true nature of the problem with the pay go system and suggests that that problem is temporary.  The unsustainablity of pay go Social Security, rather than being a temporary anomaly, is inherent in its nature, and has been known about since its outset in the 1940s.  

Cost Spreading Does Is Not Cost Effective for Old Age Support

The problem with pay go intergenerational transfer regressive payroll tax old age support is that it attempts to apply cost-spreading insurance principles to a "risk" (i.e., old age support) that - while briefly in time susceptible to cost spreading - was known to be and now is not a cost effective system.   In order to be sustainable, there would have to exist and continue certain factors of geometric population growth and economic growth (with corresponding wage growth) that have not been consistently achieved since the 1960s.   And these requisite levels of population growth and economic growth have probably been impaired by a vicious cycle of increasingly high regressive payroll taxes.   (Increasing taxes on younger generations to enable elder consumption impairs the ability of younger generations to invest in population growth and in economic growth.)  Finally, these required levels of population growth and economic/wage growth are probably ultimately detrimental to the natural environment.  The bottom line is that old age support is more effectively and efficiently addressed by pre-funding.  

Excessively High Cost of Cost Spreading To Younger Generations

Cost spreading the "risk" of old age support to the existing younger generations of workers was projected back in the 1930s and 1940s to cost workers more than what it would cost them privately to obtain the same level of promised benefits through pre-funding.  That's really why FDR wanted the system to be pre-funded.  In 1944, Arthur Altmeyer said that the federal government would have to subsidize Social Security benefits with general tax revenues in order to prevent the situation in which workers would have paid more for their benefits than they could have obtained privately.  Legislation to that effect was passed, but was later repealed in 1950s.

When Social Security began in 1937 it began at 2% of payroll and the rate was not intended to reach more than 6% of payroll (by 1949) as a fully pre-funded system.   With the change to pay go, it is an understatement to say that things didn't work out that way.   See http://www.ssa.gov/history/pdf/t2a3.pdf

Social Security's First Crisis - Insolvency in 1983, A Projected Deficit of Nearly $250 Billion by 1991

By 1983, the payroll tax rate for Social Security OASI had reached 9.55%, and the system was, nevertheless, on the verge of insolvency, i.e., the inability to meet full promised benefit obligations.  (Promised Social Security benefits were projected to total $155 billion in 1983).   In November 1982, the projections were for Social Security to be unable to meet full promised benefit obligations sometime in 1983, and for Social Security to be running nearly a $250 billion dollar a year deficit by 1991.  There was a clear "crisis" and something had to be done.

In anticipation of the near insolvency of the Social Security system, President Reagan floated the idea to cut benefits to match the pay go level of current payroll taxes.  As a result, he nearly had his head handed to him.  So instead Alan Greenspan was appointed to head what became known as the Greenspan Commission.  The ultimate result was that regressive payroll taxes and self-employment taxes were substantially increased to meet the current revenue shortfall and to attempt to build up the Social Security Trust fund as an alternate stream of revenue for the future when payroll taxes again would be inadequate to meet current benefit obligations.  

>>>] (Numerian)  Assume further that the baby boomers have not been putting away enough in FICA payroll taxes to cover all the promised payouts in their retirement.

This assumption is not correct.  The baby boomers have paid enough and far more in payroll taxes to pre-fund their own old age support.  The problem with the Social Security system lies elsewhere. See the following:

>>> (Aaron & Reischauer - Century Foundation) "In contrast, the payroll taxes paid by cohorts of workers born after about 1935 and their employers are sufficient to purchast the retirement, survivor's, and disability benefits they are going to receive. In this sense, the baby boomers are not generating any new burdens on the active workers even though they are more numerous than their predecessors.  

>>> (Aaron & Reischauer - Century Foundation) "If the retirement of the baby boomers is not responsible for the projected long-term deficit in Social Security, what is?  The answer lies in the fact that previous generations of workers received much larger benefits than were warranted by the payroll taxes they and their employers paid.  ...As a result, a substantial portion of the payroll taxes paid by the baby boomers and their older brothers and sisters went to pay the benefits of their parents, grandparents, and great-grandparents rather than accumulating to support their own pensions."

Henry J. Aaron & Robert D. Reischauer, "Countdown to Reform: The Great Social Security Debate (Century Foundation 2001), p. 59.  

The elderly of today are far better able to absorb benefit cuts than the baby boomers will be.  Current benefits should be affluence tested and paid with increases in progressive general taxes, freeing current workers from regressive tax burdens and allowing them to fund their own fully pre-funded retirement accounts with a 5% mandatory contribution

>>>] (Numerian)  Wouldn't it be proper either to raise taxes on baby boomers alone or otherwise announce reductions in their benefits beginning in say, 2012?  I realize under the compulsory, every-worker-is-equal approach to Social Security, you can't discriminate payroll tax rates among age groups.  That leaves reducing benefits to baby boomers as the other alternative.  I guess this is a moral question.  Why are the Republicans and some Democrats proposing only to burden the generation that follows with reduced benefits? I understand no one wants the next generation to have to pay higher taxes, which may as you say be so high as to decimate the middle class and destroy class mobility.  Still, under your pre-funding predilection, shouldn't the reduced benefits be on the shoulders of the baby boomers (I think that means you and me?

The baby boomers are not the culprits here.  To the contrary, all generations born since 1935 and particularly the baby boomers and younger generations are the victims of the failure of prior generations to step up and establish Social Security as a sound system.  

Huge Regressive Payroll Tax Increases On the Middle Class

The impact of huge regressive payroll tax increases over the last thirty years (both for Social Security and Medicare) have been devastating to the baby boomer generation and to all younger generations.  In my opinion, those regressive tax increases are the principal reason for the decline of the American middle class, the limitation of class mobility and the economic class stratification that we now have.

I did some rough calculations that showed that a median income worker now pays about $2,000 more a year in Social Security OASI payroll taxes than a median income worker would have paid in the late 1960s (in inflation adjusted dollars).  In addition, a worker paying Social Security OASI taxes on wages at the wage cap would have been paying more than $5,000 more than the highest level of OASI tax paid by any worker in the late 1960s.

Economic Impact of Regressive Tax Increases

And these increased payroll taxes indicate only the "direct" impact of that increased taxation on younger generations.  There is also a compound economic loss to them (particularly to those in the middle class)  that has resulted from that increased taxation..  Here's what I mean.  When more regressive payroll taxes are taken from younger generations of workers and then given to the elderly in the form of Social Security benefits, consider what happens.  Because younger persons have longer time horizons than older persons, a younger person is more likely to apply those resources for long-term benefit, i.e., investment, while an older person is more likely to apply those resources for short-term benefit, i.e., consumption.  The resulting shift of current resources from investment spending to consumption spending results in a longer-term drag on economic growth, which in turn results in stagnation of real incomes.  In this regard, there is an interesting report from the Congressional Joint Economic Committee from April 1998.  See the following:

>>> (JEC Report) "From the standpoint of economic stability, the U.S. economy has performed very well in recent years. The current expansion is now into its eighth year, and the economy continues to grow. It has been 15 years since the United States has experienced a serious recession. This is the good news. But there is also another story that has been largely ignored: The real growth rate of the United States has persistently declined during the last three decades. Even with the expansion of the 1990s, the average growth rate during the current decade is less than half that of the 1960s, and only about two-thirds of the figure achieved during the instability of the 1970s.  ..."

>>> (JEC Report) "Since the direction of transfers is generally either from those with high income to those with lower levels of income, or from working people to retired people, they shift income away from people with high savings rates and toward those who save less of their income.10 The predictable effects are a reduction in total savings, higher real interest rates and a decline in the rate of investment, particularly in-vestment financed by Americans. In addition, much of the growth in the transfer sector (and overall size of government) has been financed with government borrowing."

http://www.house.gov./jec/growth/function/function.htm

Impact on the Middle Class and Class Mobility

Moreover, because the transfer of resources is made on a regressive tax basis, it is the middle class and class mobility that suffer disproportionately.  In this regard, it is important to note that the 1983 "big fix" of the Greenspan Commission included nearly a 5% tax increase for self-employed persons.  What better way would there be to kill class mobility than to make self-employment that much more costly and difficult.

Stagnant Real Median Household Incomes for Younger Generations

It is little known that Census Bureau data showed that the real median household incomes of all household age groups under the age of 45 were lower in 1996, than the same aged households had in 1973.  And this reduced real median household income for younger generations was the case even though in 1996 there was a far larger percentage of two earner households than in 1973.   There was a brief surge in younger household real median incomes in the late 1990s, but this has subsided.  Even so, over the same time period the real median incomes of households over the age of 65 have increased on the order of about 40%.  

Over the last thirty years, younger American households have been struggling to maintain the illusion of increased standards of living by sending both spouses into the workforce (which in itself also entails increased costs) and by rearing fewer children.

Reduced Real Median Household Net Worth for Younger Generations

Data regarding household real median net worth from the Federal Interagency Forum on Aging presents a bleak picture for the baby boomers in their old age.  

>>> (FIFA) "Between 1984 and 1999, the median net worth among households headed by persons age 65 or older increased by 69 percent, while the median net worth for households headed by persons ages 45 to 54 declined by 23 percent over the same period. Although there is general agreement that net worth among households headed by older persons has increased over time, different data sources disagree about the size of this increase."  

http://www.agingstats.gov/chartbook2000/economics.html#Indicator%209

And here's the corresponding table showing that the 65-74 year old age group went from a real median net worth of $109.2k in 1984 to $190k in 1999, while the 45-54 year old age group went from $110.6k in 1984 down to $85k in 1999.

http://www.agingstats.gov/chartbook2000/tables-economics.html#Indicator%209

>>> (Numerian) I've read that the inducement for younger workers to accept reduced benefits is that they will have the ability to opt out of a portion or all of their payroll taxes.

Yes, they're playing the individual greed card to sell their limited partial privatization plan, but the other side of the coin is that those choosing this option will get to do that in exchange for reduced benefits from the system.  As a result, the net change of President Bush's plan to them is pretty much a wash in terms of their total anticipated "returns".  

>>> (Numerian)  Assume for a minute that the next generation is left out of this altogether, and benefits are reduced for baby boomers here and now.  Would the privatization proposal then be necessary - setting aside any merits it may have on its own?  I'm trying to get at the motive for the proposal from the Bush administration.  

Again, the problem with pay go Social Security is not about any fault on the part of the baby boomers.  That said, I think there are two motivations to President Bush's proposal.

Not Angering the Current (Politically Powerful) Elderly

First, President Bush does not want to anger the current elderly by imposing any benefit cuts upon them, regardless of their economic ability to bear those cuts.  Both Republican and Democratic politicians know the sheer political power of the elderly and want to avoid their wrath at all costs, no matter how high.  

Protecting His Base of Haves and Have Mores

Second, the ultimate motivation for mere "partial" privatization is to protect the wealthy elite class from the burden of funding the transition to a fully pre-funded system and the responsibility for a growing debt owed to the Social Security Trust Fund.  In essence, partial privatization will simply shift the small partial pre-funding from the use of U.S. Government bonds to private financial securities.  

>>> (Numerian)  If I follow your logic, though you like the privatization idea, your preferred objective for Social Security would be a fully-prefunded account.

Yes.  Once it is understood that there is no magic that makes pay go, intergenerational transfer Social Security old age support a sustainable working system, it should then be understood that younger workers are merely paying a regressive tax.

The very fact of the decision in 1983 to build the SSTF was a testament to the inability of pay go intergenerational transfer SS to work.  The fact that the system will be unable to pay full benefits (only 73% of promised benefits) in 2042 and only 68% of promised benefits in 2078, is further testament to the lack of any sustaining priciple underlying the whole idea.

>>> (Numerian)  Going back to 1983 and the reforms of Social Security which led to higher FICA taxes for all of us, I understood at the time that these increased taxes were to take care of the population bulge posed by the baby boomers.

Preparing for the baby boomers was a part of it, but it wasn't the motivating factor.  The real crisis was the inability of the system to meet then current benefit obligations.  Here's how Social Security Advisory Board member Sylvester Schieber describes the situation faced back then:

>>> (Schieber) "To put the numbers in context, OASI was projected to pay out $155 billion in benefits in 1983, rising to $250 billion 1991.  Social Security would be starting 1983 with a trust fund ratio of only 10 percent of the year's anticipated outlays - and was projected to end the year in the red. By 1991, the negative balance of the trust fund was projected to reach a full year of outlays.  Figures like these made it a little hard to claim that there wasn't a problem.  

There is a bar graph table that accompanies this text titled "OASI Trust Fund Assets at End of Each Year as Forecast in November 1982".  It shows that the shortfall, i.e., cumulative inability to meet current benefits were projected in November 1982 to be (approximately) as follows:

1983 ~ $ 1 billion

1984 ~ $25 billion

1985 ~ $50 billion

1986 ~ $75 billion

1987  ~$105 billion

1988 ~$145 billion

1989 ~$180 billion

1990 ~$210 billion

1991 ~ $240 billion

Surplus Social Security Taxes - Not As Much As You Think

With respect to building the SSTF using surplus Social Security tax revenues, I've gone to the SSA site to pull up the data, but it takes a long time on my computer to get the older reports in the format in which they have them. At the end of 2003 the total in the SSTF was about $1.53 trillion, but  a lot of that is accrued interest rather than surplus Social Security taxes. See http://www.ssa.gov/OACT/TR/TR04/II_cyoper.html#wp94983

Here are the surplus Social Security tax revenues for more recent years, and I think it is safe to assume that the surplus amounts were lower in years prior to these.

 Here are the surplus Social Security tax revenues for the following years;

1994 $27 billion http://www.ssa.gov/history/reports/trust/1995/tbi [...]

1995 $25 billion http://www.ssa.gov/history/reports/trust/1996/tbid1.html

1996 $32.1 billion http://www.ssa.gov/OACT/TR/TR97/tric.html#84

1997 $44.8 billion http://www.ssa.gov/OACT/TR/TR98/tric.html#pgfId=84

1998 $57.7 billion http://www.ssa.gov/OACT/TR/TR99/tric.html#pgfId=84

1999 $78.3 billion http://www.ssa.gov/OACT/TR/TR00/tric.html#pgfId-84

2000 $89.7 billion http://www.ssa.gov/OACT/TR/TR01/II_cyoper.html#87137

2001 $90.2 billion http://www.ssa.gov/OACT/TR/TR02/II_cyoper.html#87137

2002 $84.6 billion http://www.ssa.gov/OACT/TR/TR03/II_cyoper.html#wp94983

2003 $67.8 billion http://www.ssa.gov/OACT/TR/TR04/II_cyoper.html#wp94983

>>> (Numerian) If I remember Alan Greenspan was involved in this commission and I recall that he said the baby boomer problem for Social Security was fixed once and for all.  So what went wrong?  Were their assumptions about population growth or longevity wrong? Have benefits been increased beyond what they expected in 1983?

As you probably know, the Social Security Trustees in 2004 projected that current Social Security tax receipts will be adequate to meet full benefit obligations until 2018.  After that, full benefits can continue to be paid until 2042 by redeeming accumulated principal and interest on US Government bonds held in the SSTF.

After the 1983 big fix, it had been projected that the SSTF would not be empty until 2063, after the boomers had gone. Schieber, "The Real Deal" (Yale University Press 1999), p. 196.  By 1985, however, that projection had changed to 2049, and by 1994, it had gone to 2029.  Id. at p. 197.  

As you can see, since then it has increased to 2042.  

Looking quickly in the Real Deal, Schieber and Shoven do not appear to state what happened to change the projections.  

In my opinion, I don't think the original projections took account of the negative consequences/impact of increasing regressive payroll taxes on economic growth.  By increasing taxes on the baby boomers they had less resources to build their lives, their businesses and the economy generally through investment.

>>> (Numerian) Were the securities in the SSTF diverted in any way to other federal government purposes?

When you talk about diverting securities, I think perhaps you don't have a clear picture of the mechanism of using U.S. Government bonds for pre-funding purposes.  What it really comes down to is the likelihood that the federal government is not a business enterprise the purpose of which is to "invest" real economic resources (i.e., surplus SS tax receipts) for long-term economic gain necessary for old age support.

Here's a good discussion from The Real Deal about the economic purpose of the SSTF.

>>> (Schieber) One more thing about the post-1983 period calls for discussion. That concerns the fact that ostensibly the program has been running increasingly large surpluses over the past fifteen years. By the end of 1998 the combined OASI and DI Trust Funds had accumulated approximately $757 billion in special-issue U.S. Government bonds. This amounts to almost two years of benefit payments. The question is whether this "nest egg" represents real wealth created by Social Security to help deal with the future financial problems to be faced by today's young people and those yet unborn. This is particularly important for workers of the 2015-2055 period, who will be asked to support the retirements of the baby boomers. In other words, is this $757 billion real incremental wealth that we can credit to Social Security, and does it represent a down payment on the problems we have been talking about?

>>> (Schieber) The answer to our question depends upon what the rest of the federal government ahs done with the money that Social Security has been turning over the last fifteen years and more in exchange for its collection of IOUs. Was the money saved and invested or did it simply go toward consumption? If it increased the federal government's saving and investment, or, more to the point, decreased our federal government's other borrowing and dissaving, then the future population will be wealthier because of the buildup in assets. By contrast, if the extra money that Social Security turned over to the rest of government simply resulted in more current spending, then future wealth has not increased because of this "accumulation." The savings of one branch of the government would have been exactly canceled out by the dissaving of the rest.

>>> (Schieber)  An analogy might help clarify what is going on here. Suppose one adult member of a family is a saver. She saves by turning over her extra money, money earned but not spent, to another member of the family, who promptly gives her an IOU and spends the money on a car. Will the children and grandchildren inherit any wealth from this process? Of course not. On the other hand, if the second adult had used the property to invest in property, then the answer would be "yes."

>>> (Schieber) The answer to our question whether the Social Security trust fund balance represents wealth that can benefit future generations depends on unobservable and counterfactual behavior. What would federal government spending have been and, for that matter, what would tax collections have been, if the government hadn't had access to Social Security's cash-flow surplus over the last fifteen years or so? The question cannot be answered with certainty, but Figure 13.5 provides some clues. There we see the excess of OASDI revenues, not including interest on the previously accumulated bonds, over costs and the so-called on-budget surplus of the federal government. The figure shows that for the years 1985-1997 the Social Security cash-flow was dwarfed by the deficits in the rest of the federal budget. To be sure, this doesn't directly answer our question, but it does add to the likelihood that the $757 billion pile of government bonds has not made the future population wealthier."

S. Schieber & J. Shoven "The Real Deal: The History and Future of Social Security" (Yale University Press 1999) at pp. 203-205.

>>> (Numerian) When you refer to the 4% partial privatization idea, is this a nominal 4% tax rate?  If so, would that be about two-thirds of the total FICA taxes that could be diverted, less whatever amount is capped?

Like everyone else I just see what comes out in the papers about President Bush's proposal, which appears to be that workers will be allowed to direct up to 4% of payroll up to $1,000 or $1,300 to an individual retirement account.

And actually, it's not "about two-thirds of the total FICA taxes".  

First, what you have to know is that the full FICA tax is 15.3%, which is composed of Medicare (2.9%) and Social Security 12.4%. (Social Security is divided between OASI at 10.6% and DI at 1.8%.)   While workers often are only aware of the "employee" share of the FICA tax that they see deducted from their paychecks, it is workers that actually bear most of the full burden of the 15.3% tax under the economic concept of "tax incidence".  In other words, even though the law says that half of the payroll tax is the "employer's share," in actual effect it is the worker who bears nearly the full burden of that tax through reduced wages or other compensation. Here's how the Congressional Budget Office explains this:

] (CBO) Although employers nominally pay half of the payroll tax, the burden of the tax largely falls on workers. Both economic theory and empirical studies suggest that most of the tax is shifted to workers in the form of lower wages and less generous fringe benefits.(30) Workers would also bear most of the burden of any increase in the tax rate. ...

] (CBO) 30. For new evidence and review of the literature, see Jonathan Gruber, "The Incidence of Payroll Taxation: Evidence from Chile," Journal of Labor Economics, vol. 15, no. 3, part 2 (July 1997), pp. S72-S101.

Congressional Budget Office report "Social Security: A Primer" (Sept. 2001) http://www.cbo.gov/showdoc.cfm?index=3213&sequence=5#t30

Understood in the context of the full 12.4% Social Security tax, President Bush's plan allowing a worker to direct 4% to an individual account would mean that less than 1/3 of the tax attributable to that worker would be going to the worker's account.  On top of that, if the total amount going into the account is capped at only $1,000 per year, it would mean that only workers earning $25,000 or less actually could direct the full 4% a year to an account.  In actuality, a worker making $50,000 would thus only be allowed to direct 2% of payroll to an individual account.

] (Numerian) How would your idea work in the event of a shortfall in revenues, wherein you suggest Bush would use part of the bonds in the SSTF?  Does this imply that under partial privatization the SSTF would wind up overfunded?  If it is, ultimately where would this overfunding go - to the following generation, sort of like an inheritance from their parents?

I think your referring here to my analysis of President Bush's proposal (rather than my own proposal).  

The opponents to President Bush's proposal have geared up to meet it in two ways: (1) deny that there is a "crisis" and (2) scream that we shouldn't be "borrowing" to implement his proposal.  

I think these are pretty weak arguments. The semantic argument about what is a "crisis" is a waste of time.  And I believe that President Bush will come out and say that his proposal will not require any borrowing, thereby taking the wind out of his opponents' sails.  We'll end up with his mere partial privatization plan because the opposition was too busy focusing on the wrong issues.

Here's what I'm looking at.  President Bush is only allowing workers to put up to ~$1,000 each into an individual account.  In 2003, there were 154 million workers who paid taxes into Social Security.  And there was a total of about $68 billion in surplus Social Security tax revenue in 2003.

If every one of the 154 million workers contributed $1,000 to an individual account, that would total $154 billion in one year.  But this has got to be viewed as a high number.  I don't think that a voluntary plan would get people to direct the full $1,000 to a private account.  So for purpose of argument, I'm going to assume that the yearly cost is about $100 billion.

President Bush could simply use surplus SS taxes to meet most of the cost of his privatization plan.  Of course, the federal government would have to come up with the extra revenues necessary to meet its federal budget obligations, but is that really Social Security's problem?

After using the current year surplus SS taxes of about $68 billion to fund private accounts that leaves about $32 billion that has to come from somewhere else.  So what if the current SSTF bonds are redirected for use in private accounts?  President Bush's proposal could even require that a portion of the individual accounts be held in US bonds, and this might be accomplished simply by converting SSTF bonds into bonds held in individual accounts.  In other words, there would be no new debt issued, it would simply be transferred from the SSTF to the individual accounts.

Anyway, these are just musings.  But I think the Democrats are going to hunt this fox round and round until they are up a tree themselves.

>>> (nymole) I still don't see a simple convincing argument for your privatized pre-funded securities providing "guaranteed" wealth in any kind of safety net for the mass of elderly who are no longer able to work.

A Proposal for Transition from and Reform of Regressive Payroll Tax Pay Go Social Security

I don't support President Bush's plan for partial privatization - or any reform that continues to use regressive payroll taxes to pay current old age support benefits. Using worker contributions to pre-fund their own old age support is one thing; using regressive taxes on them to pay current benefits is quite another.

Here's my proposal to transition from the current regressive payroll tax pay go, tax and spend system to a reformed, fully pre-funded mandatory personal investment account system. Remember, the problem is really two problems (1) taking care of the current/near elderly and (2) establishing a sound old age support system. Let me know what you think.

Transition - Picking Up the Pieces of the Failed SS System On a Progressive Tax Basis

1. Immediately means/affluence test all current Social Security old age support benefits.
   
2. Pay all current means/affluence tested Social Security old age support benefits with increased general progressive taxes NOT regressive payroll/self-employment taxes.

The current Social Security old age support system is broken and unsustainable. It cannot meet future benefit promises to workers now paying regressive taxes to support current benefits. Hence, the problem of providing continuing benefits to those who have relied on the old system should not be borne by workers on a regressive tax basis, but by all taxpayers on a progressive general tax basis.

3. Phase in the reformed, funded Social Security retirement system over time by providing some additional consideration (using general progressive taxes) to those workers who contributed under the old system but who will not be in the new system long enough for their mandatory personal retirement accounts to yield "fair" returns.

Reform - A Mandatory Funded Social Security System With A Safety Net

1. Immediately reduce the total 10.6% OASI payroll/self-employment tax to 5%, but use this 5% NOT for the purpose of paying current old age support benefits, but to fund mandatory, individually owned government regulated personal retirement accounts for each worker.
   
2. Provide a means tested "safety net" benefit, payable from progressive general tax revenues, for those whose mandatory personal retirement accounts and other assets fail to produce a sufficient minimum level of support in retirement.
   

>>> (nymole) The best we may be able to do is provide a method for each generation of workers to support "their" generation of the elderly and expect that the next generation will do the same for them.

I strongly disagree.  Pay go regressive payroll tax, intergenerational transfer Social Security old age support does state that the elderly generation of workers is to be supported by working generations.  But why is that fair? And why should it work?  My answer is that it isn't fair and it does not work.  

Before FDR attempted to create his fully pre-funded "compulsory contributory" Social Security old age support system, we lived in a time where the elderly who did not have their own resources had to rely upon their children and/or upon government poverty programs. America had largely transformed from an agricultural society to an industrial society in which children might move far from their parents to find work.  And then there was a time of depression and dislocation.

So the 1930s was a time of transformation. But let's look at what pre-existed FDR's vision for Social Security.  

Under the natural order of old age support, parents reared children who then provided their parents with support when their parents were in need to the extent of their children's ability to provide that support.  It was an economic "something for something" system of old age support in which the right to receive the benefits (i.e., the "return" of old age support depended upon the parent's economic investment of time and resources in the rearing of the child.  The "natural order" of old age support was a "human capital"- based system of old age support. Even today, there are statutes on the books in thirty states that recognize the legal obligation of children to provide support for their parents in need to the extent of the child's ability to provide support.  

FDR's fully pre-funded "compulsory contributory annuity" system of old age support acknowledged and incorporated the economic necessity of investment and return. But instead of basing his old age support system on "human capital" the return for FDR's system would come from financial assets held in a collective account.  And that collective account would take workers' contributions and "invest" them in building economic resources other than human capital and would receive returns from those other forms of capital that could then be used to provide support to the elderly.  Instead of returns from workers, returns would come from rents, dividends and transfers of real capital.

In short, FDR's fully pre-funded system would have established a mechanism for workers, indirectly though the collective account, to engage in investment in real capital other than human capital upon which they could rely for returns for support in old age.  

When FDR's vision for a collective account was defeated by conservative Republicans in the mid-1940s, Social Security reverted to a human capital based system.  Just as the natural order of support depended upon children (human capital) providing a portion of their earnings to their parents, pay go Social Security depended upon children providing a portion of their earnings to all of the elderly.  Instead of old age support coming from returns to investment in other forms of real capital as intended by FDR, old age support would again come from the earnings of workers.  

There were three principal problems with this reversion to a human capital-based system.  First, it de-linked the economic necessity of prior investment from the right to receive a return.  In other words, one no longer had use one's resources and time in the rearing of a child in order to enjoy the entitlement to support made possible by others' rearing of children.  Second and third, in contrast to the natural order of old age support, children would be required to provide support on a regressive tax basis regardless of their ability to do so, and would be required to provide it to the elderly regardless of their need for it.  

If we want to build an old age support system based on "intergenerational transfers" then somebody must invest the resources to "create" the next generation.  To the extent benefits are provided regardless of that investment, those receiving benefits are in essence taking a "return" created by someone else, and that is not "fair."  Using a regressive tax to provide a non-need based benefits deprives younger generations of critical first dollar resources to allow the elderly to live more affluent lifestyles they did not make possible by their prior investment.  

While pay go intergenerational transfer Social Security does require the payment of payroll taxes, those payroll taxes do not constitute the economic investment necessary to make benefits possible.  In that sense, pay go intergenerational transfer Social Security old age support is a "something for nothing" program.

>>> (nymole) You object to the 'regressive" nature of the payroll tax but I do not see anything yet in your discussion  which will redistribute in a socially "progressive" manner the results of privatization.

I'm not sure why you relate the regressive nature of the payroll tax with a need for redistribution of a progressive benefit.

The result of privatization would be to establish a mechanism for pre-funding, i.e., using workers' contributions to build financial wealth that would accurately represent a stock of real economic wealth needed for old age support.  Redistribution as it relates to old age support should be limited to requiring those who are able to provide support to provide it to those who are in need. Under the system I propose, each worker will build a mandatory retirement account.  To the extent that account and the workers other assets are inadequate to provide a decent standard of living in old age, society should provide a supplemental need-based benefits funded with progressive general taxes, not regressive payroll taxes.  

>>> (nymole) This whole "FDR pre-funding preference" is a sidebar that was not promised in the 1935 document-(certainly "catching up and keeping up" using an annuity system was a hope- but not more than that

I don't see how you can take this position in light of FDR's own words describing it as a "necessity" and the words of his Committee on Economic Security (CES), which drafted the original legislation. Perhaps you missed them.

>>> (FDR) " "In the important field of security for our old people, it seems necessary to adopt three principles: First, non-contributory old-age pensions for those who are now too old to build up their own insurance. It is, of course, clear that for perhaps thirty years to come funds will have to be provided by the States and the Federal Government to meet these pensions. Second, compulsory contributory annuities which in time will establish a self-supporting system for those now young and for future generations."

 http://www.ssa.gov/history/reports/ces/ces3.html

>>> (CES) "It is only through a compulsory, contributory system of old-age annuities that the burden upon future generations of the support of the aged can be lightened. With an increasing number and even more rapidly increasing percentage of the aged, the cost of supporting old persons will be a heavy load on future generations regardless of any legislation that may be enacted."

>>> (CES) "... Explanation: The plan outlined above contemplates that workers who enter the system after the maximum contribution rate has become effective will receive annuities which have been paid for entirely by their own contributions and the matching contributions of their employers."

http://www.ssa.gov/history/reports/ces/ces5.html

the words "necessity" and "in time" which were separated  in the document by a lot of verbiage. I didn't miss text- I translate "necessity in time" when the mechanism is not worked out at the as "preference" or "opinion"

However, thank you for explaining your position.

Now perhaps,that will enable the rest of us to get on with either replying or giving our own thoughts on the general subject

-mole

In last op-ed (in "parent" post) he promised he would right more. Here it is. Noticed that it is currently the #1 emailed story from NYT website, BTW

NYT

January 14, 2005

OP-ED COLUMNIST

The British Evasion

By PAUL KRUGMAN

http://www.nytimes.com/2005/01/14/opinion/14krugman.html?ex=1263445200&en=82dced175d45c584&e
i=5090&partner=rssuserland

Beginning excerpt:

We must end Social Security as we know it, the Bush administration says, to meet the fiscal burden of paying benefits to the baby boomers. But the most likely privatization scheme would actually increase the budget deficit until 2050. By then the youngest surviving baby boomer will be 86 years old.

Even then, would we have a sustainable retirement system? Not bloody likely.

Pardon my Britishism, but Britain's 20-year experience with privatization is a cautionary tale Americans should know about.

The U.S. news media have provided readers and viewers with little information about how privatization has worked in other countries. Now my colleagues have even fewer excuses: there's an illuminating article on the British experience in The American Prospect, www.prospect.org, by Norma Cohen, a senior corporate reporter at The Financial Times who covers pension issues.

Her verdict is summed up in her title: "A Bloody Mess." Strong words, but her conclusions match those expressed more discreetly in a recent report by Britain's Pensions Commission, which warns that at least 75 percent of those with private investment accounts will not have enough savings to provide "adequate pensions."

The details of British privatization differ from the likely Bush administration plan because the starting point was different. But there are basic similarities. Guaranteed benefits were cut; workers were expected to make up for these benefit cuts by earning high returns on their private accounts.

The selling of privatization also bore a striking resemblance to President Bush's crisis-mongering. Britain had a retirement system that was working quite well, but conservative politicians issued grim warnings about the distant future, insisting that privatization was the only answer.

The main difference from the current U.S. situation was that Britain was better prepared for the transition....

Wmhart1, I would suggest as a courtesy to other Agonists that as many of your replies in Numerian's diary are extremely long and self contained, that you may want to create your own diary on Social Security solutions and post them there.

(The responses to Numerian are included in your text and so are easy to follow even outside of that thread)

It will be easierI think (Numerian may disagree) for everyone to follow the entire scope of your beliefs on Social Security  if they are together in one place that is yours, and you can refer to them in other threads using their Agonist addresses given at the top of the post.

For extremely long posts it is also

easier for everyone to use a different format with smaller text, especially helpful in quotes.

The text will look like this:

and the HTML to create it is in my reply to myself below

-mole

<div class="blockquote"> textmoretextmoretext

moretext </div>

Sheesh, even the loyal might have a hard time accepting such an obvious whopper. Give them cover indeed. Right sure, maybe if he personally writes checks to all AARP members? Eh, maybe he expects to lose, just setting the groundwork, breaking the ice for the theoretical President Jeb?

It appears the main problem the article identifies is that the Latin American women make less money than men, thereby resulting in lower contributions to their accounts, and lower payouts in old age.

I wonder if the problem of wage discrimination is worse in Latin America than here.  But in any case, I think that any reform to a system of old age support that utilizes individual accounts should incorporate the concept of community property between husbands and wives. In other words, husbands and wives should be deemed equal owners of each other's individual accounts.

Even under pay go Social Security benefits are related to average lifetime earnings.  

If a woman has lifetime low average earnings and too small an account, under the system I propose she should qualify for a supplemental benefit funded with progressive general taxes.

You've hijacked a very good thread. Chill.

I would have hoped rather that I have shed some light upon things that people have long erroneously believed as true. If you find error or basis to oppose my information or positions, I invite you to state your information or basis for opposition.

I grew up, even into adulthood, hearing and believing that Franklin D. Roosevelt was the guiding hand responsible for our Social Security old age support system.  

Does it not slap you in the face like a bucket of cold water to learn that FDR opposed pay go Social Security?  It did me.  And I have been a lifelong registered Democrat.  

There are many things about Social Security that people think they know, but which are in fact not true.  

For instance, you've probably heard it said that Social Security's problems are the result of people living in retirement longer. Would it surprise you to know that a 65 year old man in 1990 had a life expectancy that was under 3 years longer than a 65 year old man in 1940.

Doesn't it make you wonder who is controling the information we receive?  And why?    

I can understand the desire to participate in the unity of a common belief or enthusiasm, whether for something like a team pep rally - or against something like lazy husbands.  (And neither an opposition-team supporter nor a grateful wife are appreciated at either gathering.) But Social Security is a serious issue about something very important, and now is a critical time.