Friday, January 28, 2005

Individual Security, a new phrase

As the national debate about Social Security heats up (or maybe we need to change the name to Individual Security, since many of the arguments I am reading aim to torpedo any "Social" aspects of the program) it gets harder to see through the smoke and mirrors. I sense yet another polarization in progress, very much like the debates about gay marriage, abortion and the war in Iraq: if you ain't fer it, then you must be agin' it.

I'm biased because my own experience witnessed my parents with nothing to show for a lifetime of work by my father and a lifetime of homemaking by my mother, other than Medicare, Medicaid, Social Security, supplemented by the resources of my sister and me in our parents' declining years.

I feel assured that our safety nets will probably not be disturbed by the current debate. Politicians have learned that any problems they create will be ticking bombs that only detonate after they are no longer around to catch the flack. Can you say "social security"?

Yesterday I received a billet-doux from the Social Security Administration summarizing my "account" (with only the last four digits printed, incidentally, "to help prevent identity theft") and spelling out what my "benefits" would be under various scenarios. This morning I came across a helpful on-line "calculator", sponsored by the Heritage Foundation, to calculate the startling improvements that would be available to owners of private accounts when compared with the dismal results to be obtained by the current system of Social Security.

I came by this site via another site called The Fly Bottle, attracted by a headline that read "How Much Does SS Screw You?" I read the comment "Now, what's supposed to be the problem with this, exactly, especially when much poorer folk than me can also expect to be doing a lot better? Why are so many people so eager to oppose a program that makes almost everyone better off? I find it truly baffling."

I next checked the source. Will Wilkinson. Policy analyst for the Cato Institute. Smart young man, born in 1973, worked at George Mason U. Interested in a bunch of important-sounding, challenging intellectual stuff...My areas of philosophical interest as I write are metaethics, political philosophy, the philosophy of the social sciences, the cognitive sciences, and evolutionary psychology. I am especially interested in contractarian moral and political theory, the nature of moral progress, and the relation of findings in the cognitive sciences to the theory of rational choice. My historical interests include, inter alia, Aristotle, Hobbes, Kant, Reid, Hume, Nietzsche, and Sidgwick. My contemporary-ish philosophical influences include W.V. Quine, Friedrich Hayek, David Armstrong, Robert Nozick, David Gauthier, and John Rawls. I have a longstanding interest in libertarian political theory, especially the development of libertarian conceptions of equality and positive liberty.

Metaethics? word for me. Have to look that one up.
I've learned to watch out for that word libertarian because I really like most of what they talk about. Problem is, I read Atlas Shrugged in high school, when it was all the rage, and it struck me as wildly over-romantic, fantastical, and pretty unrealistic, with all that hand-shaking going on to clinch deals, with no witnesses or lawyers pouring over the details, and spectecular results deriving from clever people making all the right choices. I never read that entire speech of John Galt in detail, because I could see that a droning litany such as that would never catch the imagination of simple people on the sidewalk any more than the inscrutable remarks of Alan Greenspan when he talks to Congress.

Have I said enough to reveal all my biases? I hope so. Because what I say next is not spin. It is reality. Easy to grasp ideas and numbers that are not misleading in any way. Please follow me...

This fellow Will Wilkinson is certain that Social Security is one of the evil remnants of our unhappy past. Otherwise that title reference to "screw you" would not have been the idiom of choice. He must further believe that the Heritage Foundation's calculator is a reliable tool for analytical purposes or he would not have linked to that site. I would like to respectfully disagree with both of those points.

I am more impressed with the WSJ column Thursday by David Wessel who interview David Gremlich, a former Fed governor who once served on a Social Security advisory commission. Mr. Gremlich is in favor of encouraging people to save, but doesn't think that a 100% tax credit, dollar for dollar, against Social Security contributions is the way to do it.

(I think that's what's being proposed...earmarking individual tax dollars for those from whom they were collected, thus upsetting the actuarial benefit of their untimely early demise by passing those earmarked assets to their respective estates rather than using them as part of the collective safety net for survivors. The next step, not being discussed at this point, of course, will be the proportional reduction of survivor benefits for those whose estates have been awarded to survivors. Otherwise, survivors of individual accounts would fare better than those who failed or opted not to participate in any proposed plan.)

He said:
I'd like to protect the basic benefits, but we need more saving. We need it because people don't save enough for retirement. We need it to finance the benefit system we have. And need it for the nation's macroeconomics. One way to get new saving is to raise payroll taxes. I didn't think that was either politically feasible or necessary. Another way is to mandate that people save a bit on top of Social Security. This differs from a tax increase because they would ultimately get the money back, but the main motivation is to increase national saving. Increasing national saving implies reducing consumption. It's not a surprise that this is a hard sell.

He added a dose of reality when he said...
With carve-out individual accounts, we erode social protections at a time when we also seem to be witnessing the collapse of the corporate defined-benefit pension system. If we go to a retirement system that is entirely individual accounts, we also lose opportunities for income redistribution.

Two comments.
First, anytime the phrase "income redistribution" is used out loud, in public or in print, with no sense of shame or apology, I know that the person using it may as well be advocating Communism. I have been labeled Socialist and worse myself, so we'll just have to let the matter pass without further comment on my part. I have no interest in debating the phrase, but I want plainly to admit that I recognize the inflamatory effect that the phrase has on a good many people. People who have no problem with large estates being passed to heirs who never hit a lick at a snake in their life but thanks to an accident of birth can enjoy a lifetime of self-indulgence if they choose. "Income redistribution" in that instance takes the form of pissing it all away.

Second, a more important point about "the collapse of the corporate defined-benefit pension system" that he mentioned.

The Pension Benefits Guaranty Corporation did not just blossom into existence because a lot of politicians in Washington had a fit of generosity one session and decided to do something nice for folks. It was a political response to thousands of employees losing retirement benefits because the outfits for whom they worked went out of business with no safety net for those liabilities. It didn't happen because of the depression, by the way. It happened decades later when that great American economic engine we call Free Enterprise had plenty of time to prevent and protect against disasters like "How can we protect our people in case we go out of business?"

If memory serves, I think that a lot of companies didn't even officially "go out of business." There was an era of mergers and acquisitions, hostile takeovers and the like that also contributed to the problem, with a lot of "private" pension benefits' being leveraged out of existence or liquidated outright, also resulting in pensions evaporating before the eyes of people whose only remaining pinch of the economy became their Social Security income.

Today, as the man said, companies are figuring all kinds of ways to get out from under company paid (read defined benefits) pension plans by shifting the responsibility of retirement security (I almost used the word "burden", but I wouldn't want anyone to think I want companies to be overburdened on the way to the bottom line just because they were obsessed with the security and future well-being of employees.) to individual, employee-paid plans.

I'm not going to repeat the last paragraph just to help dull readers catch on.
I know it is full of sarcasm, as well as ideas not yet in the public debate. Trying to paint it another color isn't going to make it any easier to read and understand. It's up to the reader to do the homework.

Finally, a word about that Heritage Foundation calculator.
It asks for only two pieces of data. First, your age. Second, if you are Male or Female.
When you click the magic button it announces...

You can expect to pay [Big Dollar Amount here] in Social Security taxes over your working life for retirement and survivors benefits.

I would love nothing better than to "expect to pay" that amount over my working lifetime, but in my case I have barely come close. And that includes all the contributions matched by my employers and what I will likely earn in the remaining years until I can claim full benefits. The document I got from Social Security fell way short of the amount indicated, and as the years unfold, I can reasonably expect that the amount will never reach the target. That calculator seems to presume that everyone using it will earn the social security maximum during their "working life"!

Just a few questions...
How many people consider their employer's matching taxes as part of their earnings? (Yeah, I know self-employed and educated people do, but in a random population of a thousand people from the street, how many think in those terms? 800? 500? 100? 10? Any?)
How many people will earn the Social Security cap during their lifetimes? And for how many consecutive years?
In fact, how many people even know that a cap exists?

In fairness, the calculator has a way to cusomize results by keying in variable data (ZIP, gender, etc.) and it carries a disclaimer.

This calculator is intended to be used solely as an educational tool to help citizens better understand public policy issues associated with Social Security. It is not intended for use as a retirement planner. The data, assumptions and formulas used in this calculator are based on information currently available to The Heritage Foundation.

"...not intended for use as a retirement planner..."
Damn right. But I don't think that will be a problem with most people using that site.


Here we are six months later and Mr. Wilkinson seems to have some up with a good suggestion:

Hey liberals! Since you insist on talking about social insurance, why not stop dissembling and plump for a system that is actually sort of like insurance? Why not not defend a disability insurance model of old-age insurance, where you get it only there is some actual threat of immiseration? We can fund it with a dedicated payroll tax and everything. It really will not function like a pension at all. It will be a safety net for people who need it funded by people who don't. Isn't this exactly what liberals should want?

He's bright enough to understand that any such plan would be D.O.A. in today's political climate, but I, for one, would be very much in favor. His suggestion, of course, is clearly tongue-in-cheek, but it shows that at some level he is smart enough to see the need.

Since my post was first written a rising tide of companies have announced their inability to meet pension plan obligations. United Airlines, notably, is among the biggest. In a competetive environment that no longer even pretends to look out for its employees' retirement security, old-line companies that cling to that quaint old notion can't afford to stay in the game. We are seeing the unintended consequences of IRA's, Roth's and 401-K plans -- and the corresponding termination of defined-benefits pension plans.

Problem is the tired and flawed old FICA system with all its shortcomings is all we have, and an uninterruped string of Congresses and Administrations have misappropriated that revenue stream from the beginning.

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