In announcing his Social Security privatization plan, George W. Bush says that dealing with the "crisis" of Social Security would "reassure the financial markets", which tells you all you need to know about Bush and his anti-government ideology. In Bush's muddled, and simple, mind, Social Security is "socialism." And unfettered capitalism will solve all our problems, or at least the problems of those with virtually unlimited access to capital. People like him, in other words.
His tentative plan to borrow $2 trillion dollars to pay for the transition to private retirement accounts proves that Paul Krugman was right in formulating his famous dictum that privatizing Social Security relies on the formula, 2 - 1 = 4:
"Mr. Bush first proposed privatizing Social Security back when people still believed that stocks only go up. Even then his proposal made no sense; as I've explained before, it was based on the claim that 2-1=4, that you can divert the payroll taxes of younger workers into personal accounts and still pay promised benefits to older workers. But now even the nonsensical promise that individual accounts would earn stock market returns looks pretty unappealing. So why does he keep pushing the idea?"
Krugman is supposed to be taking a break from his job as NY Times columnist (he's writing another economics textbook), but apparently he's so exercised about what Bush is doing that he's fired off two columns during the hiatus. The latest exposes the "open secrets" of retirement privatization in other countries:
"Privatization dissipates a large fraction of workers' contributions on fees to investment companies.
"It leaves many retirees in poverty.
"Decades of conservative marketing have convinced Americans that government programs always create bloated bureaucracies, while the private sector is always lean and efficient. But when it comes to retirement security, the opposite is true. 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. And that's a typical number for privatized systems."
Economist Robert Kuttner is another vociferous critic of the Bush plan (and of Bush policy in general.) He offers a succinct defense of Social Security in this article for the American Prospect:
"Social Security is the most successful program that tangibly delivers on the core philosophy of the Democratic Party -- namely, that ordinary people depend on government for economic security that markets can’t provide. Unlike recent token programs, Social Security delivers serious money, to the middle class and the working poor alike. Without Social Security, a third of America’s seniors would be destitute."
Like his father, Bush has also ruled out tax increases to deal with projected shortfalls in Social Security sometime in the distant future. In true Bush fashion, he prefers to borrow the money. Never mind that the Bush Administration has run the national debt up to record levels. George W. has been pretty much a freeloader his entire life, borrowing money from rich relatives to finance his mostly unsuccessful business ventures. It appears he's taking the country down the same path.
The Center on Budget and Policy Priorities compares the Social Security shortfall to the Bush tax cuts, and determines that the former is a mere fraction of the latter:
"In other words, if the tax cuts are made permanent, their cost will be three to five times larger over the next 75 years than the size of the Social Security shortfall. Furthermore, just the cost of the tax cuts for the top one percent of the population — a group whose annual incomes average about $1 million — is roughly the same size as the Social Security shortfall (0.6 percent of GDP)."
The same report also questions whether the borrowed $2 trillion is anywhere near enough to fund private retirement accounts and pay for the $10 or $11 trillion longterm Social Security liabilities:
"In addition, the individual accounts would create a cash flow problem for Social Security because funds would be diverted from Social Security decades before a worker’s Social Security benefits would be reduced in return. The private accounts, by themselves, consequently would push the Social Security Trust Fund back into insolvency and would permanently worsen Social Security’s financial condition."
It appears that privatizing Social Security is an actuarial impossibility, if the goal is actually to preserve the system. If the real objective, however, is to rid the government of this vestige of socialism and divert massive amounts of money to Wall Street, then it's a perfectly workable scheme. Devious and misleading, of course, but eminently workable.
The Bush White House is good at this sort of thing-- say one thing, but mean something entirely different. A side bar from the NY Times strips the facade from the "testimonials" Bush is using to sell privatization:
" 'The exchange was an example of how Mr. Bush promotes his agenda with testimonials from "regular folks," ' in the words of Joshua B. Bolten, the White House budget director, who introduced Ms. Jaques.
"But Ms. Jaques is not any random single mother. She is the Iowa state director of a conservative advocacy group, FreedomWorks, whose founders are Jack F. Kemp, the former vice-presidential nominee, and Dick Armey, the former House Republican leader.
"Ms. Jaques also spent much of the past two years as a spokeswoman in Iowa for a group called For Our Grandchildren, which is mounting a nationwide campaign for private savings accounts."
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