[Part of The Earth-Based Initiative: Social Security Meta-Archive]
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Social Security Smorgasbord? Lessons from Sweden's Individual Pension Accounts
R.Kent Weaver in Brookings Institution Policy Brief #140:
A Default Fund6/5
The Swedish experience clearly suggests the importance of a default fund for nonchoosers if the United States moves to a system of universal rather than optional individual accounts. In the United States, establishing a new government-affiliated management entity for the default fund would be both costly and politically controversial. Contracting out management of a default fund to several different fund management firms by competitive bidding would likely spark less opposition.
At least as important as who administers the default fund is the question of how the default option is designed. The experience of the Swedish Seventh Pension Fund's Premium Savings Fund shows that there are very real trade-offs between long-term growth and protection of investment capital for those who, for whatever reason, abstain from making a fund choice. There is no obvious "correct" answer to the growth-versus-security trade-off, but it is probably best to offer different defaults for younger and older workers, and to progressively move the funds of older "abstaining" workers into more secure investments.
If a government-operated default fund were to be set up as part of an individual account tier in the United States, Swedish experience also suggests that it would not be free of controversies over environmental, ethical, and domestic investment criteria. Of course, such criteria would not necessarily be adopted in a political system that is much more conservative than Sweden's—or there might be pressures for a different set of criteria.
For example, should equity funds exclude companies that manufacture tobacco products, firearms or alcoholic beverages? Companies that employ or contract with suppliers using sweatshop labor? Companies that invest in countries with unusually repressive regimes? The experiece of the Swedish default fund shows that individual companies can be excluded with little or no increase in fund management costs—which could make it more difficult to avoid political battles over whether to do so, and what criteria to use in making those decisions.
Friedman's 'heresy' hits mainstream
A Brief San Francisco Chronicle profile of Milton Friedman:
President Bush's proposal to incorporate private accounts in the giant retirement program is easily traced to Friedman.6/9
"He's the originator of it and all the discussion can be traced back to him," said the Cato Institute's Michael Tanner, a leading advocate of partial privatization.
"I've always been opposed to Social Security," Friedman said in a recent interview at his home in San Francisco. "I think it's a very unethical program. "
Riding Into the Sunset
Writing about retirement security for The Nation, William Greider profiles the proposals of economist Robert Fogel:
Fogel's solution is a new national pension system alongside Social Security--a universal "provident fund" that requires all workers to save a significant portion of their wage incomes every year to provide for their future. He proposes a savings rate of 14.7 percent (though taking Social Security benefits and taxes into account, a lower rate would suffice for a start). The contributions would be mandatory but set aside as true personal savings, not as a government tax. The accumulating nest eggs would belong to the individual workers and become a portable pension that goes with them if they change jobs, but the wealth would be invested for them through a broadly diversified pension fund. Employers would no longer be in charge (though they could still contribute to worker savings to attract employees). The government or independent private institutions would manage the money, investing conservatively in stocks, bonds and other income-generating assets while allowing workers only limited, generalized choices on their investment preferences.6/15
The concept resembles the forced savings plans adopted in some Asian and Latin American countries, but Fogel's favorite prototype is American: TIAA-CREF, the pension system that exists for nearly all college professors (a nonprofit institution founded in 1917 by Andrew Carnegie). Another model could be the government's own Thrift Savings Plan, which manages savings wealth for federal employees. Lifelong healthcare, Fogel adds, could be guaranteed for all by setting aside another 9.8 percent from current incomes. "If you take the typical academic, we all have TIAA-CREF," he explains. "The universities require of us that we invest anywhere from 12.5 to 17.5 percent of our salaries in a pension fund--mandatory--but it's all in my name. I can leave it to whomever I want. It has entered my sense of well-being for many years. The fund has earned about 10 percent a year since the 1960s, so retirement is not a burden to the university."
Obviously, people with low or even moderate incomes could not afford such savings rates, and even diligent savings from their low wages would not be enough to pay for either retirement or healthcare. Fogel has a straightforward solution: Tax the affluent to pay for the needy. A tax rate of 2 or 3 percent, applied progressively to families in the top half of income distribution, could finance the "provident fund" for those who can't pay for themselves. "This is a problem, not of inadequate national resources, but of inequity," he observes.
The luckiest Ponzi scheme
A Nevada Op-ed which asserts that Social Security is doomed, and can only be brought to solvency through private accounts.
LIFTING THE CAP
TV reporter Paul Solman of the NewsHour on raising the payroll cap.
GOP Senators to Propose New Tack On Social Security
Charles Babington of the Washington Post.
We'll Need DeMint to Pay for This Proposal
Mark Thoma responds to SocialSecurityChoice.Org's claims regarding the DeMint proposal.
GOP wants Social Security surplus in private accounts
Carolyn Lochhead of the San Francisco Chronicle.
Another Social Security proposal I don't like
Economic blogger William J. Polley on the DeMint proposal.
Noble Lies, Liberal Purposes, and Personal Retirement Accounts
Will Wilkinson of CATO says Social Security is a scam.
Feldstein Comments on Social Security Reform
Mark Thoma links to a Martin Feldstein Op-ed which advocates a coupling of the DeMint-Ryan congressional proposal with automatic voluntary add-on savings account subsidized by the until-2018 surplus.
Bernanke Says Social Security Reform Must Include Private Accounts and Ensure Solvency
Mark Thoma links to Washington Post coverage.
Tyler Cowen Changes James Glassman’s Mind on Social Security
Mark Thoma on James "DOW 36,000" Glassman's retreat from privatization in favor of "solvency."
Bruce Webb in comment:
I am not suggesting the battle is over. This war didn't start in a debate over numbers, it won't end in an agreement on numbers, in many ways the numbers are just a sideshow in a seventy year old ideological struggle. The Right chose Social Security as their opening battle in the effort to discredit FDR and dismantle the New Deal. They chose it because they thought it was low lying fruit, there was agreement on all sides that in the long run it was unsustainable as currently configured, and they simply assumed they could leverage that.Is the Social Security System in Need of Reform?
But they got lazy, apparently no one was assigned to actually pay attention to the key numbers. When the battle broke out and they reached into the quiver for numeric arrows they came up empty.
Privatizers remind me of Custer at Big Horn. They rode right into this one with shiny buttons and buglers just assuming the natives would scatter before them. They didn't prepare themselves by studying the ground, they never dreamed they would need to. The numbers were supposed to be there. Now they are discovering that Hope is not a Plan.
Bi-Partisan Support for Add-On Accounts Appears Possible
Mark Thoma links to a Jonathon Weisman Washington Post article about Congressional efforts to address low savings rates outside of the Social Security debate.
Bush's Massive New Spending Plan Dwarfs Military: Gene Sperling
Former Clinton economic adviser on the fiscal implication of Bush's policies.
Social Security Reform Stopped by Democrat’s Radical Economists
Mark Thoma responds to Kevin Hassett.
It's Been Mostly Dead All Day
Andrew Samwick follows up, with subsequent comment by JG and Bruce Webb.
Social Security Reform
The latest formulation of Brad DeLong's position, in response to Mark Thoma's coverage of the AARP's late focus on solvency.
. . . And a Pony!
Matthew Yglesias, at TPMCafe, on the latest iteration of the Laurence Kotlikoff demographic argument.
The New Republic: Straight Out of Boston
Brad DeLong compares two Social Security proposals spring from New Republic articles, one the Greg Mankiw piece from March, the other a cover story by Ferguson and Kotlikoff.
The Uncertainty in Forecasts Used to Assess Social Security Solvency
Economist Mark Thoma breaks out the chalk before linking to an account to a debate between Dean Baker and Representative Paul Ryan (No, Jack Ryan is Jeri Ryan's Ex.)
On Its 70th Birthday, Put Social Security Out of Our Misery
The Ayn Rand Institute.
NPR: Remembering Social Security's Forgotten Shepherd
Link to a 7 minute radio profile of Frances Perkins.
Fool Me Once, Shame on You...
DeLong links to Krugman's summary of the Social Security debate and its implications for tax reform.
Why Immigration Can't Fix the Social Security Deficit
Michael Lind cites a report without stipulating the source of a "deficit."
Carl P. Leubsdorf: Bush's Social Security plan may hinge on the House
Dallas Morning News coverage of developing GOP congressional proposals.
NIGHT OF THE LIVING SCAM
TAPPED's Matthew Yglesias links to New York Times coverage of Bush's latest aspersions on Social Security's solvency and resolve to establish private accounts.
Why Soundbites Aren't Enough to Change Policy
Virginia Postrel on bumping up against Social Risk when trying to reform or replace Social Security.
We won on social security
The Daily Kos declares victory.
7thWorkshop Marie Curie Research Training Network “the Economics of Ageing"
KUDOS TO MAX:SOCIAL SECURITY REDUX
Barkley Rosser of Maxspeak.org:
For me personally, I had known this stuff was a crock of goulash since it first appeared thanks to reading "Save Social Security from its saviors," by the eminent and late Robert Eisner, Journal of Post Keynesian Economics, Fall 1998, vol. 21, no. 1, pp. 77-92, who showed especially on p. 82 the three projections and how a) the optimistic one was the most likely (and has been followed since) and b) that the system would never run a deficit at all if that one held. It was getting the essential truth of this argument that Eisner made back then out to the community of economists that broke the back of this absurd consensus that had become so deeply entrenched. It is my view that Max Sawicky and MaxSpeak played a crucial role in this development, and that whatever else he does or this blog does, he deserves a vote of thanks and recognition for this achievement. Kudos, Max!Crisis Averted
Matthew Yglesias at TPMCafe riffs of of Rosser's post to mock the sudden disappearance of the Social Security "crisis" from the media.
Jackie Calmes's Retrospective on the Bush Social Security Campaign
Brad DeLong links to and critiques a Wall Street Journal retrospective autopsy of the Bush plan. Lee Arnold follows up in comment:
When I made the flow-chart movie "Social Security: The Real Connections" at http://www.ecolanguage.net/, I used information from Brad DeLong, Max Sawicky, Dean Baker, Jason Furman, Peter Orszag, Paul Krugman, and a few others, plus data from the Fed, Census, and IRS. It's all in there. But I've never read anywhere the two strategic flaws I've come to believe are central to the Administration's failure:If journalism is first draft of history
(1) You cannot drive a wedge between the retirees and the workers. They are the parents and the children, so they've sat at the same dinner table. The President's handlers were evidently sensitive to this, and tried to overcome it by the choice of speakers used at his phony town-hall meetings, but there's really no tactical way to drive a public wedge into those dinner-table discussions, and so it never made any emotional sense.
(2) Forcing a choice between (a) private saving for retirement, vs. (b) contributing to the oldest public insurance program, simply rings hollow. We are at a highly advanced stage of economic development, in an era promising more growth, so the natural response is another question: WHY CAN'T WE DO BOTH? That is, why are we being forced into a choice? And being told it means more freedom? The supposed answer turns out to be more theory from ideologists
Reed Hundt, at TPMCafe, decries Jackie Calme's ignoring the blogosphere's impact on the tanking of Bush's SS plan.
Edward Prescott: Privatization of Social Security Should Happen and Will Happen
Mark Thoma presents the assertions of a Nobel Prize winner, but the linked article has no supporting numbers.
Is Bush Playing Pin the Social Security Tales on the Obstructionist Donkeys?
Mark Thoma wonders why Team Bush is still talking about Social Security.
Let's Make a Deal
Matthew Yglesias on the Washington Post's endorsement of pre-emptive benefit cuts.
Halloween Special: Return of the Dead Proposal
Mark Thoma quotes the White House's top Social Security analyst:
An issue that I've been talking about for quite a while is one that, oh, some said you probably shouldn't talk about. But I didn't come here not to deal with major problems. .... And the reason I've been talking about it is because I understand the mathematics of Social SecurityMeanwhile in comment, economist Brad Setser responds to the Washington Post editorial:
...there are issues, but not the ones the wapo highlighted.11/9
re: another question you raised -- i think the social security system only starts redeeming its stock of bonds, as opposed to using the interest on its bonds after say 2030 (I would need to look it up). obviously, once you start doing this, the system starts looking worse b/c as you use up the principal, you get less interest.
I don't think it is a big problem for the bond market tho. the bonds in the social security system won't necessarily be sold in the market -- they will be redeemed by the Treasury as they come due, and the Treasury will issue new bonds into the market to cover its obligations. that is what the treasury does all the time -- it works out like a refinancing, just with the maturing bond being out of the market and the new bond in the market. The big issue would come if the overall budget then looks dicey, since the Treasury would need to sell bonds to cover any deficit, refinance maturing market debt, and to refinance (in effect) the social security trust fund bonds with new market debt.
but this stuff is so far off that no bond trader i know worries about it/ thinks about it seriously. note the absence of market reaction to the prescription drug benefit, which is a much nearer term worry.
Senator Grassley: Social Security Reform Unlikely Before 2009
Mark Thoma links to Reuters and CNN coverage, Bruce Webb follows up in comment:
1996 Report "depletion" in 202611/21
2005 Report "depletion" in 2041
Fifteen years of pushback over a nine year period. Do the math, extrapolate the numbers. Or explain to me why I should not expect this proven trend to continue.
Someone needs to back their claims to superior knowledge about cash flow and demographics with some actual numbers. If I was as simpleminded as rustbelt believed the professionals would have gently but firmly explained that I didn't know what I am talking about. And until they do I plan to weigh in on every Social Security thread until people show they actually understand the numbers at play.
ACLU suing over ouster from event
Rocky Mountain News coverage of aftermath of taxpayer-financed ejection of those who drove to the Bush Social Security event with the wrong bumper sticker.
Worried about social security?
The blog Asymmetrical Information asserts Social Security is only "relatively" in good shape.
Talking Points Memo
Josh Marshall responds to Joe Klein on "industrial age" Social Security.
That Was Scary!
DeLong does a double-take on Luskin's take on Peter Ferrera's being on the take.
Social Security Meta-Archive: 2006