Tag: Social Insecurity

Two readers point me to this New York Times story reporting that AARP will vigorously oppose Bush’s Social Insecurity scheme, and will be running ads criticizing the plan under that name. (One reader suggests that I try to collect royalties, but since the DNC used the phrase last summer I don’t plan to spend that money until the check clears.)

Apparently the ad has one Harry-and-Louise couple saying “If we want to gamble, we’ll play the slots.”

Perhaps this will stiffen the spines of some wavering Democrats.

Since Mr. Bush has made it a matter of principle not to explain just how he plans to replace Social Security with Social Insecurity until he’s finished terrifying the country with fairy tales about the current system’s impending “bankruptcy,” critics of the non-plan are reduced to asking questions and suggesting problems.

Here’s one I haven’t seen discussed: the problem of outliving one’s money.

Bush’s idea seems to be to convert Social Security into a defined-contribution plan like an IRA or a 401(k), where the fund would in some sense “belong” to the individual. But, unlike a defined-benefit plan such as the current Social Security system, there’s no automatic conversion from a defined-contribution program into an annuity: an annual stream of payments that continues as long as the beneficiary lives.

There is a private market in annuities, but the payouts are quite poor, for a reason well understood by students of insurance: adverse selection. Given a choice between keeping a lump sum to use during retirement and converting it into an annuity, those with healthy lifestyles, no life-threatening conditions, and grandparents who died at 90 will take the annuity, while those who don’t expect to live so long will take the lump sum. So the annuity market has to be priced to reflect the life expectancies of the very long-lived, making it reasonable for many people to take the lump sum.

Thus one of the freedoms the new plan will confer on retirees is the freedom to worry about outliving their money. That seems to me like a huge problem.

Note that this is a different problem from the decision to cut benefits by tying them, in effect, to the wage levels of the retirees’ own working lives rather than letting them rise along with wages post-retirement. But the two problems work together to ensure that large numbers of the very elderly will, once again, be among the very poor.

[I see that, like most of my good ideas, the idea of calling the Bush plan “Social Insecurity” has failed to catch on. But unless someone comes up with a better label, I’m sticking with it.]

Once you take apart the argument for wrecking Social Security, it comes down to the proposition that the General Fund is now so bankrupt it will never be able to pay its Social Security obligations, and that in fact it won’t. The Trust Fund, we are told, is merely mythical, not a real, enforceable obligation, since it consists of federal debt held by a federal agency.

The General Fund bankruptcy problem is real, of course, and ought to be addressed. (The Poorman posted the key graphic.) But the problem of not trusting the people we elect to run the Federal government to pay what it owes is fixable.

As Kevin Drum pointed out, the Trust Fund could sell its bonds on the open market and by other assets; at that point, no one would doubt that the bond obligations were real, or that the assets were real assets of the Trust Fund.

But the problem would remain that the trustees are mere servants of the current administration, with no authority to sue if the President and the Congress refused to spend the Trust Fund assets to pay Social Security benefits. So here’s Plan B:

Make the Social Security System a separate legal entity, as the Federal Reserve System is, with its own governing body and the right to sue. The trustees would be appointed by the President, of course, but they would have a fiduciary obligation to Social Security beneficiaries and the right to sue the Federal government if it tried to confiscate retirement assets to spend them for other purposes.

I’m not sure this is necessary, but it’s certainly possible. And since it’s possible, the argument that we can’t ensure that the Social Security Trust Fund will be spent to fund the pension system is simply false. We can. We should.

The question is whether we will. It’s a simple choice between keeping promises and breaking them.

My colleague Dan Mitchell, in a letter in today’s Los Angeles Times, points out the absurdity of calling Social Security “bankrupt”:

Those seeking radical restructuring of Social Security use the word “bankruptcy” to mean that the day will come when the program’s trust fund will be exhausted and its earmarked tax revenue will be insufficient to pay all entitlements. By that definition, the military is bankrupt today. We spend about $500 billion per year on the military, including veterans’ payments. Yet the Pentagon

has no earmarked tax revenue and no trust fund. If our indefinite entitlement to national defense were treated analogously to Social Security, the Pentagon’s “unfunded liability” would be on the order of $15 trillion to $20 trillion. Yet no calls for radical restructuring of the “bankrupt” military are heard.

Right. It’s silly to call one of the few programs with its own dedicated funding stream “bankrupt” if there’s a threat that the dedicated funding stream might be insufficient to pay its obligations, when most programs have no such funding stream at all.

Opponents of the plan to destroy Social Security need to give it a label. As long as it keeps being called “Social Security reform,” it’s a winner. “Privatization” is a more accurate label, with a pretty negative connotation. But I’ve been hoping for something better.

Nick Burbules of Progressive Blog Digest says that BushCo is trying to replace “Social Security” with “Social Risk.” That’s good, I think, but not very catchy.

But “Social Insecurity” might work. It’s accurate, it’s catchy, and it makes the point that needs to be made. Yes, the DNC tried it last time and it never really caught on, but that was before the issue started to dominate the headlines.

So, by the authority never vested in me, I hereby proclaim that the official Democratic label for the Bush Social Security plan is “Social Insecurity.”

It is so ordered.