Social Security Three-Step

by Kieran Healy on February 4, 2005

Matt Yglesias explains what Bush’s three-step plan for Social Security entails, “in terms adapted to the meanest understanding”: It’s a very good post, and you should read it. Regular observers of the present administration will not be surprised to find that by the end, Matt is saying things like this:

bq. If you are in the top one or two percent of the income pyramid, this may be a good deal for you anyway since phase one allows you to keep your income taxes lower. The other 99-98 percent of us are getting the shaft. … This is also good for you if you are a manager or major stockholder in a company that will be managing the private accounts. It also might be good for you if you own a great deal of stock already (i.e., you’re rich!) and this program winds up increasing the share of national wealth invested in the stock market.

Funny how analyses of recent domestic policy always tend to conclude along those lines. It’s almost like there’s a pattern or something.



crayz 02.04.05 at 4:32 am

I honestly struggle to connect things like Iraq, the medicare debacle, and now this.

About the only two threads I can find are total incompetance or depraved greed/plutocracy…maybe both?


yoyo 02.04.05 at 4:40 am

if a plan inflates stock prices, this will lower the divident payout relative to purchase price, thus making return to your investment lower than in the past. stock return will be high for the phase-in period, when money flows in to purchase stocks. once the in and outflows from SS reach equilibrium, the even higher PE ration will result in terrible returns.

no free lunch. unless you are buddies with BUsh


eric 02.04.05 at 5:51 am

Watch out for all of the pitfalls of this plan.

1) “real rate of return” = Inflation + … so when they say 3% real rate of return that’s ( right now ) 3.32+3 = 6.32 and rising. S&P 500’s historical rate of return over 55 years os only ~8.1 percent leaving a rise of inflation of less than 2 points could sink your benifits to below the guarnteed levels.

2) Oh, don’t forget disiability and life insurance so that %3 real rate of return becomes… 3.32 + 3 + premuims for disability and life insurance. That would mean that your investments today would have to best 7 or 8 APR just to keep up with the benifits of social security.

3) Inflation will more than likley rise dramatically under this plan because of the debt the US govt will be under by financing it.

4) Let’s just face facts, by the time this is over the general public will think that Social Security was designed by “Bin Forgoten” as a way to subvert the american people and subjugate them. Or there are WMD hiding in the trust fund system.


Maynard Handley 02.04.05 at 6:01 am

“1) “real rate of return” = Inflation + … so when they say 3% real rate of return that’s ( right now ) 3.32+3 = 6.32 and rising. S&P 500’s historical rate of return over 55 years os only ~8.1 percent leaving a rise of inflation of less than 2 points could sink your benifits to below the guarnteed levels.

It’s even worse than that. Come on, does anyone now honestly believe that the US inflation rate is as low as it is claimed to be? Hedonic pricing may have been added to the system with the best will in the world, but it allowed for all sorts of political manipulation, manipulation that many people believe is now actively taking place.
Now maybe I buy an unusual basket of goods, but heck, there’s no way inflation as
I perceive it has been as low as 2.5% over the last three years or so.


dsquared 02.04.05 at 10:25 am

Maynard is absolutely right here; it would be most annoying to have one’s retirement income linked to a CPI index which consists of the net effect of rising food prices and Moore’s Law.


dave heasman 02.04.05 at 1:25 pm

Not forgetting that the Inflation Rate for things that older people buy – seldom large capital outlays on new cars or houses, but recurrent personal outlays on care and energy – is rocketing.

Oh and where are the trolls to muddy the waters the way “Al” does over at Matt’s place?


jet 02.04.05 at 2:35 pm

If the social security tax rate is 6.2%, how does Yglesias get that 1/3 of that is 4%? And if Phase 1 is to default on the accumulated social security bomds, wouldn’t that leave the government with plenty of credit to finance the new debt of transferring the program, thus there would be no inflation. It isn’t like the government is defaulting on active investors (treasury bonds).

And someone is going to have to hold my hand through this one, but how does directing money out of the SS government ran ponzi scheme and into the market, hurt the market? Doesn’t cheaper investment capital lead to more growth? If Japanese investors decided to move significant funds to the American market, that would hurt the American market? Does pissing up a stick not get your wee wee wet?


abb1 02.04.05 at 5:49 pm

Well, empirically, since the raid on Social Security program has been announced the dollar has gone up and the long-term interest rates remained low.

Based on this fact, one could reasonably conclude that currency and bond traders firmly believe that Matthew’s Phases I and II (default on the General Fund’s debt and benefit cuts) will be successfully accomplished by the Bushies, their Republican lackeys and their friends and fellow co-conspirators at the DLC.

From Everyone By Their Ability, To Everyone By Their Needs. Arbeit Macht Frei.

Condidering the last year elections, the American Public is getting exactly what they deserve, no question about that.


lemuel pitkin 02.04.05 at 6:24 pm

At the very least, it would nice to have a CPI based on the actual consumption basket of old people, which, including more healthcare and fewer computers than the general population, would rise a little more briskly.


Thomas 02.04.05 at 11:11 pm

I guess I’d say that it’s not surprising that Matt’s saying those things.

That’s quite a bit diferent from agreeing with him on the merits.


Movie Guy 02.05.05 at 3:42 am

Inflation? Oh, you mean like those $200-300 bills at the grocery store and you’re looking at 12 little plastic bags half-packed? And next, we may have to pay for the bags, too?

Yeah, I would say that the national CPI is junk. It’s not working at my house.

I’m pretty sure that I’m still paying for someone’s whale oil from the last century. I just can’t prove it…


jet 02.05.05 at 4:24 pm

Luckily those Japanese investment banks have the commenters at CT to inform them that the CPI numbers are all wrong.

And using 55 years for the sp500 doesn’t seem right. A lot has changed in the last 55 years for the better. Even with a timid economy, we are looking at 13+% next year.

But most importantly, there will be a choice. No one will be forced into the program. And the biggest benefit of the program is that you own it. If the government decides to change payouts, programs in the future, your personal investment is safe. And if you die at 50, you can will your fund to someone else.

It might also be humorous to note that FDR backed a similiar program. How’s that for an endorsement from the Left?

And for someone (Matthew) who can’t seem to get simple fractions correct (FICA is 6.2%, so 1/3 of that is not 4%), I’m taking the rest of his article with a grain of salt. He needs to point at a Bush site that talks about Phase II rather than have us take his questionable word.


John Lederer 02.05.05 at 5:34 pm

I think we are seeing a lot of hand waving, misrepresentation, and intentional complaexity to make private accounts bad.

Private accounts earn real money assuming historical experience does intimate the future.

Any other system doesn’t — it merely shuffles a deck composed of people that pay money into the government in the form of taxes or receive it in the form of benefits.

If you remove private accounts you remove real earnings, and then we are just talking who pays and who receives.

If you have private accounts then there is a source of money outside the pie so to speak, and in that shuffling of benefts and taxes we have a little more wiggle room.

Interest on government bonds is not “real” money — just a shift in which tax form gets filled out to provide the money.


Movie Guy 02.06.05 at 1:30 am

Time for a little humor….

by Movie Guy

Me: Hello?

MGS: Yes…This is Money Going South, Inc. , the Private Accounts Division of the former Social Security Administration. How may I help you?

Me: I retrieved my account online and three fourths of my money is missing. What happened?

MGS: Let me take a look. Account number please.

Me: xxx-xx-xxxx

MGS: Yes, it does look like your account is in a declining balance. How may I help you? Do you wish to change options?

Me: Do you mean move it to a more risky option? I’m losing money and I’m in the lowest risk option. What happened???

MGS: It appears that you have initiated retirement drawdown on your account. Only you have the password.

Me: Lady, I’m only 37.

MGS: How may I help you?

Me: Fix my account! Restore the money that is being ripped off.

MGS: Sir, you’ll have to fill out MGS-FirstGov Form 2006-YouAreScrewed and submit your request to the commission for consideration. Five copies please.

Me: How long will that take?

MGS: Presently, we’re experiencing some difficulty processing claims. Perhaps two years. How may I help you?

Me: Oh, hell. How do I close my account? I tried that online last week and the request was rejected.

MGS: Yes, sir. That would happen. Paragraph 207-14b(1)(f) in your original contract explains that you can not opt out until you’re vested. Looking at your account, you still have four years to go. Sorry, sir. How may I help you?

Me: Who else can I talk to?

MGS: The senior supervisor, but she is in India training our data processors and account managers.

Me: Where are you?

MGS: I’m sorry, sir. I’m not allowed to disclose that.

Me: Can you give me a clue?

MGS: Your country liberated mine right after you set up Iraq. Remember?

Me: Oh, hell. You’re in North Korea.

MGS: Yes. How may I help you?

Me: I think I’ll call back later.

MGS: Sir, I don’t recommend that option. As stated on the back of your MGS Private Account card, personal telephone communications are limited to two times a year. How may I help you?

Me: Grrrrr… Ok, what other options do I have?

MGS: We do offer a margin recovery investment program which will allow you an opportunity to recapture some of your recent drawdowns. Would you like that option?

Me: Don’t know. What do I have to do?

MGS: Just say YES! I will process it.

Me: Hmmm. Ok.

MGS: Thank you, sir. Let me give you your confirmation number. One moment please.

Me: Ok.

MGS: I’m sorry, sir. The request was denied. The account is already margined. How may I help you?

Me: What!! @#)*)(*$#^!! @#&#@&^#!

MGS: I’m sorry, sir. How may I help you?

Me: I have to go…

MGS: Have a nice day, sir. And thank you for investing with MGS.


dave heasman 02.06.05 at 1:31 am

“Private accounts earn real money assuming historical experience does intimate the future.

Any other system doesn’t — it merely shuffles a deck composed of people that pay money into the government in the form of taxes or receive it in the form of benefits.”

Serves me right for asking why the trolls hadn’t shown up..

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