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Originally posted by Tyrone Slothrop
Social Security is an intergenerational transfer, or, if you like, a Ponzi Scheme.
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Yes, but that doesn't mean it has to be.
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"Privatization" is something completely different -- the notion that this compact should be replaced with a system in which the young are permitted or compelled to invest for themselves. So the fundamental problem is that if we adopt "privatization," who pays for the old until today's young are old?
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Yup. And the biggest obsticle I see to a transition is the totall cowardice of our leadership to admit that while privatization might be good, it will also be costly. And I don't think it is a huge a problem as you think (but it get huger every day).
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Then you should be "highly skeptical" about the claims made by privatization advocates that investments in the market will earn 6% or 7%.
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These people are predicting, at best, substantially reduced market returns (or, in other words, they are being highly conservative). That makes more sense to me that saying that even these super-conservative estimates are way too positive, which seems to be what you are saying (i.e. the better guess is that things will be largely the same, rather than radically different).
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But obviously there is a connection between the performance of the stock market and the performance of the larger economy, and if the privatization advocates are claiming that the latter will suffer in coming decades, as a result of demographic factors, it's hard to see how they could think that returns in the market will keep ripping along at past rates.
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Again, this is what we are talking about. One need not think the demographic factors are going to substantially hurt the larger economy in order to think it might be a good idea to privatize (note: the historical stock market return is something around 11%).
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The answer is, of course, that they don't -- they are wedded to privatization for ideological and venal reasons, not because they believe in these numbers.
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Or because, having watched what has happened to private pension plans (the near complete replacement of defined benefit with defined contribution, with much larger retiree resources) over the last 30 years, they believe that actually setting aside funds to pay future benefits, and earning a return (any return) on them makes for better off retired people.
What I don't get is the dogmatic democratic committment to the current system. I certainly don't believe that social security should be removed as a safety net. But I absolutely believe that people would be better off, and the system would be more sustainable, if people were investing the funds instead of loaning them to the government to pay for current expenses.
