Tuesday, February 08, 2005

Our president speaks:

And they said Kerry was wordy...Here's President Bush explaining his Social Security plan in Tampa on Feb. 4, 2005...

"Because the—all which is on the table begins to address the big cost drivers. For example, how benefits are calculate, for example, is on the table; whether or not benefits rise based upon wage increases or price increases. There's a series of parts of the formula that are being considered. And when you couple that, those different cost drivers, affecting those—changing those with personal accounts, the idea is to get what has been promised more likely to be—or closer delivered to what has been promised. Does that make any sense to you? It's kind of muddled. Look, there's a series of things that cause the—like, for example, benefits are calculated based upon the increase of wages, as opposed to the increase of prices. Some have suggested that we calculate—the benefits will rise based upon inflation, as opposed to wage increases. There is a reform that would help solve the red if that were put into effect. In other words, how fast benefits grow, how fast the promised benefits grow, if those—if that growth is affected, it will help on the red."


At 9:46 AM, Blogger romeotheBT said...

Yeah, not exactly the most eloquent description of the issue. I'll try to break it down a little better from a conservative's point of view. I don't want, nor need the government providing for my retirement (of which approximately 70% of social security goes to retirement).

Don't pretend like social security is for my benefit. If you want to set up a program to provide for elderly people that DID NOT plan or were not able to save for their retirement, fine, we can discuss that. The problem with that, is that I know of at least a few people who were able to make a fine living (or are still currently doing so) and made no plans for retirement. I know of at least one person in their mid fifties who earned close to a six figure income and as of a couple of years ago had yet to think about retirement. That is why I don't see a problem with privitization of benefits and having some gaurantee that they will be there when either I retiree or I kick the bucket.

At 11:53 AM, Blogger Ricardo Grande said...

38% of the income of the aged comes from Social Security...The rest of the income comes from private pensions, their assets, and their jobs (seemingly all at Publix as bagboys). You have to be careful though about how you blame individuals for not saving for retirement. My Mom never worried about it because she thought she was going to have a husband with a pension as well as her social security. She worked her whole life, but worked short stints at private schools (with no retirement plans) so that she could put my brother and I through the schools that she wanted us to be in. Now, she's divorced, and only got vested with a pension when she was like 63 (it's very small because she only worked for the public school system for like 10 years after she was divorced). So, when you talk about the value of SS it's important to remember that it's (almost) all some people have for retirement and it's not because they were lazy or blew their $100,000 salaries on fast living. As for that guy, he'll suffer for his poor planning - he's used to a certain lifestyle and SS only provides a baseline of economic security (my mom is going to have to give up her house soon because she can't afford it on SS and her small pension).
As for SS not being for you, it may not but only because you will hopefully be lucky and be able to work your entire life. If you were to have a stroke or be crippled in an accident, I bet you would be glad that you had SS and not some private account you'd only been contributing to for 5 years. The "other" 30% of SS is a pretty important part of the program, too...

At 12:35 PM, Blogger romeotheBT said...

Don't get me wrong... I didn't say I was against a social program that benefits disabled people as well as families where the bread winner dies before his prime (or "her prime" if you want to be all feminist and everything). And I'm not assigning blame. I'm pointing out that there has been a lack of foresite by a huge number of people regarding their future financial status. It wasn't fast living that ate up their 100K salary so much as it was a general cluelessness that evenually they would stop working.

As far as your mom goes, like I said, I'm not against benefits. She worked and put money into SS, but what about a couple that works their entire life and then kicks off right before they start receiving benefits? Their children are too old for survivor benefits. At that point, SS was essentially an extra tax burden on them their entire life. I don't believe people should be forced into paying into an insurance policy they don't want and may not need.

At 12:56 PM, Blogger Ricardo Grande said...

But what's the difference? Unless you think the government should not provide a benefit for the poor elderly or the disabled, the money will be coming from somewhere. Whether you call it social security or some other name, the government will be providing a safety net (which I think is correct). It seems to me that for a conservative, social security should be much more palatable than a regular government program - the taxes are less progressive than the regular income tax and the wealthy benefit (even if they pay in more than they take out, they at least get some back). And if you die before you can ever collect your benefits, you've got bigger problems than social security. :)
And what if you were planning on retiring in October 2001? Your portfolio (even the government approved mix of bonds and stocks) would have been decimated. Everyone always talks about how the stock market goes up over the long haul, but often people are not around for the long haul.
Finally, and then I'm really done :), I think there are immense problems here - first, we can't afford to frontload the system (as Al Gore pointed out in 2000). Further, I have grave concerns about the immense amount of capital that would be controlled by a few fund managers (I already worry about this with mutual funds - the ability of a few people to affect the market is dangerous) would cause the further expansion of short-term hedging and thus market moves could crush any attempt at long-term corporate decision making as execs struggled to keep the "electronic herd" (as Friedman calls it) in their corner.
There, I'm done. I don't think I have anything else to say, and I need to get some work done sometime today.

At 1:19 PM, Blogger romeotheBT said...

You won't work... you will continue to post! No I understand the problem about front loading and that is part of the reason that I support privitization. Whatever kind of predictions they make about the SS Trust Fund the fact remains that there are NO gaurantees of benefits in the future to anyone poor or wealthy.

Listen... it breaks down like this. Right now the government is seizing my wealth in order to pay for the benefits of current retirees. There are no gaurantees of any kind as to the status of what I am putting in. Now if you called that a tax, so be it. I have to live with it, I have to pay it, I'm not even saying I would be completely opposed to it. But the difference is that I am paying into a social security program that is supposed to be providing for my retirement. I understand the risks behind investing and I am willing to take them. I was unaware though that there would be so few funds managers. But, like I said, if people are willing to take a risk then that is there choice. People take risks all the time, usually the greater the risk, the greater the reward. It's all part of life. I know it sounds trite, but I think it is a perfectly legitimate answer to the question of what would have happened if you retired in October 2001.

At 3:58 PM, Blogger Ricardo Grande said...

The problem with that logic though is that the only reason people are worried that the government won't pay their social security benefits is because the government is hinting they won't. There was never any real reason to believe that social security was inviolate except that the government promised to pay it in exchange for collecting the revenue. Further, telling people that the US can't meet its obligations is a HORRIBLE strategy gven that our whole government is financed on borrowed money right now (and for the foreseeable future). After all, Congress (mostly Democratic ones, I'll admit) started borrowing money out of the social security fund and replacing it with IOUs. So, guess what? Now we don't have enough money, and Bush is saying that we're in a crisis. It's not a crisis unless we don't pay back the money that we owe ourselves. That's all we would have to do for Social Security to be solvent forever. But, that's not what Bush wants to do because he wants to turn the money currently going into social security into a stream of capital for Wall Street. Think about it: a huge and unending stream of investment into corporate America, driving up stock prices (the money has to go somewhere!) until they are totally overvalued and then...POP! The bubble breaks! Who has benefited? The investors who were in at the ground level and were smart enough to get out. Who has not benefited? The retirees (or middle-aged professionals) who got all excited about their RVs until the bubble burst and they were left with 1930s (or 2000)-style portfolios. I'm telling you man, the idea sounds good, but the details are a bitch.
An analogy: You hate the Miami housing market because speculators have driven it sky-high. Eventually, people will realize that the prices have gotten so high that the use-value of the house is far eclipsed by the price-value. The prices will collapse as everyone gets out, and finally people like you can buy a house. Now, imagine the same thing happening to the stock market. Only now, it's a government-guaranteed stream of investment cash that goes to whomever government-approved fund managers decide deserve it. The continuous investment would far outstrip the ability of those companies to return on the investment, and eventually the stocks would tank. Only now, it's not wealthy house speculators who get stuck with the tab, but instead ALL OF AMERICA. Granted, I'm no economist, but I don't see how this scenario could play out differently. I'm truly scared of the privatization of social security because it reduces stability in the system, both for retirees and for markets.

At 9:21 AM, Blogger romeotheBT said...

I have heard from conservative pundits long before this most recent round of SS reform about the lack of gaurantee in regards to money that is "supposed" to be for your retirement. And I'm not even talking about any kind of crisis mode. There may be an implied gaurantee, but well... we know the government would never mislead us right?

I am no economist either, but I'm not sure your prediction of added revenue for the stock market would lead to any kind of crash. Just because you put money into a company does not overvalue it. There may be an immediate increase in the short term as this money is introduced and Wall Street rallies, but you even said yourself, continuous stream. Aside from your two notable exceptions, the stock market has grown at a good rate and since it is investment into the American economy there is no reason to believe that adding revenue would cause any kind of collapse. Investing in the stock market is good... honest investing. The stock market decline and following recession in 2000/2001 was caused by many factors (the overvaluation of tech stocks, corporate scandal, 9/11 attacks and subsequent wars). Overall in times of peace, the stock market is a great and very safe place for money to grow (slowly!). A lot of issues need to be addressed for people to feel safe with their money in Wall Street, first and foremost is corporate accountability, I still don't think they've done enough about that. But really, the stock market is not the boogeyman that a lot of people make it out to be. I just can't get over that one caller on Air America who basically said "I don't trust Wall Street, I'd rather trust the government with my retirement".

I will agree with you that the money needs to be spread out over several companies (funds managers, etc...), but it is not poor logic and should the American economy continue to grow, there is no reason to believe that your money won't be relatively safe. And as I said before, there are always risks there. Risks are a part of investment.

At 1:03 PM, Blogger Ricardo Grande said...

Which is why retirement should be distinct from investment.
I still have real concerns with a stream of investment, especially one that is as large as this one would be, being continuously channeled into the market. What is a bubble? It's overinvestment in something that can't return on that investment, fuelled by speculation. There is simply no way that the chosen companies could handle such a large and continuous stream of investment, at least the way I see it. I see a bubble forming as the price of the chosen companies is driven up and up by the continuous investment of everyone's payroll taxes; other people would invest in it simply because the price was bound to go up. Eventually, it becomes way overvalued, and pop. The lesson of the internet bubble was that you have to return something for an investment. I highly recommend _Wealth and Democracy_ by Kevin Phillips. His book is essentially a history of the world's market bubbles, and it charts who benefitted each time the bubble popped. It's eye-opening.


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