Social Security-

Firstly I do not believe Krugman was in the Nixon whitehouse for if that is the case it means that he was there at age 20. I know his general age because he won an award in 1991 for economists below age 40. He was actually in the Reagan Council of Economic Advisers.

Secondly, while I am generally an admirer of his works, actually have two books of his, I think he is a bit off here. He may be correct in stating that the people seeking privatisation is exaggerating the imminent collapse but that is not an argument directed at privatisation. Instead it is a criticism directed at the people seeking to implement it.

It should be noted that there are countries that have privatised social security successfully such as Singapore, Chile.
http://www.cato.org/research/ss_prjct.html

Having said that one model of transition is this:
1) For people who are already on the current system, they can have the option of opting in or opting out.
2) For people who just entered the workforce, they do not have a choice and have to opt in.

A successful privatising of social security may help win over young voters to the party. While it may not have the effect of FDR New Deal in cementing a party's position in power, privatisation appeals a lot to the younger generation and also people in business (big or small).

In my opinion, the failures of the democrats can really be sumed up by the joke Arnie made "Don't be an economic girlie man." It does not mean that the Republican platform of supply side taxes is working but that the Democrats lack a platform for economic development. When I mean platform I do not mean a range of legislation and complex plans (which are ultimately necessary) but rather a 'simple' economic idea that can be communicated to the masses, so as to get the impression that your party can lead the country economically. What they need is an idea to rally around.

That's not it at all. What they are saying is that the system needs to keep up with and change with the times in order to be able to survive past 45 years into the future. Maybe SS won't collapse in the next ten years, but from the little bits of research I did today, I'm seeing 2047 as the magic date when SS will not be 100% supported through contributions. Should we wait until then to figure it out?

I'll be honest, I don't know if privatization is the best plan, and I'm not an economist that can make that call. But it is a plan that can be dissected, and is being dissected on both sides. I found it hard to find anything non-partisan on the issue, anything that wasn't outright for Bush or against him. That makes it difficult to truly be educated on it when most things are pretty slanted one way or the other. But Bush does at least have a plan, like the plan or not. What is the other option proposed by the dems? Sit it out and hope for the best? That is not a viable option, IMO.

Not a simple plan but merely a better way to communicate the idea. Since we are talking about Krugman, let me offer you a quote of his from his book the Accidental Tourist "It [Supply Side Economics/Bush Tax Cuts] appeals to the prejudices of extremely rich men, and it offers self-esteem to the intellectually insecure." That in my opinion kind of sums up the entire tax cuts alone is going to spur the economy "plan". The plan by the Republicans is the claim that tax cuts is going to pay for itself, which empirical evidence simply do not show.

My point is that it is time for the Democrats to take the offensive in terms of economics. I know the platform of Democrats with regards to its social issues but if we turn to economic platform, it seems that there is a lack of a clear message.

I thought the Clinton free trade route was really good. But it lacked a good publicity campaign when it was implemented. I believe that to a certain extent the long growth in the 1990s came about through NAFTA, which came about in 1994.

In my opinion you need a plan or message that
1) Directly benefit the person.
2) This benefit would somehow also help the entire economy and make US stronger.
3) The disadvantages of this plan is either minimal or is short term or would be resolved in the long run.
A) "Evidence" of some sort that shows the plan work just like the Reagan growth was "attributed" to supply side economics.
B) The plan should appeal to both Rich people and also a large part of the masses.

Three simple statements that encapsulates the plan. What is it? I have no idea. I think free trade could be possible but one has to get past the initial bad blood the public has on outsourcing, competition from foreign companies etc. Although Bush has been quite a free trader. The key moment would be next year 1 January 2005 when the quotas on textile import expires, which could very well mean the significant destruction of the US textile industries. Bush has flinched with regards the first wave (very small) earlier by restricting imports on certain clothes (Bras and underwear? if I recall).

I will be the first to admit that I don't understand the fundamentals of the plan. But the term "privatization" appears to allow people to make choices on how money is saved to support their retirement.

Perhaps its because I'm a baby boomer, but MOST folks that I know are so far in debt that if given a choice, would use the money to pay their bills rather than save for the future. Unless the plan forces mandatory contributions, we're going to wake up one day to a bunch of retired folk with no financial means to support themselves. What burden will be placed on society then?

Social security has worked and can continue to work if money is not channelled out of it for other purposes. Just my opinion.

My very limited understanding of it is that the contributions would be the same, and the "privatization" part would only entail how the money is invested for the future. Currently, the government has it in their accounts which draw fairly small returns. The privatization part only means that you could decide how to invest (I think only a portion of) your contributions to the SS program, not whether or not you contribute to SS.

Thanks for the clarification. I would hold out full opinion until I see the amount of risk associated with the investment options. If people are investing in high risk ventures, they may lose their retirement funds and the plan might as well not exist for the good it would do.

Social Security has to be reformed way ahead of time unless one is willing to cut loss a generation of workers without social security upon retirement. It takes one generation (about 30-40 years) for the reform to be completed for one must allow those in the current system the option of remaining in so as to be fair. Another reason for reformm before it is needed is that if it is needed, it is perhaps too late for reform. During this 30-40 years there will be a period of crunch whereby the government has to give out social security but will not be receiving any social security contributions. Therefore one must do the reform before tax revenues fall as a result of a greying population. In my opinion social security reform is necessary unless one is able to make the population produce at a rate whereby you do not have more old people to support than working tax payers. And you have to take into account the fact that people are going to live longer.

Most plans on social security privatisation in the US and also around the world calls for compulsory savings. Somewhat like a fixed deposit. Then after that there are several variations from being allowed to say use a small percentage of the money to invest, or being able to use the money to purchase a house, etc.

http://www.socialsecurity.org/

So who is going to pay for the additional 20-30% (I saw 70% covered after 2047) for my SS checks when I'm retired? Sure, it doesn't sound like that big of a number when they say 80% will still be covered, but when you are talking billions of dollars at that point, that 20% is pretty significant. I'll only be 75 then, and I'm planning on living a while past that. Do you think cutting the benefits by that 20-30% would be feasible to keep the program solvent? Or perhaps just put the country into a larger deficit for the foreseeable future? If it is dealt with now, there won't be a crisis in 45-50 years.

Perhaps I'm being generous, but maybe - just maybe - their concern is for my generation who will be retiring in 35-40 years, and those younger than me, and even for those who are older than me and will still be alive in 35-40 years when the program would no longer be solvent if nothing is done about it.

I'm sure there are other ways to fix it, but so far I haven't seen another plan presented. Like I said, I'm not entirely sure the privatization idea is the best and most efficient way to fix the issues. Kerry kept saying he had a plan to fix everything, well I would like to hear what his plan would be to fix SS. Just because he didn't get elected doesn't necessarily mean that he can't still present the plan and see which one really is more economically viable. It would be best if there were at least one other plan available to compare it with.

I know exactly nothing about the US Social Security system, so I'm not going to make any comment directly about that.

I just wanted to say that whenever I see a suggestion that the remedy for an ailing social safety net of any kind is to privatize it, I get really anxious. The reason is simply that as soon as you privatize, somebody has to make a profit, and it has to come from somewhere -- do you pay more in, or get less out? Either way, it comes from the pocket of the people it's supposed to benefit. The only way around that is if it makes enough money to provide the profit -- not something I'd really want to bank on.

My .02

Think of it this way:
Privatisation is like getting your own bath tub. While the current system is like sharing a communal bath tub. You never know if there may be too many people trying to use it or whether have the people used up all its hot water.

As for profits, I think you are looking at it the wrong way. Think of it as a bank account. You put your money in it and you get some interest back. The bank does not charge you for placing money in the bank. Similarly, the profits that are made are not through your money. What you see is what you get. Privatised social security in other countries operate in such a manner where you have a sort of "account" and there is no deductions from it. What you deposit in it is what you get back plus interest.

There's an article in MONEY that tries to explain the plan to some extent:
http://money.cnn.com/2004/12/06/reti...rity/index.htm
What amazes me is how little Americans are paying. I have to pay over 18% of my earnings, and there's no guarantee that I'll be able to get anywhere near what current retirees in Germany are receiving.

http://money.cnn.com/2004/12/06/reti...rity/index.htm

I found this on CNN Money. It is actually a pretty non-biased look at SS, what the problem is explained in terms we can all understand, and the issue of privatization also explained in layman's terms. It also explains why reform is needed now - the system will actually not be solvent in 2012, according to this analysis, and will then need to tap into the Treasury to finance SS benefits. The Treasury, or money built up over the years when there was more taken in than paid out, will be depleted ~2042-2047 (depending on the anaysis), at which time there will only be enough take in to pay 75-80% of the benefits.

I was hoping support for the privatization plan would wane after the stock market slump showed so vividly how things can go wrong. Guess we all have a pretty short memory. People keep assuming that stock market investing is safe, and that there's a guaranteed return on investment, which is not the case. What happens when people lose money? Do they just go without in their retirement, or do the taxpayers bail them out?

First of all, the privatization issue as it stands currently would not be mandatory, nor would you be able to take 100% of the SS contributions for your own doing.

Yes, the Market is volitile, especially in the short term. Why have people "forgotten" about the downturn? Because the money lost during that time has generally been almost 100% made back up. The markets didn't stay down for good. And if you were putting money into the markets in a 401(k) or whatever during that downtime, you have made quite a bit of money since then. With few exceptions, the markets will grow over the long term.

Allowing people to have personal responsibility is not amoral. I'm of the very strong opinion that I know what's best for me personally more than the politicians and beaurocrats in Washington.

This debate is summed up so well in the article that Tricia and I both linked to:

I would agree with the first statement.

I think this thing should be best approach through a three level examination.

1) Actual Program
This examines the actual privatization program itself shorn of all politics. Issues relating to market volatility can be addressed here by creating a low-risk to higher risk program. You could create a low risk program where the most risky investment would be akin to depositing into fixed deposit type accounts to earn interest. To a more risky program of US treasury bond purchases which generally is seen as zero risk with regards to default to a higher risk program of equity purchases. Thus issues relating to volatility, amount of money saved, etc can be all fine tuned here.

2) True Intentions
This examine the true political intention behind the program and whether are the people who are suggesting it coming in with clean hands. For example, it would seem that upon privatization social security would no longer be counted towards the deficit thus the budget would seem to be not so much in the red and the government could borrow more. If I recall correctly, the promise by Bush to reduce the deficit does not include payment to social security. Such criticism should be directed at this form of practice RATHER than the program of privatization itself.

3) Empirical Evidence
This examines the facts being presented to us and whether is Krugman correct in stating that the people who are pushing for change is overstating the case and that social security may in fact not be headed for any disaster and is working.

Conclusion
There is a need to separate out these three categories so that one knows what one is opposing. One could support the privatization but reject the true intentions and empirical evidence on grounds that one believe privatization would be better. There are a number of permutations and ultimately one must realise where one's objection is coming from so as best to address it.

The debate continues with this subject and I'm beginning to see the debate happening within the media (that is a good thing).

One of the assessments being offered is that privatization is simply moving the risk of managing money from the government financial experts to the common citizen. This implies that the common person would need to be financially savy in order to select the right investments, and if they failed in their investments, there is no safety net. Personally, even though I'm financially savy to some degree, I wouldn't trust myself with that safety net.

If the government simply eliminated the tax cuts to the very wealthy, social security would not be at risk in the future. It's the current top tax cuts that have caused the problem. I make sufficient salary that social security is suspended from my salary prior to year end. They can take more each year if they can guarantee some security for my retirement!

That this move is simply a distraction from the real financial problems at hand today - the spiraling deficit and the trade imbalance. As my husband put it, it's as if your house is on fire and you are directing the fire department to save the cat up a tree across the street. What happened to financial conservatism?