Mister Pterodactyl
Thursday, March 10, 2005
Fixing Social Security
In Sunday’s MJS, by-invitation editorials from Wisconsin US Reps Paul Ryan (R) and Gwen Moore (D), offering ten points for and against privatizing Social Security. [The intro says it’s about ‘changing’ SS, and both Representatives use words like ‘fixing,’ but we all know what we’re really talking about.]

Moore’s piece is kind of squishy. There’s the usual carping: the crisis isn’t ‘immediate.’ The stock market is too fickle. And (here’s a laugher) participants in the private account system won’t receive a full measure of SS benefits when they retire (I mean, isn’t that the point?). She does, however, manage to point out that the privatization plan is going to cost a lot of money. A lot of money.

Ryan’s isn’t much better. He starts out well enough stating the case for change, points out the actual nature of the ‘trust fund,’ explains some of the benefits of personal accounts (all of which we’ve heard before). But, well, #5: the “unfunded liability – what the program promises today’s workers but lacks the funds to pay” is up to 10.4 trillion and goes up another 600 billion a year. I assume he’s talking about the total amount that’ll be paid to current and future beneficiaries, but he doesn’t say it that way.

But my real problem with Ryan’s piece is the other thing he doesn’t say: how he plans on paying for it. If part of my SS contribution is diverted into a PA, then that money won’t be available to pay current recipients. Right? That’s going to create a shortfall, and that shortfall is going to have to be made up somehow. Right? How is that going to happen? And why won’t the proponents of PAs address it? [Some of them have been really weaselly about it.]

Fortunately, right after I started writing this post I got pointed to this interview, in which Ryan explains the whole thing. At retirement, your PA starts paying an annuity. If that annuity is less than what SS would have paid, SS makes up the difference. If more, the excess is yours (tax free!) and SS is off the hook. Therefore older workers who won’t have time to build a large PA will still get their full payment, and younger workers shouldn’t need to rely on SS at all.
Ryan is upfront with the price tag: $2 trillion in ten years. He specifies four ways to deal with that:
- He admits there’ll be some borrowing. Good for him.
- The changes he’s proposing will cause an upsurge in corporate profit, leading to increases in tax revenue. [But politicians are always saying stuff like that.]
- Limit government growth and use the savings to fund the transition. [Won’t fly. First, I don’t expect that Congress will be able to maintain the discipline over the time period needed; second, savings garnered this way could more helpfully be used to pay down the national debt.]
- Finally, in about twenty years the system should reach a point where all payments are coming from PAs. After that, SS payments (it’s still getting 6% of everybody’s paycheck) can be used to pay off the remaining debt, and after that SS contributions can be decreased.

I want to get behind this. I still have misgivings, due to the long time period involved and my doubts about Congress’ ability to maintain discipline, but I like it. And, out of personal self-interest, I’d take a PA if offered. Here’s hoping it works out.

Good post. Correcting a mistake that has even gone more awry over the years of indiscipline will be tough.
My question is whether it would be wiser to bite the shortfall bullet now and make a positive fix or endure the shortfall until the baby-boomers die out and continue with the sameole-sameole?
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