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Sunday, January 23, 2005
Cavalcade of Right-wing Social Security misinformation
There is a lot of false information out there and even though this subject is a dead-horse (hopefully one that Democrats can sling over Bush's neck to slow down his dismantling of the American dream for the next four years) I'd still like to clear the air.
- African American, Latinos, and other minorities do not benefit as much from Social Security insurance as whites do. (Variations of this claim ascribe this fact to black mortality rates and other factors)
This seems reasonable on first glance unless you actually look at the numbers. It turns out that the higher mortality rates of these groups are mostly concentrated in the time of life before people start participating in Social Security. Specifically, these groups tend to suffer higher infant mortality rates and higher death rates in their teens and twenties. Although there are still measurable differences in mortality after this, these groups receive proportional recompense through survivors benefits for orphans and windows and disability benefits.
- Social Security privatization can be done without incurring extra government debt.
Even Republican politicians admit this is false. While pessimistic assumptions show the government needed to raise additional funds for Social Security around 2050, George Bush's plan would have the government needing to raise additional funds starting in 2006. While Republicans are in charge this will be done by borrowing (essentially taxing future Americans who conveniently don't have the right to vote yet). Different plans show different amounts but 1-2 trillion would be a starter with additional multi-trillion dollar infusions to come. All to be paid back with interest.
- Social Security insurance started as a modest government program but has ballooned into a giant political give-away
In fact Social Security benefits have stayed at about 40% of a regular paycheck since it started. Though survivors benefits and disability benefits were added FDR signed the first bill Social Security only grew as a percentage of GDP until the 80s. It is projected to remain between 4 and 6% of GDP for the foreseeable future.
- In any 20 year period since 1929, stocks have out performed bonds. We can expect this to be true in the future.
There's a reason they used 20 and not 10, but I digress. The economist reports on why the conclusion is just false. Basically, a lot has changed since 1929, not the least of which is that people now appreciate stocks more than they did in the past pushing the price of stocks to historic levels (in absolute terms and price-earnings ratio terms) and devaluing bonds accordingly.
- The money that has been accumulating for the baby-boomers since 1980 is in government bonds and therefore has no value.
I suppose in a way the money in my pocket is just a government promise. In a way, I don't really have any money. I guess then all that money Bush has in the bank isn't real either.
Oh, I see, that's different. There's political repercussions to having the US government devalue the money in my pocket. Ah, but defaulting on trillions of dollars of Social Security receipts isn't going to cause any political repercussions since it's a promise from the government to itself. Certainly, old people aren't involved at all. Good thing too, because I heard once that old people are an amazing force in American politics.
This one would have an easier time passing the giggle test if someone – anyone – in American politics seriously held that this fund shouldn't be honored. Even all-powerful Republicans who hate SS can't admit that. The best they can do is indicate that somewhere out there, twirling his handlebar mustache is some political party of some kind that honestly is willing to say out loud that the fund shouldn't be honored. Perhaps this political group could be distracted by leaving a fair maiden and a length of rope near some empty train tracks.
- The Bush Privatization plan aims to keep benefit levels the same or raise them.
Again not so. While pessimistic assumptions indicate that Social Security might need to be reduced by 20% or so in 2050 Bush's suggestion of indexing to price inflation (instead of wage inflation) would reduce the benefits by much more than that far sooner than 2050.
- If someone doesn't like the risks of Privatization they can just invest their money in government bonds.
No. The privatization plans* call for reducing benefits by more than you are given to place in funds. This means that a cautious individual would definitely lose a large portion of their Social Security insurance benefits. Whereas people who are willing to risk might on average get just about as much as they would have anyways (but no promises!).
*I must grant that Bush's privatization plan is not yet public but it is assumed to be similar to the three proposals which his Social Security privatization task force outlined.
posted by Tommaso Sciortino at 11:52 AM
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