Agree with Kerry about Social Security (and Medicare) as a solid and necessary base of protection against all sorts of risks. But the marginal value of increased benefits is not the same as the average value of total benefits, especially in a system that has been and is designed to absorb an ever increasing share of national income. Ditto for years in retirement and very expensive health insurance. And if one cares about wealth inequality, then one has to worry about a society that increasingly relies upon the wealthy to hold onto most of those private and more risky assets that, along with greater short-term risk, provide a fairly high return to that risk..
I disagree on many points. A market-based solution would absolutely work for social security and would give dramatically improved returns. I fail to see how SS is more than a transfer program. What future benefits? Only those brought about by increased transfers. And as for "guaranteed" benefits, they are most definitely NOT guaranteed. As a matter of law (and confirmed by SCOTUS) SS benefits can be reduced or eliminated by Congress at any time (and will be for at least some, when the day of financial reckoning arrives). All the market risks you mention must be balanced against POLITICAL risk that promised benefits will not be paid. Your argument falls apart without the guarantee, and considering the fiscal condition of SS that guarantee will be proven to be false during my lifetime (I'm 63). You can't say that SS works when it is facing insolvency. Given the option to put 12.5% of their lifetime income into a 401(k) or into social security, most Americans would choose market risk to political risk. The fact that SS, like all government programs, is mandatory and that there is no private option tells you what people would choose. And so, to preserve the illusion that somewhere a socialist dream will actually work, we use force to deny people a tool that could not only prevent poverty but could create real wealth and would be an actual investment in our economy.
Mr. Pechter's points are all correct, except probably the death spiral part. It's a long spiral... If the elderly are impoverished that's bad; if they save and prosper that's bad. No success story is ever good enough. The chief problem is "transfers." As long as we are forcibly transferring money (and debt) from one person to another and one generation to another we will always have politicians and bureaucrats playing catch up and running transfer programs politically. Low returns, inefficiency, waste... Privatization, anyone?
Social Security is a savings system that credits contributors with a guaranteed future pension that's the best available old-age insurance available. We choose to call contributions a payroll "tax," implying loss. Other countries call their payroll tax a "premium" or contribution. SS is not a zero-sum game between older and younger generations. To pass in the 1930s, it had to appear cost-neutral. Today's wealthy elderly are rich because some of them (the top 20% mainly) saved a lot and benefited from a 40-year bull market in stocks and bonds and real estate inflation. That was luck and it may not last; if the successor generation is truly small and poor, asset values could yet crash. Remember that the Boomers pre-funded their benefits by building a trust fund; they paid more into Social Security than the preceding generation received in benefits. Higher SS contributions by the young will elevate their own retirement incomes when the time comes; they will pay more and get more. The generational warfare argument doesn't stand up to analysis, unless you pretend that future benefits are somehow unreliable (I don't) and unless you pretend that current benefits go to Mars or Jupiter instead of coursing right back into the US economy and contributing $1 trillion to consumption every year. To the extent that the elderly have high incomes, they pay taxes. To the extent that they have stocks and bonds, they and their heirs face risk. We do have inequality in the US; let's not blame it on Social Security. We do fail to put caps on credit and spending, but SS should not be the poster child for that problem. It's a great program, and we can sustain it if we choose. It may get more expensive (what doesn't?) but it's not in a death spiral.
Agree with Kerry about Social Security (and Medicare) as a solid and necessary base of protection against all sorts of risks. But the marginal value of increased benefits is not the same as the average value of total benefits, especially in a system that has been and is designed to absorb an ever increasing share of national income. Ditto for years in retirement and very expensive health insurance. And if one cares about wealth inequality, then one has to worry about a society that increasingly relies upon the wealthy to hold onto most of those private and more risky assets that, along with greater short-term risk, provide a fairly high return to that risk..
I disagree on many points. A market-based solution would absolutely work for social security and would give dramatically improved returns. I fail to see how SS is more than a transfer program. What future benefits? Only those brought about by increased transfers. And as for "guaranteed" benefits, they are most definitely NOT guaranteed. As a matter of law (and confirmed by SCOTUS) SS benefits can be reduced or eliminated by Congress at any time (and will be for at least some, when the day of financial reckoning arrives). All the market risks you mention must be balanced against POLITICAL risk that promised benefits will not be paid. Your argument falls apart without the guarantee, and considering the fiscal condition of SS that guarantee will be proven to be false during my lifetime (I'm 63). You can't say that SS works when it is facing insolvency. Given the option to put 12.5% of their lifetime income into a 401(k) or into social security, most Americans would choose market risk to political risk. The fact that SS, like all government programs, is mandatory and that there is no private option tells you what people would choose. And so, to preserve the illusion that somewhere a socialist dream will actually work, we use force to deny people a tool that could not only prevent poverty but could create real wealth and would be an actual investment in our economy.
Mr. Pechter's points are all correct, except probably the death spiral part. It's a long spiral... If the elderly are impoverished that's bad; if they save and prosper that's bad. No success story is ever good enough. The chief problem is "transfers." As long as we are forcibly transferring money (and debt) from one person to another and one generation to another we will always have politicians and bureaucrats playing catch up and running transfer programs politically. Low returns, inefficiency, waste... Privatization, anyone?
Social Security is a savings system that credits contributors with a guaranteed future pension that's the best available old-age insurance available. We choose to call contributions a payroll "tax," implying loss. Other countries call their payroll tax a "premium" or contribution. SS is not a zero-sum game between older and younger generations. To pass in the 1930s, it had to appear cost-neutral. Today's wealthy elderly are rich because some of them (the top 20% mainly) saved a lot and benefited from a 40-year bull market in stocks and bonds and real estate inflation. That was luck and it may not last; if the successor generation is truly small and poor, asset values could yet crash. Remember that the Boomers pre-funded their benefits by building a trust fund; they paid more into Social Security than the preceding generation received in benefits. Higher SS contributions by the young will elevate their own retirement incomes when the time comes; they will pay more and get more. The generational warfare argument doesn't stand up to analysis, unless you pretend that future benefits are somehow unreliable (I don't) and unless you pretend that current benefits go to Mars or Jupiter instead of coursing right back into the US economy and contributing $1 trillion to consumption every year. To the extent that the elderly have high incomes, they pay taxes. To the extent that they have stocks and bonds, they and their heirs face risk. We do have inequality in the US; let's not blame it on Social Security. We do fail to put caps on credit and spending, but SS should not be the poster child for that problem. It's a great program, and we can sustain it if we choose. It may get more expensive (what doesn't?) but it's not in a death spiral.