From The Ramparts

Why Social Security Privatization Is A bad Idea

Why Social Security Privatization Is Bad Idea

“With private accounts, workers face risks that are not part of Social Security (Weller and Wenger, 2004a). An important risk here is the risk that financial markets could stay below their historical averages for long periods of time, which is known as market risk. Although it is theoretically possible to reduce market risk by buying insurance that guarantees a specified rate of return, workers would have to spend large shares of their annual savings on this insurance to see a meaningful rate of return (Lachance and Mitchell, 2003). When considering stock market fluctuations over time, the average rate of return over a typical working life, approximately 35 years, matters.[1] While the real rate of return of the stock market has averaged 6.6 percent over the past 100 years, its average rate of return over 35-year periods has fluctuated between 3 percent and 10 percent (figure 1). That is, market risk is real because workers can experience long periods of underperforming financial markets while they are saving for retirement.”- The Retirement Savings Gamble Christian E. Weller

As the Bush administration prepares for its disinformation blitz to promote their plan to privatize Social Security look for them to tout privatization as the best things since sliced bread while obfuscating the risks involved. The real benefactors to privatization will not be the young people Bush and Co are targeting with their disingenuous message of “personal accounts” “ownership” and “fixing Social Security” . The real beneficiaries of privatization will be the Wall street investment banks and brokers who will make huge fees off of the accounts and if the Bush family pattern holds, millions from ripping the funds off like they did the Broward and Silverado Savings and Loan Companies. The losers will be the young people who bought Bush’s pig in a poke notion they would have more via privatization than the current system. The other big losers will be the state and local governments that will be forced to pick up the tab for supplemental social programs if and when the stock market underperforms. This could be a real problem. While the Bush disinformation team paints a rosy and optimistic picture of economic growth the reality is the stock market fluctuates and experiences both boom s and downturns. If the market fails to produce the desired rates of return, what happens to the retirement funds? How will young people who had their money invested for them by the Wall Street firms (thus far Bush’s plan does not allow you to pick and choose which funds your money will be invested in) survive a sustained economic downturn? What happens if another Enron or Worldcom scandal occurs or we experience another bust similar to the Dot.com collapse of the late 1990's? Will folks be left out in the cold like the people who lost everything in Enron or the people who saw their 401Ks shrivel, the result of massive fraud? What happens if the bad news at GM and Ford causes the market to go down even further now before Bush’s plan is either approved (unlikely) or defeated? Scenarios like these can’t happen with the current system which was designed to be a pay as you go safety net for the elderly. What happens if there is massive fraud, insider trading and corruption like the Savings and Loan fiascos in which George H.W. Bush, his sons Neil and Jeb profited handsomely leaving the tax payers to bale out the bankrupted savings and loan and thrift associations? Given the players in Bush’s Social Security scenario this is a very real possibility.
If there is a stock market boom all is well, everyone makes out. But if patterns hold true to form there will be down times, there will be volatility and there will be recessions. Who will or what will serve as the safety net if and when these things happen? What if the fiscal irresponsibility of the Voodoo Economics championed by the Neoconmen persists? This will place an inordinate burden and strain on state and local governments to take up the slack in social welfare programs to supplement the monies for benefits that get lost due to stock market fluctuations and volatility. If you want to see the havoc Bush’s Social Security privatization plan will bring, think back on Reaganomics and multiply that with the mess the Bush administration is making of the economy and their ill conceived imperial military crusades. That’s the kind of shallow elitist thinking (the plutocrats will make out no matter what happens) that is behind the Bush plan. An article by Christian E Weller on www.Americanprogress.org addresses the problem of market risk. He says, “As President Bush continues to push for Social Security privatization, many new issues are surfacing, adding to the already substantial list of costs and risks of privatization. Under privatization, workers would be allowed to divert a large share of the money that currently goes to Social Security into private accounts. The risks of saving for retirement would be privatized. This includes the chance that financial markets will underperform for long periods of time, which is known as market risk. A worker's birth date could determine the size of his or her retirement account. The difference from worker to worker could vary widely. This could result in generations of workers with less money than they thought they would have for retirement and considerably less than they would have under the current Social Security system. Given few alternatives, future governments will be compelled to come to the aid of workers who have saved too little for retirement. Reasonable estimates show that this could add between $600 billion and $900 billion in present value terms to the costs of privatization over the next 75 years.” The federal government is broke now so where would the money come from to supplement income for those who lost their retirement money in a stock market Ponzi or pump and dump scheme? It would force state and local governments already overburdened by unfunded mandated programs, federal program cuts and rising costs of their own to find ways to help out putting even more strain on tax payers. Is this what you want in your later years, additional tax liabilities or hard choices about and between who to help and how much? Social Security despite the lies of the Bush administration is not broke. Minor adjustments in the way Social Security is now funded will make the program solvent during the rest of the twenty-first century. However the radical Neoconmen don’t want that. They want to destroy the last vestiges of successful socialist New Deal and Great Society programs while mismanaging the country into fiscal insolvence and ruin! This scenario will plunge the nation into severe class divisions as the wealth gap increases. This is why the privatization of Social Security is a bad idea.

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posted by Junious Ricardo Stanton @ 9:05 AM