Social Security – Part 6: Reasons to Oppose Privatization

In the next month or two, the people of the United States will be awash in partisan propaganda, paid for by conservative interest groups and corporate trade associations, supporting the Bushies’ plan to privatize Social Security:

“White House officials, led by Karl Rove and Charles P. Blahous III, the president's policy point man on Social Security, are helping to shape the public relations campaign, said the officials, who talked about private discussions with the White House on the condition of anonymity.

"’It could easily be a $50 million to $100 million cost to convince people this is legislation that needs to be enacted,’ [Stephen] Moore [head of the conservative Club for Growth] said. ‘It's going to be expensive" because "it's the most important public policy fight in 25 years,’ he said.”

- Washington Post, 2 January 2005

It is unlikely the opposition will have as much money to counter the onslaught, so today Crabby Old Lady will give you some good reasons not to take the Bushie’s privatization PR campaign at face value.

False Claims of Crisis
Social Security is not in danger of imminent collapse and the “crisis” is a ploy to scare the public into going along with the Bush plan.

“President Bush…has long been a fan of private accounts as a replacement for government guarantees of retirement income – but the only way to convince the public that it’s worth risking their retirement income on the stock market is to claim that Social Security is in crisis…Even in the worst case, even if we do absolutely nothing for the next 38 years, Social Security won’t go bankrupt.”

- Los Angeles Times, 29 December 2004

The government’s claim of a $10 trillion shortfall is refuted by the American Academy of Actuaries, identified by The New York Times as “the profession’s premier trade association.”

“…the administration is ignoring the actuaries. But that doesn’t alter the facts or common sense. If the $10 trillion figure is essentially bogus, so is the claim that Social Security is in crisis...The system could – and should be strengthened again by a modest package of benefit cuts and tax increases phased in over decades.”

- The New York Times, 3 January 2005 *

Risk
Financial investments are always risky. That’s why every prospectus for buying stocks warns investors could lose their shirts. An important objection to privatization is that it transfers all the risk to the participant while jeopardizing retirement security.

As New Jersey Republican senator and former head of investment bank Goldman Sachs, John Corzine, notes:

“In any given 10- or 15-year period, you can have ups and downs in markets that could leave the retiring group of individuals at the point of great risk.”

- Reuters, 12 December 2004

“The president is proposing the possibility that some people might do better, but at a tremendous cost to society and with a guaranteed reduction in future benefits and a loss of that guaranteed income in retirement.”

- Rep. Peter DeFazio, D-Oregon

Americans Don’t Know How to Invest
If Wall Street investment experts knew what they were doing, they’d all be living on private islands in the Caribbean. No one guesses right on the stock market all the time, least of all everyday Americans who are busy with their own jobs, raising children and trying to pay the bills have time to educate themselves in the intricacies of investing. The majority of workers who bother to fund 401(k)s

“...have demonstrated a colossal lack of interest, time and sometimes aptitude for managing these assets. Therefore a plan to fix Social Security that assumes the American worker will embrace taking control over the investment decisions for a portion of their Social Security benefit seem misplaced.”

- Milwaukee Journal-Sentinal, 18 December 2004

“…the data suggest that [Americans] do not manage their own funds in a professional manner. When it comes to 401(k) plans, which have been around for more than 25 years, some companies now limit investment options because their employees have been so dumb about making investments.”

- Washington Post, 21 December 2004

Privatization Has Failed Elsewhere
Chile, which privatized its social security system more than two decades ago, and the United Kingdom, which privatized its system in 1988, have seen disastrous results.

In Chile, the World Bank reported in 2004, more than half of all workers have no safety net in their old age. Huge commissions from brokerages have eaten up large amounts of the accounts and the average worker would have done better with the same money is a passbook savings account.

In the United Kingdom,

“…many citizens were victimized by poor investment choices as well as unscrupulous brokers. The national government was left with substantial new administrative expenses, lost tax revenues, and responsibilities to bail out some failed private pension plans.”

- 12 Reasons Why Privatizing Social Security is a Bad Idea, The Century Foundation

By contrast, the cost of the current Social Security system is just .6 percent of all payroll taxes collected. Not .6 percent of each worker's contribution; .6 percent of the total billions collected each year.

The public relations campaign in support of Bush’s bad plan will be off and running soon. Crabby Old Lady reminds you to pay close attention to the spin and not believe everything they tell you.

* The New York Times has withdrawn its service that allowed bloggers to link to archived stories indefinitely without readers paying a fee. To avoid dead links, Time Goes By will no longer provide those links.

...to be continued...

Social Security Privatization Series Index

Comments

[Cowtown Pattie]

Be afraid, be very afraid. Only light I see at the end of the tunnel, is that perhaps in four years, someone sane will be in the White House, and some damage control can begin...

[maximus]

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