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If you evince even a slight interest in U.S domestic policy (not many desis who incidentally are the majority of my readers do; hence this disclaimer), then you surely must have gotten a whiff of the most drastic changes that Bush has planned for his next term. If Iraq was the trump card for his first term, the overturning of Social Security will be his baby for the second term. Thankfully, it was failed to win even the support of the conservatives and might be nipped in the bud. NY Times ran an excellent editorial few weeks back on this issue.
Social Security is a federally-administered program funded by almost 6-12% of your income tax. It provides almost a third of the pre-retirement income to the retiree and provides for an inflation-free income for the rest of the retiree’s life. Bush, on the other hand is advocating replacing it with a system centered on private accounts, harping on Republican ideology of less government.
“The administration wants workers to divert some of the payroll taxes that currently pay for Social Security into private investment accounts, in exchange for a much-reduced government benefit”.
Privatization which works excellently otherwise, doesn’t quite make the cut in redistributive policy decisions. The individual investors thus created might be expected to play the stock market. But as the Times puts it eloquently:
“The stock market’s historical returns - some 7 percent a year - are predicated on a hypothetical investor who bought an array of stocks in the past, reinvested all dividends, never cashed in and never paid commissions or fees. That’s not how investing works in the real world”.
The wealthy with the advantage of professional investing advice might unfairly benefit from such a system and the only possible winner as seen by the Times, is Wall Street by charging for managing millions of new accounts thus created. Expect Bush to elaborate on this dicey issue during his State of the Union address today.
This dilemma might be ponderous for the Libertarians (cartel members?).
Finally, to end it off with a light note, Fafblog has this amazing satirical piece on the supposedly imminent Social Security crisis, as seen by Bush [via Boing Boing].
Q: Is Social Security in crisis?
A: Yes it is! And if we don’t do something right now it is going to EXPLODE!
Q: Oh no!
A: In forty years.
Q: Then what happens?
A: Then Social Security runs out of money! That means either your benefits are reduced, or all Social Security everywhere explodes in a giant fireball and we will have to run away from the fireball and jump away from it in slow motion to escape!
Q: Tell me more about this crisis in gritty detail!
A: The fireball is huge and loud and expensive and there is grinding guitar music on the soundtrack informing everyone that we are bad, bad dudes! The radiation turns all old people into very poor mutants who must scavenge and eat each other for food. Eventually the robots come: they are unstoppable. What has science done!
by Patrix | on Tuesday, February 1st, 2005 at 11:05 pm | 
Governance, Politicking, United States . You can follow any responses to this entry through the RSS 2.0 feed.
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February 2nd, 2005 at 5:48 am reply
I don’t pay much attention to social security. Here are my two bits:
The method the US uses is called “pay as you go” — what you put in social security is not saved up for your retirement, but paid out to those who are already retired. When you retire you would get paid your pension from those who are then working (and depositing into social security), and so on. System manages to function when current workers > retirees. Won’t last much longer as the US population demographics change. More people retiring than joining the work force!
There is a lot of literature on the topic from a libertarian perspective. I’ll give you links to main pages. You go ahead and search inside
http://www.cato.org
http://www.mises.org
http://www.cafehayek.typepad.com
http://www.marginalrevolution.com
February 2nd, 2005 at 8:15 am reply
Yazad - Changing demographics is fine but do you really think it will change enough to warrantee a complete overhaul aka privatization? Saying that Social Security will be broke by 2042 is a lie that Bush has been saying so many times in hope that enough ppl might be convinced (remember WMD?). All I am saying is that let us have an informed and educated opinion on the future.
February 3rd, 2005 at 12:23 am reply
I suggest you read the links above. Social Security going broke was being said long before Bush ever stumbled upon the idea.
There’s also a philosophical objection I have. Why should the govt. force people to save? And force them to save only in a govt. saving scheme. Where there are NO guarantees.
February 3rd, 2005 at 8:49 am reply
Hey, read this at Cafe Hayek.
February 3rd, 2005 at 1:08 pm reply
Yazad - You are missing the point. Social Security is not a perfect system (like any other system); all I am harping about is Bush’s extremist reform measures (so much for the “great” tax cuts, eh?)that would only strengthen Wall Street. Government forcing people to save is a bad idea but much worse is Bush’s idea to create private account that would seemingly let people handle their own money. But in fact, they are not. Lower income people will be seriously disadvantaged as they do not possess resources nor access to professional advice on investing. Let us get beyond philosophy. Finally, all I am saying is that let us not have redundant arguments; Social Security is here to stay at least politically. Let us have a realistic estimate of how much is wrong and then work on offering solutions that would keep the basics of SS constant.
February 3rd, 2005 at 11:31 pm reply
Ok we’re talking at cross purposes. Let me make two points clear.
1. I think “social security” as currently practised in the US (and most of the world) is retrograde and should be scrapped.
2. I don’t agree with Bush’s methods.
Our debate should be on #1. We agree on #2. And this “lets get beyond philosophy” part is strange. Ideas have consequences. Lets discuss the ideas. Otherwise if we’ll be left with just the consequences of someone else’s (possibly bad) ideas.
February 4th, 2005 at 9:27 am reply
Yazad - It is good we got the #1 and #2 seperated. As for arguments on #1, I agree that all is not well with Social Security but that doesn’t warrantee totally scrapping the system. It can be amended without messing the philosophy. It does protect lower income group at the very least. Let us exclude the top 5% from all benefits instead of scaling back on benefits. Can you really not offer a retirement income to a veteran who technically is not skilled beyond patrolling Iraqi streets?
February 22nd, 2005 at 5:42 am reply
Bathtubs and social security
I don’t concern myself much with the debate on social security, which is raging in the US (although I did engage Patrix once on the issue). Loads of libertarian sites and blogs have written on it in far greater…