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     Michael Janay Citizen Username: Childprotect Post Number: 1423 Registered: 1-2003  |
Wharfrat, As for Krugmans lies, did you read the article that CJC linked. It lists them one by one. Here you go: No ‘Fool’s Paradise’ Krugman lies about personal accounts for Social Security. If the liberal establishment is so sure that reforming Social Security with personal accounts is such a terrible idea, then why do they have to lie about it? Consider Paul Krugman’s latest New York Times column. It’s designed to scare his readers into believing that “privatization,” as he calls it, “dissipates a large fraction of workers’ contributions on fees to investment companies” and “leaves many retirees in poverty.” To prove this, he offers a smorgasbord of deceptions, errors, distortions, and misquotations about the way reform with personal accounts has failed — or so he claims — in other countries. Krugman’s primary target is Chile — which became in 1981 the first country to reform its national pension system with personal accounts. Krugman says, More than 99 percent of Social Security’s revenues go toward benefits, and less than 1 percent for overhead. In Chile’s system, management fees are around 20 times as high. First, Krugman is in error to call the charges “management fees.” About a third of the fees are not management fees at all, but rather premiums for life and disability insurance coverage that are an integral benefit of Chile’s system. Second, fees should be seen in terms of assets under management — not as a fraction of revenues. According to Chilean economist Salvador Valdes-Prieto, fees in Chile as a fraction of assets under management are about sixty-five one-hundredths of 1 percent — lower than the average mutual fund fee in the United States. Third, it’s laughable for a professional economist like Krugman to suggest that fees charged by the tiny, over-regulated Chilean financial services industry would in any way represent the best we can do in the United States. Here, large, highly developed, competitive, and relatively unregulated markets create enormous economies of scale. Most Social Security reform proposals advocate the use of ultra-low-cost index funds, of the type employed by the Thrift Retirement System — the 401(k) plan for federal employees. Krugman, however, has a lie all ready to counter that reality. He says, It’s true that costs will be low if investments are restricted to low-overhead index funds — that is, if government officials, not individuals, make the investment decisions … And if there are rules restricting workers to low-expense investments, investment industry lobbyists will try to get those rules overturned. I know from personal experience that every word of this is a lie. I used to be an executive of Barclays Global Investors, the firm that has run all the index funds for the Thrift Retirement System since the program was first started in the 1980s. First, I can tell you that no government officials made any investment decisions whatsoever. My company ran the funds — and every individual federal employee decided for himself or herself which of the funds to invest in. I can also assure you there was no lobbying to raise fees — we didn’t have time to lobby. Our contract came up for re-bid every 2 years, so we were kept plenty busy competing with other index-fund managers to offer the Thrift Retirement System suicidally low management fees. In the last bidding cycle while I was still at Barclays, we beat our major competitor — State Street Global Advisors — by committing to manage an S&P 500 index fund for a fee of 4.5 one-thousandths of 1 percent per year. To put that in perspective, the Vanguard Index 500 fund, renowned for its low fees, charges 18 one-hundredths of 1 percent — which is 40 times more than we charged the federal government. Here’s another Krugman lie about the record of reform in Chile. He says, as a Federal Reserve study puts it, the Chilean government must ‘provide subsidies for workers failing to accumulate enough capital to provide a minimum pension.’ In other words, privatization would have condemned many retirees to dire poverty, and the government stepped back in to save them. Krugman makes it sound as though the Chilean system has failed, and the government had to bail it out. In fact, a safety net for the neediest workers was an intentional feature of Chile’s reform from day one. So nobody “stepped back in” — they were always “in.” And the use of the safety net is actually minimal. According to Senate testimony by Jacobo Rodríguez of the International Center for Pension Reform, As of March 2002, the government had supplemented 33,029 pensions, including 11,759 old-age pensions, out of over 400,000 pensions. ... the cost to the government of supplementing these pensions has been about $33 million. In fact, the Chilean safety net only applies to workers with 20 or more years of participation in the system. Considering that the system is only 23 years old this year, there just aren’t that many workers who are even eligible. And considering that the reformed system provides adequate benefits to retired workers based on only a 4 percent real return from invested assets — and that the real return since inception has been about 10 percent — we’re not going to find a lot of “dire poverty.” So what about that “Federal Reserve study”? Turns out there’s no such thing. There’s only a 2003 symposium paper by Stephen Kay, a researcher at the Atlanta Fed, whom a source close to the situation described to me as “a young leftie economist who is an ideologue against private systems.” Kay’s paper states right on the cover that “The ideas expressed in this paper are those of the author and do not necessarily reflect the views of the Federal Reserve Bank of Atlanta or the Federal Reserve System.” It’s deceptive of Krugman to suggest that the paper has the imprimatur of the Federal Reserve System. And Krugman elided the first half of the sentence he quoted from the paper, which makes it clear that Kay is asserting only that government supplements have “elevated in part” Chile’s long-term fiscal costs of reform. Turning to the other half of the globe, Krugman tries the same trick with the British equivalent of Social Security. He writes that Britain’s Pensions Commission warns that those who think Mrs. Thatcher’s privatization solved the pension problem are living in a ‘fool’s paradise.’ A lot of additional government spending will be required to avoid the return of widespread poverty among the elderly — a problem that Britain, like the U.S., thought it had solved. This is a flat-out lie. The report of Britain’s Pension Commission “warns” of nothing of the sort. The expression “fool’s paradise” is in reference to “irrational equity markets and delayed appreciation of life expectancy increases” that allowed many British corporate pension plans to “avoid necessary adjustments until the late 1990s.” It has nothing to do with “Mrs. Thatcher’s privatization” — and it’s hardly a “warning,” considering that it describes “necessary adjustments” as having been made during the previous decade. So what is Krugman’s solution to rescuing Social Security — to keep government from having to “step back in” like Chile’s supposedly did to cure “dire poverty” — and to truly solve a problem that Britain supposedly only “thought it had solved”? Raise taxes, of course. In a Times column two weeks ago Krugman recommended raising taxes by half a percent of GDP, in order to shore up Social Security “into the 22nd century, with no change in benefits.” Krugman makes the tax increase sound small by expressing it as a percentage of GDP. But in language that working people can understand, his recommendation is the same thing as raising the Social Security taxes that workers pay by about 25 percent, according to a June 2004 Congressional Budget Office report. And he never mentions that raising taxes is a fix that we’ve tried before, right here in the U. S. of A. That fix failed. Because the Social Security system is fundamentally insolvent over the long term, and gets worse every year, raising taxes only helps for a short time. Remember, the system was on the brink in the early 1980s, and we shored it up by raising taxes. Now it’s on the brink again — and if we shore it up by raising taxes, we’ll just be back on the brink again in another 20 years. Unless we raise taxes again, and again, and again. And that’s no “fool’s paradise.” That’s hell on earth. | ||
| Rastro Citizen Username: Rastro Post Number: 528 Registered: 5-2004  |
MJ, the government would only be helping the stupid if they became needy, which you seem to agree should be helped. Bad investments aren't always a function of being stupid. But if someone did make a bad investment, which led to no savings, the government is has a moral obligation to step in, given that they have promised they would. I don't want to get into a whole thing about Social Security's value. I agree with Tom that above a certain level of savings or income, you shouldn't be eligible (I think that's what he was getting at). And I also agree that had Social Security been initially set up as forced savings, everyone might be better off. But we've got a quagmire now. Also, you wrote: Currently there are millions of people collecting Social Security checks. I assume they will continue to do so. At some point, you will need to tell people that all their contributions to date are meaningless, and that from now on, they will be contributing to a savings account. That's fine. But then the current retirees need to be paid from somewhere. Where will that money come from? With no new money coming in, the surplus will be depleted very rapidly. One of the ways around this that I've heard is that there will be a gradual transition to savings accounts. In that case, SS becomes just another tax that a group of taxpayers (younger ones) are guaranteed not to be able to benefit from. If the general fund is used to pay, that means that taxes have to go up, or massive new debt taken on. So we'd be shuffling our problem to our kids. By the way, S benefits are not supposed to be considered debt because the Social Security fund was supposed to be (and theoretically still is) a separate account. The feds borrw from it, but they're supposed to repay it. The problem is that they don't, and they steal the surplus to make it look like the deficit isn't as bad as it would otherwise be. I doubt that this is new to this adminsitration, but it's slimy nonetheless. Ugh. Yet another disconnected rant. Sorry if it's tough to follow my thoughts. I'm trying to cram too much into one post, and I'm writing without having eaten. Some day I'll learn. | ||
| Straw's world Supporter Username: Strawberry Post Number: 4188 Registered: 10-2001 |
"Some day I'll learn." doubtful | ||
| wharfrat Citizen Username: Wharfrat Post Number: 1470 Registered: 6-2001 |
Michael- I guess you didn't read this link- http://www.socsec.org/publications.asp?pubid=503 | ||
| Tom Reingold Supporter Username: Noglider Post Number: 4864 Registered: 1-2003  |
I've learned a few interesting things and ideas from Andrew Tobias's column this week. Check these out: http://www.andrewtobias.com/newcolumns/041221.html http://www.andrewtobias.com/newcolumns/041223.html He addresses the "means test" idea rather neatly. | ||
| Rastro Citizen Username: Rastro Post Number: 529 Registered: 5-2004 |
Straw, at least in my case there's a glimmer of a chance. You'll never learn, because your mind is closed. Most others here are willing to at least consider other's opinions. You obviously are not, nor are you willing to provide any substantive commentary. You've been relegated to team cheerleader. Enjoy the skirt. | ||
| Straw's world Supporter Username: Strawberry Post Number: 4189 Registered: 10-2001 |
"You obviously are not, nor are you willing to provide any substantive commentary. You've been relegated to team cheerleader." I have alot to cheer about. Here's my problem. I've been invited to two inauguration balls this year. One being the Military ball, the other one being hosted by Florida Republicans. Not sure which one I should attend. The Military ball is the big one this year obviously, but Jeb personally invited me to the other.. What to do... | ||
| Mark Fuhrman Citizen Username: Mfpark Post Number: 1016 Registered: 9-2001  |
Tom: Great articles by Tobias! He answered many of my questions (although Michael Janay also made some good points). For those who support privatization--have you read those Tobias articles? What do you say? | ||
| Tom Reingold Supporter Username: Noglider Post Number: 4866 Registered: 1-2003 |
One interesting point Tobias made on the 21st: the SS fund buys US bonds. If the expectation and hope is that with privatized SS, people will buy stocks instead of bonds, then who will buy the bonds that the US needs to sell? | ||
| Southerner Citizen Username: Southerner Post Number: 32 Registered: 2-2004 |
Interesting topic but moot. Bush won and the Republicans won and this was a main plank in the victory. The American People have spoken through the use of their vote and I expect the Republicans to make this happen. I understand and respect those of you on the other side of the argument, however, this puppy has pretty much been decided. It's going to happen sometime within the next 4 years. You should ask yourself why didn't candidate Kerry make this a bigger issue if the premise is so faulty. I can guarantee that you won't see someone like Hillary bashing this idea to much (although a little to appease her NY constituents) because she is politically astute and realizes that the majority of this country wants this done so she isn't about to give the Republican candidates some ad fodder this early. Remember if any top Democrat wants a legit shot to win in 2008 they are going to have to turn a big red state to blue. This isn't the issue to do that with. A good debate however educates everyone. | ||
| Tom Reingold Supporter Username: Noglider Post Number: 4868 Registered: 1-2003 |
Southerner, please explain why you said this topic is moot and you said, in the same post, good debate educates everyone. In your first statement, you appear to be saying that talking about the issue is fruitless. Debate is educational and can lead to action. There is no more debate about who should be president. That is a dead issue. The debate is now over what government should do, whatever color its stripes are. I say it should not privatize SS, for the reasons stated by many people, above, and by Krugman and Tobias. Even if Krugman is factually wrong in a few places, and I don't know whether or not he is, I believe the other issues override that. In other words, I feel he is more right than wrong. He doesn't have to be perfectly right for me to agree with him. | ||
| Southerner Citizen Username: Southerner Post Number: 34 Registered: 2-2004 |
Tom, Thanks for pointing out my apparent misspeak. What I meant to say is that the Republicans are going to pass this SS reform so in essence the debate is indeed fruitless. I know that seems cold and flippant but they are. It may take awhile but they are committed to do this. However, I like to hear the debate and read the other sides opinions. We can debate all day but the time to debate this issue was prior to electing a boatload of Republicans who have promised to get this passed. I personally voted for Republicans across the board except for a few local Democrats. Since they have the majority and the White House I expect them to honor their platform which was one of the reasons I did vote the way I did. Now, if they back down, I'll be upset and will think hard about trusting them again. However, the Republicans seem to do the things they say they will, whether you agree with them or not. No matter what you think of my Georgia boy Newt (which I know most of you think is the personification of evil), he said what he was going to do and he did it. I think Bush is of the same mindset especially knowing he's a lame duck. | ||
| Mark Fuhrman Citizen Username: Mfpark Post Number: 1018 Registered: 9-2001 |
Southerner: Did you read the articles by Tobias that Tom linked to? I would like to know how you disagree with those points, which are pretty damning to anyone who believes that privatization will solve the problem. Sure, the GOP won on that platform, but if further analysis shows it is wrong then you and they should revise the program. Even though Bush goes to great lengths to never admit any error, if you cannot refute Tobias you and other Republicans should pressure your side to change course. It does not help the country to ignore good advice simply for partisan gain. | ||
| Dr. Winston O'Boogie Citizen Username: Casey Post Number: 922 Registered: 8-2003  |
I remember when Kerry said privatization of SS was going to be Bush's "January surprise," and the wing nuts went even nuttier calling Kerry a liar for saying that. Hannity was apopletic (I could almost feel the spittle coming out of my radio) about what a horrible, horrible, bald-faced liar Kerry was. Did all this go down the Memory Hole? When Bush and his minions were denying that this was his intention, was anyone paying attention? All I can say is "flip-flop, flip-flop."  | ||
| Tom Reingold Supporter Username: Noglider Post Number: 4880 Registered: 1-2003 |
Mark, you said what I wanted to say, but better, and in fewer words. You said it so completely and succinctly that I fear your brevity may make it difficult for Southerners and others to absorb. Southerner, please read Mark's words carefully. There's a lot in there. | ||
| Bobkat Supporter Username: Bobk Post Number: 7090 Registered: 5-2001 |
the Tobias article brings up a good point about our zooming national debt and with the dollar in free fall we are going to have to pay much higher interest than we currently do to finance this. One way or another I doubt that Congress will go along with Bush's plan unless most of the increase if funded by increased SS taxes, more or less along the lines of Senator Graham's alternative proposal. | ||
| tjohn Citizen Username: Tjohn Post Number: 2819 Registered: 12-2001  |
Straw, Congratulations on your invite to the various inaugurations. It's fun to rub elbows with the rich and famous. Are you working in the kitchen again or are they going to let you try serving drinks again? People are still talking about your accident with the tray of drinks a couple of events ago. | ||
| Mark Fuhrman Citizen Username: Mfpark Post Number: 1024 Registered: 9-2001 |
Supporters of privatization--your silence is deafening! What's the matter, can't answer Tobias so you are just ignoring the counter arguments? | ||
| Tom Reingold Supporter Username: Noglider Post Number: 4890 Registered: 1-2003 |
Maybe they're doing Christmas stuff instead of hanging out on MOL. Good to meet you the other day! It's funny how people talk about saving SS as if it's a crisis. It turns out to be a problem we ought to solve, yes, but it is not imminent danger. We are mostly just playing political football. | ||
| Tom Reingold Supporter Username: Noglider Post Number: 4896 Registered: 1-2003 |
Tobias has more to say about this today. |
