AUSTIN, Texas -- Remember the saying, "Don't shoot 'til you see the whites
of their eyes"? In the matter of privatizing Social Security, this
translates to, "Don't sign on until you've seen the details in ink."
Of course, if we had any details of George W. Bush's plan to partially
privatize Social Security, this would be an easier column to write. Which is
exactly why you won't see him filling in the blanks anytime soon.
Our first consideration is: Is this move necessary?
The much-ballyhooed bankruptcy of the Social Security system is based on
the unlikely premise that the economy will grow no faster than 1.7 percent a
year. (It did better than that during the Great Depression.) For the past
three decades, the economy has grown at twice that rate.
But let's assume the laws of economic gravity have not been repealed, the
"new economy" is not the discovery of perpetual motion and capitalism will
behave like capitalism. We need to do something about Social Security,
particularly given the demographic bulge of the baby boomers, who will begin
retiring in 2011.
Three things that we can do about this we know will work: raise taxes, cut
benefits or raise the retirement age. Politicians hate all three.
The Gore plan is to keep dumping the system's surplus and some general
revenue into paying down the national debt. This will have several happy
side effects. Eliminating the debt would put downward pressure on interest
rates, stimulate economic growth, create jobs and produce more payroll tax
money to keep Social Security in the black -- a sort of
follow-the-bouncing-ball effect.
Bush's plan is to privatize part of Social Security on the theory that
money invested in the stock market will earn more than the no-risk bond
investments of the current system. He says he wants people to have control
of their money and promises that a worker could "end up with hundreds of
thousands of dollars for retirement." Sounds like the man on late-night TV
who sells the slicer-dicer.
Bush's apparently modest proposal comes on like one of those "So what could
it hurt to try it?" deals. We have no details, but Bush's advisers hint that
he has about 2 percent of the FICA tax in mind (though he did indicate in a
speech that he ultimately thinks about half your retirement money in stocks
would be good).
The first thing you'd have to do is design a system in which people
couldn't, in fact, control their own money. If you give people on the
economic margin 2 percent of their FICA tax, the first thing they do is buy
shoes for the baby and the second thing they do is pay off the electric.
The personal savings rate in this country is the lowest it's been since the
Depression, and credit-card debt has reached $584 billion. According to the
Federal Reserve, that's a 60 percent increase since 1994, which may have a
lot more to do with the "new economy" than its proponents like to think.
OK, so you find some way to force people to put this money in the stock
market. Naturally, it costs them money to do that.
Wall Street stands to gain so much from this scheme that it blows the mind.
Bush advisers claim that all this can be done for 1 percent of the expected
profits, which is ridiculous. Many analysts think that administrative costs
alone will eat up the difference between what the current system earns and
historical stock-market returns.
But that's a detail. Here's another detail: Investment fraud jumped 20
percent from 1995 to 1999, according to the Securities and Exchange
Commission.
Next consider this: What happens if we dump $1 trillion (2 percent of FICA)
into a bull market that many analysts think is already overvalued? Whee!
Economist Paul Krugman explains what happens even if
current stock valuations are reasonable:
"You see, those high returns cited by Mr. Bush -- the returns that are
supposed to produce huge gains for workers free to make their own
decisions -- are what stock investors got during an era in which people were
very leery of stocks, and hence prices were low compared with earnings.
"Now that people are no longer so nervous, prices are much higher compared
with earnings -- and the higher the price you pay for an asset, the lower
the rate of return on your investment. (Duh.)
"So rate of return on stock investments made now will probably be much
lower than the returns people got in the past. (Remember, this is the optimistic scenario, which claims that current values are
reasonable -- if they aren't, the return will be even lower.) And that means
that the proposition that individual investors can expect to do a lot better
than the Social Security Administration -- so much better that we can wave
away concerns about increased risk -- evaporates."
The devil is in the you-know-what.
Molly Ivins is a columnist for the Fort Worth Star-Telegram. To find out more about Molly Ivins and read features by other Creators Syndicate writers
and cartoonists, visit the Creators Syndicate web page at www.creators.com.
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