Auros (auros) wrote,
Auros
auros

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What should be the last word on SS reform.

Brad DeLong apparently delivered a Statement on Social Security Reform at a Senate hearing. It summarizes most of what one ought to know (though it leaves out the details of why assumptions on productivity used to sell the "crisis" notion contradict the sunny assumptions on stock returns used to sell private accounts as a solution -- if privatization can work, there's no crisis; if there's a crisis, privatization won't solve it). It's has some good humorous highlights. (Among other things, we learn that Brad apparently has three hearts. Perhaps he is secretly an octopus?)

Let me give a small example of [incompetence], from George W. Bush's statement on April 28:

In a reformed Social System, voluntary personal retirement accounts would offer workers a number of investment options.... I know some Americans have reservations about investing in the stock market, so I propose that one investment option consist entirely of treasury bonds, which are backed by the full faith and credit of the United States government*.... Options like this will make voluntary personal retirement accounts a safer investment that will allow an American to build a nest egg that he or she can pass on to whomever he or she chooses.

[* RMH: Brad did not note here that these bonds are also the "worthless IOUs" held by the SS administration. The "pass on" bit is also false, or at least misleading, since the best anyone can tell, the Bushies favor mandatory annuitization of at least a large portion of your private personal sooper-dooper! account -- and of course the annuity ends when you die. But I digress.]

The "build a nest egg" part... The "invest in Treasury bonds" part... On April 28 the Federal Reserve was reporting that the twenty-year inflation-protected Treasury bond was yielding 1.87% plus inflation per year. The money you divert into your private account under the Bush plan is clawed back -- charged against your normal Social Security benefit -- at a rate equivalent to 3% per year plus the rate of inflation. Were interest rates to stay where they are now over the next fourty years, if you were 25 now, made an average of $80,000 a year over your career, and diverted all 4% of your wages possible into your private account and invested them in twenty-year inflation-protected Treasury bonds... then your Social Security benefits -- normal plus the annuitized check from your private account balance -- would be $514 a month less than if you had said "No thanks" to private accounts and kept your money in the standard program.

"Building a nest egg"?! Given current interest rates, following George W. Bush's advice and investing Social Security private-accounts money in inflation-protected Treasury securities is a really bad idea. Yet they let him go out there and say that.

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