Wednesday, November 24, 2004

The Costs of Privatizing Social Security

The 'cost of transition' is the latest buzz phrase bandied about by Democrats. Social Security was once referred to as 'the third rail' of politics. For non-New Yorkers this typical Eastcoast shorthand phrase needs explanation. New York Subways are electrically powered in three rails including a ground rail track. When an unfortunate victim, either accidently or deliberately, falls from a loading ramp and touches the third rail he is grounded and immediately fried. Such has happened to many reformers over the past half century. The opponents of change now have come to the hard reality that Americans want a discussion about a law passed before most of us were born.
Social Security withholding takes 12.4% of all wage & salary earnings. There is no personal exemption, standard or itemized deduction. It is withheld on the first dollar of income. Thus on $20,000 of income it is $2480 the worker never sees. Contrary to popular belief the money is not held in a 'Trust Account', as the myth the New Deal lawmakers have perpetrated since 1936, the money is paid out instantaneously to others. But what does this transaction between the worker and the government do to government? It leaves the government with an unpaid debt.
Herein is the structural flaw. Each $1 of Social Security Tax withheld from a workers paycheck is $1 added to the National Debt. In fact, it can be argued Social Security is the single largest component of the National Debt. Most people think of the National Debt like home mortgage, you work hard, save money and eventually reduce the amount of money you owe. The problem is the debt grows 12.4% for each 1 minute of labor performed, multiplied by 130 million workers. In other words, the more we work, the harder we work, the more people employed, the greater the National Debt becomes. Here's the hard truth in a conclusion: we cannot 'payoff' the National Debt by labor, i.e. working. The growth of debt is tied to labor by the withholding tax.
Milton Friedman in his 1980 treaties 'Free to Choose' gave us the simple solution to 'transition costs' in privitizing Social Security, and reducing the astronomical growth of government debt. Repeal the withholding tax (or at least allow workers to redirect a portion of their withholding into private managed accounts) and secondly float a bond issue to payoff existing beneficiaries. Repealing the withholding tax would have the immediate affect of 'capping' the existing debt, rather than its untrammelled growth tied to how productive we are. The existing debt, or 'transition costs' would immediately become finite, and then could be paid off as government has always financed its debts. Herein is the rub, the proponents of the status quo are for expanding debt, as more & more workers join the work force each year, and as all workers work harder. Their view is one of infinite exploding debt. By 'capping' the debt, to use more Washington & Eastcoast shorthand, the largest cause of out of control debt suddenly becomes a fixed number. The differance is between fixed transition costs and limitless debt than can never be paid off by working.

29 Comments:

At 9:01 AM, Anonymous Anonymous said...

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At 1:51 PM, Blogger nobs said...

More on Milton Friedman's Free To Choose. It's not as if Democrats haven't read this book. At the time of it's publishing, the Wall Street Journal said 'Reaganomics is really Friedmanomics'. It was the Number 1 Bestseller on College Campuses, despite every effort by the liberal establishment to demonize free market economics & it's proponents, and despite the lame efforts to put a good face on Carternomics & Socialism which had (by Democrats own standards) raised the Misery Index 150% in the 4 short years Democrats controlled both Houses of Congress & the White House.

It's clear Democrats read Milton Friedman & took his advice in the Clinton era. Friedman explained how the proper role of government wasn't to regulate every aspect of our lives, but to still allow us some freedoms, like smoking. However, given all the arguements and political forces arrayed against smoking, the political process allows us a compromise: instead of an all out ban by government, you can tax smoking out of existence.

And this Clinton and the Democrats virtually did. A husband and wife who both smoke 1 pack a day now spend nearly $3000 a year for the right or priveledge to smoke.

 
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At 9:55 PM, Anonymous Anonymous said...

You know I don't understand what is wrong with all of up out here. Why don't we just say to Bush the problem is the goverment owes the SS So just pay it back with the billions they say it will cost to set up a new programe. Then keep paying it back all they have taken out of it.To cover goverments programs each Pres. has used. But this one has used it up so yes he says do something different. Well its worked for grenerations. And will if they just stop taking our money out and quit messing with the programe. Just start paying it back and over the years it will keep going. Bowering broke it. So it is up to goverment to fix it. If they are so worryed about it going broke. Well they broke it. The people didn't. We had a surplus in our SS in the last Pres. term. So he has depleated it and needs to try to do something about it before he gets out. Because he knows the next guy is gong to see all that he did do with the SS funds. Dem. Or Repl. This Pres. feels he is going down as a very bad Pres. So he is going to try to change something that will give him something to have said about him. But its a gamble. He may have enough money not to worry about his future. But the little guy does. And I am not a gambler and hope my children dont have to count a roulet wheel of the stock market to get their SS one day. Its another scare tactic this man has done to get the war going. Now he wants to make a big name and do as he thinks best and shoot from the hip if he has too. Doen't make sence excetp he wants all of us to pay for his big depts to the SS fund. This country can hit another depresion very easly. What will he care. I am sure hde will be secure even through something like that. But not the adverage guy. And we almost had one in 1980 whe Volker raised the interest rates up to 21%. So I hope and pray the youth are not fooled. This has worked for several generations. It can still work if the guy that is in doesn't take out of it and depleate it so bad to make the problem. All the talk and fussing and Politics using something more to scare us out here its time to shut up and just add SS to their dept. Insteas of sending off billions of dollars to so many other places put it back for the people of America who have paid it for years and it has worked. If they hadn't borrowed from it as Rosevelt did not intend for them too. We would have a sound programe still today. For what is paid in we get pennys back in our SS checks when we retire. Below poverty income. If they had left it alone we would all have gotten more a month now instead of peanuts. But it is something. No matter how many are eating dog food to choose to get their pills and medications they need. Plus the goverment has padded the Ins. Co. pockets this year for sure. With Bushes programe last year. People can't go to a hospital now. Or they will have to go bankrupt over the bill. That when we paid our premiums for Ins. before it coveded the 20% that medicare didn't pay. Well the last two years that has all changed. Ins. co now don't have to pay the 20% anymore. But our preium is still high. What they paid 20% on the hospital bills for what we paid for Ins. coverage to pay that. Now we have to pay out 1,500 dollars now a year if we go in the hospital. Plus the 82.00 dollars a month still to the Ins. Co. Now you tell me who benifited in that deal Bush pushed through.It sacres me to think of our kids being fooled so badly over the SS. He is the type of man that will fight to get it through just to do it because he wants it. So people better be the same way and stand up and tell him or anyone else to not change our SS. God help our youth if he gets this done. He has hurt the elderly already in the Ins and medicare changes he allowed. So what is next for the youth with his plan. More big buck but not for the little guy thats for sure. I see what our grandparents ment now. Vote Dem. no matter what. They were for the little guy. Repl. were for big companys and big money. Did this generation just not relize how it use to be. We have come a long way to be going backwards so fast.
I just hope God helps us little people here in America. Unless he is just letting us set ourselfs up to be wiped out by our own self stupidity. Of our powerful goverment officials. As they are only just people too. Richer and have their own profit ideas. Our profit ideas are just living a good calm and safe end of our lifes after working all our lifes. As our children will feel also when they reach our age. Not worrying the stock market may fall and thats it for them. We are getting out of hand it looks like to many people anymore. This election was a sad thing to me. I am a christian. But I placed our country first. Not just a couple of things we think is wrong going on in our country. Moral things. God will take care of that. We only have to vote. Then let God do the rest. We voted on the one. But so many think we can change that vote because we didn't like how it came out. Well God will take care of each one himself for abortions or same sex marrages. Let us vote on that. That is what we are suppost to do to support our goverment in America. Some don't like how it comes out and keeps trying to change it again and again. When we all voted and it came out like it did.I as a christian said then God will take care of those that go against him. I feel we should have the vote. Not change our constution to stop same six marrages. If it passes a true Christian know God will take care of each and everyone. We don't need to think because someone is in the office that may go in and change something because we think we should do it. We all have a right to vote. On anything. Not change a constution. So its going to be quite a four years ahead. God help and blee America is all I need to know. God take the smartelic or cocky or what ever its called that has the attitude our of our poor goverment officials. He is out there on another campagain as he did with the war. Then just jumped and went in. Not even ready. Pray for my two grandsons that are in the Army now too. The more that are lost are going to be on one mans head forever. I pray the people of Iraq can make it and be free. But we arn't going to do it. The election was a feather in the head mans hat. For now. But as V.Nam we will be there far to long and lose more. They don't have enough men to stand up for their country. Trained or not. God help them. But get our boys back home. Weve got the pipe line coming through Afganistan now. We can get it through Iraq too. With all this. Then on to the coast. So I know we will be there for sometime. Just give them what they need to survive.Our own people in our country are hurting. Poor and just makeing it and some not even makeing it. What is wrong with this country anymore? Thats what the old people want to know. Get our security up here at home and be ferm and say no more or we will just blow you up. No fixing up what we do just protect ourselfs now.
But again now we have to fix up what we have done. Because we went in for something that didn't do anything to the terrists. We just got a man out of office that was a butcher. But didn't do a thing for getting who did what they did to us. Its time to stop playing games. Playing power trips. As you can see I am pretty upset with our great country. We remember the good days and what we came from and built up in this country. Now to see it so completely crazy is sad. They got rid of the unions. They had people being paid what the cost of living was and would have seen to that. But they were run out. I couldn't live if I didn' have a very small retirement from a union job. So whats wrong with so many things that were good? They are all being taken away from the american people. The unions were started to save the slave labor in the clothing industery. Children use to have to work too. To just make some food money. But they got to big. So they were gotten rid of. People were getting to comfortable and had good plans for retirements. So theres so many ways for the people to get by better in America. But most have been stopped. So SS isn't our only proplems our young people have going on now. Wake up American People. History repeats itself they say. Its just when?? God watch over what our Pres. is trying to do. Show him a glimps of the future in a dream or something. To show him what he is t;hinking of and trying to do. I am to old and not well now. Or I would be following his campaign he is on today to push this SS deal. I would say more then here. I would have a group with me too. We would be in every state he goes too. Then ask him to stand and talk to us just as a person not a political polition. I am not previewing or spell checking this. If people cant see what people think out here then spelling wouldn't matter then anyway.

 
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