See, and I was just thinking, and then he comes out with this snotty coastal snob "I went to a fancy school" Greek crap* and my love is dimmed.

*as opposed to ass-fucking greek** crap.

**I am pretty sure that odyssysysysys thing was greek and not roman or whatever.

If it's revenue neutral, why would anyone bother to save more?

Is the gov't going to run the funds for the SS private accounts? I'd actually be pretty hip with that. No marketing fees built in; costs would be pretty low.

The admin fees may still be quite high, though smaller than inv mgmt. It's better for the smaller accounts if they are done as a % of assets rather than a flat fee per account -- flat fees per account for admin fees, while "fairer" in the sense that each person is paying for what they are getting -- really, really cripple small accounts.

I thought the attraction of such institutions of higher learning is that it's a package deal.

Wait. Don't Mormons go to fancy schools too?

Professional schools aren't fancy schools, even if you are at a place whose undergrad portion is a fancy school. You learn about odouoiuausyussys at them liberal arts placeses. Mormons do UG at BYU, baby, and major in pre-law, pre-med, and stuff.

I generalize.

Using the rule of 72 as a guide, 2% return means your money will double in 36 years, then grow a bit more by year 40. 4% means it will double in 18 years, redouble at 36, and grow a bit more by year 40.

So the 5k you put away in Year 1 goes to around 11k, or to around 24k. The difference is substantial.

Unfortunately, you can't assume steady growth in the stock market. We've all heard how stocks outperform -- but that is historically, over time, past performance that does not guarantee future results, yadda yadda yadda. If Year 40 in this scenario is comparable to, say, 2001... ouch. Or 1987 -- you don't have to use the "Depression/1929" scenario for it to be scary.

Moreover, no one that I know of has done a study of stock market returns in years following big in-flows. I would think, though I don't know all the numbers, that any PRA program worth the effort would result in a pretty substantial inflow, one large enough to puff up share prices. And that creates a dangerous situation -- the investor who gets in during a run-up is always the most vulnerable.

People who have substantial amounts in the market already will benefit from the run-up. People who depend on SS, supposedly the ones this program is supposed to help, will be the most vulnerable and may ultimately be screwed.

Your points conflict.

I don't want people paying for MY retirement or MY health care.
I don't need 290M paying for my roads. The 700K in SF are plenty.
We all benefit from defense.

How? They're related only by the general subject. One goes to the merit of the accounts, posited bu you. The other goes to the potential risks of them.

Are we talking about different things?

IRAs are revenue neutral, they just time shift the taxing.

Roth conversions move up the taxation event for those who chose it.

Having either--creating some tax advantage, encourages savings.

But I'm talking about how to pay now for a reduced tax base resulting from increased IRA/401k savigns. So, having increased the deferral of taxes by liberalizing IRAs, you claw back that money by giving others an incentive to pay the taxes now.

I thought you were suggesting that raising the cap on IRA contributions might be revenue-neutral for the government, in that contributions are taxes later, though perhaps at a different rate. I don't think this is likely, nor do I think you think it is likely. But if it is, wouldn't that mean there would be no incentive for taxpayers to put additional $$$ into their IRAs?

Agree that you could offset the IRA thing with the Roth thing, and have nothing useful to say about that. Except that you would be deterring people from putting money into Roths, but you know this.

Having lots of conversions to Roths would produce a windfall now but would have a detrimental effect on overall tax revenues, even if rates stay the same, because any post-conversion earnings would never be taxed.

Which is, I think, why they limit Roth IRAs and conversions to people who would on the whole be expected to have smaller accounts.

Presumably, given the limited investment choices and limitations, there would be no way to invest unwisely.

Over what time frame? If you are only going to allow investments in truly guaranteed investments (like money market/stable value), the returns will likely be only very slightly higher than inflation -- so unless people are saving roughly the same amount they are living on currently, it won't suffice for retirement.

Because in the first you say the benefit is low, and in the next you imply that it's not low.

Time frame depends on how far away you are from retirement.

Large proportionally does not mean actually a lot of money.

Honest question: Did you even read the thread we were discussing or did you just feel like arguing?

time frames require consideration of slope and Ty says we can't consider it.

you know the science lite guys who take the "physics w/o calculus being necessary" classes- sure they know physics- hell they got a 3.0!

Um... defined benefit plans are not managed?? I don't think so.

No. You just have to assume that the next 40 years (or any given future 40 year period) will be totally unlike any prior 40 year period. Indeed, you need to assume that every year in the the next 40 years (really more like 60+ because you don't take it all out at once either) will be like 2001, 1987, or the other handful of rough years.

You are talking about getting in at $50 a month over 40 years. That is not "getting in during a run-up."

But you are right, we are talking about a structural change inthe markets with large new amounts of money to be invested, and it is hard to predict what the effect will be.

No. I'm not talking about every year being a bear market. One very bad year will cause a whole lot of pain for people who are relying on SS as their safety net. Ask anyone what was planning to retire in 2002 what happened to their plans. Then consider what would have happened to those people if they were completely dependent on their private savings, and if those private savings, even in a good-case scenario, had been only enough to cover basic living expenses.



Once again, no. The "run-up" to which I refer is not caused by a single investor, but by the aggregate of people putting a substantial portion of their SS taxes into the market.

In 2002, SS revenues were over $615 billion (and that was a relatively low year given the performance of the economy that year). I don't know what the current Bush plan is, assuming there is such a thing, but people have floated the idea of half of SS taxes going into the market -- even if it's half of the employee's contribution, that is a huge chunk of money suddenly added to the market. Particularly if the investment choices are restricted to a much smaller subset of the overall market, as many have proposed.


eta: To put this in perspective -- assume that PRAs result in an additional $300 billion pumped into the market each year. That's $25 billion/month, and well under half of current SS revenues. In November 2004 total inflows to stock mutual funds were about $21 billion -- one of the highest months all year. Remember how fast the market rose in November? (And yes, I know -- investments are not limited to mutual fund investments, but looking at them is instructive.)

When you talk about putting half of SS revenues into PRAs, and allowing people to invest those PRAs in only a narrow slice of the overall market, you are creating strong potential for a run-up -- one that will benefit current investors but risks serious harm to those who only get in durin the run-up.

Defined benefit plans are managed, but they are managed as a pool rather than individually, which drives the per-dollar management costs way down.

The purpose of PRAs is to create individual accounts that will not be managed as a pool.

Aren't you only considering 1 side of the equation? In other words, aren't you failing to consider what positive effect the investment of those amounts would have on the economy?

oooh, oooh, oooh. I know! I know! Lots of capital available for all kinds of new investments! dot.coms! More dot.coms, with foosball tables! and mini-motorscooters to roam the halls! And no business plans!!!

What drives legitimate and productive capital spending is good investment opportunties, a stable economy, and low interest rates, all of which are helped by less gov't debt. The availability of spare funds in investors hands does not drive sensible investment, but rther irrational investment.

Well, those folks had a few different choices. They could put off there retirement for a year or two - unfortunate but hardly a tragedy. Or they could risk it and retire, hoping that their nest egg will grow sufficiently to cover their needs.

Again, you (and others) seem to be looking at this as if the individual retiree is getting entirely in at the beginning, and out at retirement.


I didn't suggest that the "run-up" was the result of a single investor. I suggested that any given investor was not getting "in" during a run up. They were getting in over time with a small systematic investment. And getting out the same way. The result is substantially decreased exposure to swings in the market.

Yes. We have no disagreement that there will be a lot more money out there in the market. Nor do I think we disagree that neither of us really knows what the net effect will be. Especially as the flow of money into the markets will be relatively constant over time, rather than just a big dump on the front end.

Sometimes I feel bad about posting things that aren't as clearly expressed or carefully considered as the points made by Ty, Sidd and others who are more or less on my side of the table. But since Hank and Bilmore have you, I think it all evens out.

Huh? Are you saying that wealth creation will have zero effect on the economy?

Who are you again?

It is unclear to me that the American economy is starved for investment -- particularly if you are talking about limiting the PRA options to blue-chip stocks, for example.

In any event, how do you evaluate the macro-effect of pumping money into the stock market? Did the huge inflow of cash into the stock market in 1999 create a long term benefit? In some sectors, sure. In others, it created huge distortions and bad incentives.

On the other hand, the effect of increasing the deficit by another $150 billion a year -- before the first penny of money is borrowed to cover SS payments -- will be pretty uniformly rotten. Add to that the additional..... how many trillions? ... to cover benefits for current retirees, and the effect on interest rates is likely to offset to zero and beyond any positive economic effects.


eta: The "$150 billion a year" is roughly the difference between current SS revenues and payments. This amount is used to reduce the reported federal deficit (except during the tenure of a certain deficit-reducing President). It's considered "off-budget" -- the money is spent, the national debt grows, but the White House gets to pretend that it doesn't exist.

If the US has to finance that additional debt in a competitive marketplace, rather than from the captive SS trust fund, that will affect interest rates -- I believe; I am not sure how the rates for debt from SS trust fund are set but the fund does not have the option of shopping around, so....

Weed is an old-timer. Picture him looking like Grandpa Simpson. But from a blue state.

If that wealth creation is purely a result of more dollars chasing the same amount of stock, yes. Or, if all the corporations that bought in their stock during the last few years to keep the value inflated use the run-up to dump that stock back into the market without any plans to use the cash to increase pruductivity or wages.

Simply dumping cash into the market without increasing wages and prductivity lead to the growth of only one thing, inlfation.

I was thinking about this more in terms of individual wealth, rather than company wealth. Dumping more cash into the markets should increase stock prices, meaning that those that currently hold the stock will see their investments appreciate. Although there may be an increase in new issues resulting from the higher stock prices (i.e., cheaper capital), I don't see this as being the same model as in the 90s, where the increase in capital was spurred by demand for new issues by companies. In other words, I believe that the primary effect will be creation of individual wealth, rather than capital investment in companies, and that an increase in individual weatlh would have some benefit to the economy as a whole.

My assumption would be the former, although the availability of new capital and cheaper equity financing would increase new issues from today's rate.

Perhaps -- but if that wealth is cashed on any significant scale, share prices will fall. This is exactly the "run-up" scenario I was talking about. This "wealth creation" would benefit those who already have substantial investment assets, at the expense of those who depend on SS.

I'm think I understand what you are trying to say, but I'm not sure I agree. What does the supply/demand equation look like in your model?

Sure, and they could hope the market would bounce back in a year. And if it didn't, well, they would always have social security to fall ba..... oh, wait a second....

And, of course, if they were 75 years old and already retired, well, they could just go back to work.

Do you really believe that the most vulnerable in our society -- the people who did not have the skills or capacity to build private savings -- are going to make consistently wise investment decisions? Or do you just have faith in the magic of the market, and believe that the average gain over the past 40 years equals the minimum gain that anyone can expdct in the next 40 years?

I have no idea what you are asking me. I know that as the supply of cummerbunds goes up, the demand for zabaglione comes down. Or something like that -- Microeconomics was a long, long time ago.

What I'm saying is this: The net effect will be that the people who benefit most from the "wealth creation" effect are the people who are already wealthy. I.e., the people who have money in the market now, before we start pumping in a $30 billion a month of formerly-SS money. Meanwhile, that new money will have less purchasing power in an inflated stock market, making the investments less valuable and, ultimately, more risky.

So, we are putting the safety net at risk, and putting the government another few trillion into debt, and risking a significant rise in interest rates.... in order to benefit most the people who need it least. Can you say "wealth transfer"?

And yes, I think the White House understands this. And yes, I think that making wealthy people wealthier is one reason for the push -- but not the main reason. The main reason behind the push to fundamentally change Social Security is ideological; it's the "ownership society" theory, with a spice of distaste for a New Deal program that has worked so effectively for so long.

As I keep saying, it need not bounce back in a year.

I believe that nearly everyone, given no choice but to save, will be able to do so without losing it all. Why? Becaues nearly everyone who has enough money to be able to save does so. The bigger risk is that most people will not take enough risk and therefore not get the full benefit of their freedom. I think you strongly underestimate people's level of discomfort with investment risk - most people will opt for gauranteed (miniscule)returns.

For the few who can't, I have no problem with a taxpayer funded saftety net.

Yes, I have faith in the magic of the market. I believe that average returns over the next 40 years will be roughly similar (plus or minus a few points) to what they were over the last 100 years. Do you have some apocolyptic knowledge that the rest of us don't have?

Ad(Bush invented that)der