Reidblog [The Reid Report blog]

Think at your own risk.
Friday, February 04, 2005
Ossie and Paul
Paul Krugman nails the Social Security argument today, building on yesterday's WaPo report on that background briefing in which a White House official admitted that the president's privatization scheme won't fix Social Security's finances after all.

Krugman's take: offering people private Social Security accounts in exchange for reduced guaranteed benefits is like pushing folks to borrow money from the bank and then go gambling in Vegas, on the hopes that your winnings will exceed your loan debt. Money graphs:
Bush-style Social Security privatization: it is, in effect, as if your financial adviser told you that you wouldn't have enough money when you retire - but you shouldn't save more. Instead, you should borrow a lot of money, buy stocks and hope for capital gains.

Before President Bush's big speech, a background briefing by a "senior administration official" made it clear that the plan calls for exactly the "borrow, speculate and hope" strategy I described - not just for the system as a whole, but for each individual.

Here's the money quote: "In return for the opportunity to get the benefits from the personal account, the person forgoes a certain amount of benefits from the traditional system. Now, the way that election is structured, the person
comes out ahead if their personal account exceeds a 3 percent rate of return" - after inflation - "which is the rate of return that the trust fund bonds receive. So, basically, the net effect on an individual's benefits would be zero if his personal account earned a 3 percent rate of return." Translation: If you put part of your payroll taxes into a personal account, your future benefits will be reduced by an amount equivalent to the amount you would have had to repay if you had borrowed the money at a real interest rate of 3 percent.

Peter Orszag of the Brookings Institution got it exactly right: "It's not a nest egg. It's a loan."

Bush is still pushing the idea, but a new Rock the Vote poll suggests young people may not be buying... Taking into account RTV's political philosophy, it's still a good bet that once people understand what Bush's program really means -- for themselves and the Social Security system as a whole -- it looks less and less attractive.

On another note, RIP Ossie Davis. And deepest condolensces to Ruby Dee and their family. Really a tragic day...
posted by JReid @ 1:00 PM  
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