President Bush had a town hall meeting yesterday to discuss social security reform. It wasn't a real town hall meeting, where people could actually show up and say what they wanted so the President could actually find out what people are thinking; it was a town hall meeting set up with people who had been vetted by his staff to make sure no one would say something that might stump him or might say something they didn't want said. But be that as it is, there was this absolutely baffling comment he made. Read this, and keep in mind that he's trying to convince people that privatization of social security is a good idea:
THE PRESIDENT: Let me say this. You brought up a very interesting point. There's kind of an assumption that only a certain group of people at a certain income can manage an account. It's -- it's as if you've got to have a net worth of "X" before savings becomes a real part of your life. I reject that. Bob rejects that.Secondly, the interesting -- there's a -- African American males die sooner than other males do, which means the system is inherently unfair to a certain group of people. And that needs to be fixed. It's not a -- (applause.)
MR. McFADDEN: I agree, Mr. President, because from the minimal research that I've done, the average African American male right now is -- the life expectancy is 69, and I may be off a little bit. But if you're telling me that it's 69, and the age is going to go to 67, you do the math. (Laughter.)
THE PRESIDENT: Right.
I read that several times. I watched the video of it, where even Bob McFadden seemed bewildered by what that had to do with social security reform. And I'm stumped. Does he think that privatizing social security will help black men live longer? How exactly is the social security system unfair because black men die earlier? And if you privatize social security, but black men still die earlier, is that somehow a more fair system? Is there some missing logic there that I'm just not grasping, or is this just pointless babbling?
Update: Bill Ware explained it with his comment. Because private accounts would be heritable (inheritable?), even if black men did die younger, at least what is in the private accounts would go to their children. That's certainly a plus for the privatization plan. I should also probably note that I'm in favor of privatization of social security, but I think it should not be done until we can do it without pushing up the debt any further. If there actually was a $3 trillion surplus to withstand the cost of transitioning to such a system, I'd be all for it right now. But since Congress has taken that money for other purposes for the last twenty years, that transition at this point would require another huge increase in the deficit, on top of the already huge increase we've had in the last few years. That's fiscal insanity. The deficits in 2004 are already double the 40 year average; we simply cannot keep pushing up the public debt without serious long term consequences, especially to the value of the dollar, which has already slid considerably. Move social security off budget, wait 10 years to build up the necessary funds to make the transition to privatization, and I'll be behind the plan 100%.
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I think what they're trying to say is, that if the cut-off age to collect social security is raised to 67 (from 65?), then blacks will be at a disadvantage as that means they'll only be able to collect entitlement benefits on average for 2 years since they only live to be, on average, 69. Whereas presumably whites and other races would be able to suck at the old age benefits cow for a longer time, since they live longer.
How privitization is supposed to address this, I can't say.
A private account provides money to live on in one's old age and a residue to leave in one's will. SS benefits go only to the living till death.
People who die younger, either as a group or individually, would have this private account balance to pass on to their heirs. This would be true even if one died before they began drawing SS benefits.
This average of 69 is misleading, however, since blacks are more likely to die below the age of 25, and this is the primary reason for the lower overall average. Once a black person reaches retirement age, the life expectancy, from that point on, is more nearly the same.
Quite right Bill, this number (69) is the life expectancy at birth, not the remaining life expectancy for the average 67 year old say.
I was merely speculating on what could have been going on in those minds, not suggesting that it's a reasonable position.
A private account provides money to live on in one's old age and a residue to leave in one's will. SS benefits go only to the living till death.
People who die younger, either as a group or individually, would have this private account balance to pass on to their heirs. This would be true even if one died before they began drawing SS benefits.
Hey, there WAS some missing logic there that I didn't grasp. I didn't realize that part of the proposal was to make the private accounts heritable. Good idea, I think. Turns out Bush wasn't babbling, I was! Thanks for the explanation, Bill.
Survivorship works both ways. Right now, the SS System takes payroll taxes from people who may die before receiving any benefits. If you divert that to private accounts which are heritable, then the overall cost goes up because the system can't use amounts paid to heirs.
The average age for blacks is a bogus statistical point. GWB dosn't care about blacks. Blacks will be worse off under a partially privatized system. We'll *all* be worse off under a partially privatized system.
What we need to remember is that Social Security was never intended to be the sole source of support in old age. The "three legged stool" of retirement planning is: Social Security, private pensions and personal savings. Social Security provides a basic minimum to keep people out of poverty.
The whole Social Security discussion avoids the thing which is the real problem with the SS system and that is Medicare. The Old Age and Survivor portion of Social Security is actually in pretty good shape. Medicare is the real problem. Medicare expenses have been growing too quickly and are expected to continue to outstrip growth in wages. We need to address the cost of health care for retirees and individuals. This is the *real* issue that everyone is avoiding.
Ed, the "transition cost" you mention is just an accounting entry. The decreased revenue from payroll taxes is balanced by the reduced obligations to future retirees.
Ruldh: "Blacks will be worse off under a partially privatized system. We'll *all* be worse off under a partially privatized system." Er, proof by assertion? Even the most conservative private investments easily beat Social Security's promised benefits. That being said, I don't look forward to the government micromanaging our "private" accounts, and I agree that old people shouldn't starve if they can't work and don't have sufficient savings. So just make Social Security a real means-tested welfare program, and eliminate the regressive payroll tax whose only purpose is to create the false impression that it's a retirement plan.
Ed, the "transition cost" you mention is just an accounting entry. The decreased revenue from payroll taxes is balanced by the reduced obligations to future retirees.
But the payroll taxes collected now go for two things: to pay current retirees and to the mythical "trust fund", which means that they go to pay for current federal spending. So that $150 billion a year that now goes to pay for current spending will be reduced, which means that spending has to be deficit financed instead. Now, I think that's a great idea IF we reduce the budget by $150 billion. But that's not gonna happen as both parties benefit from increasing the size of government and passing on the cost to the future. As I said, I support privatization, but doing it at the same time that we increase spending will increase the deficit considerably and that's a bad idea.
Some points contra to the GWB position:
1)decreases in life expectancy due to non-adult mortality are irrelevant, in the sense that the person will never have paid in or taken money from the system. Higher infant and youth mortality among blacks would need to be factored in- what we're really interested in here is life expectancy of individuals who reach working age.
2)SS beenfits have a limited heritability- spouses inherit SS benefits (unless they remarry). So we need to know the life expectancy of both members of a married couple.
3)Blacks also earn less money over their lifespan than whites on average, so they will have paid less into the SS fund.
Taken together, those three mitigating factors may make SS even for the two races in question, or slanted one way or the other- who knows? Point being, this is just a rhetorical exercise on the part of the right wing- they neither know no care that they're offering an obviously incomplete analysis.
And, to second the point made above- Bush's 'solution' to the 'problem' will screw things up much worse for everyone, rather than addressing the root causes of the 'problem' they cite: higher mortality & lower pay for blacks. Let alone the larger non-problem of SS.
Brian- I agree with your solution; ending the fiction that SS is somehow separate from the rest of the government would be a good thing.
Otoh, I disagree about the "rate of return" issue, for the same reason- SS isn't an investment, it's pay-as-you-go, so I don't think that's a fair comparison.
Looked at another way- if you did invest your SS money, the government (that is, us) would have to borrow to meet present obligations. So, you 'save' your SS money by buying a bond, which the government was forced to issue to meet its SS obligations without the SS tax incomes. After 30 years, you cash in your bond and say "See, I earned 6% on that money, much better than SS would have." But the governemnt (that is, us) is now exactly that much poorer- and either has to borrow again, or just tax that "much better" gain back out of your pocket to cover its costs. If it borrows again, it merely disguises the loss, and passes it on to your children- but it's still there.
I smell the fumes of a Mordor-like corporate pall hanging over this partial-privatization issue.
Is a cynical snare being set?
Guy's makin' $6 an hour but daren't ever ask for a raise. If anyone ever asked for a raise, that might hurt corporations' bottom-lines, which would affect his own 40-year-down-the-road portfolio. Benefits? Would hold back the stock market. If one's lucky enough to make it through on starvation wages then there might be a little pot 'o gold waiting.
I could probably be persuaded about the PP thing but only in tandem with enactment of a living wage law.