More On The Social Security Privitization Scam

From The Progressive Review

CHRISTIAN SCIENCE MONITOR - The idea is broadly accepted. That's why the administration's plan to partially privatize the system sounds appealing to many. But that better return won't always happen. Just ask Stanley Logue of San Diego.

For 45 years, the defense-industry analyst paid into the system until his retirement in 1994. But with all the recent hoopla over reform, Mr. Logue, a Massachusetts Institute of Technology graduate, decided to go back and check his own records. Would he have done better investing his money than the bureaucrats at the Social Security Administration?

He recorded all the payroll taxes he paid into the system (including the matching amount from his employer), tracked down the return the Social Security Trust Fund earned for each of the 45 years, and then compared the result with what he would have gotten had he been able to invest the same amount of payroll tax money over the same period in the Dow Jones Industrial Average (including dividends).

To his surprise, the Social Security investment won out: $261,372 versus $255,499, a difference of $5,873.

It's an astonishing finding. The DJIA represents blue-chip stocks. Social Security invests in US Treasury bonds. Over long periods of time, stocks have consistently outperformed bonds. So, you would think that Logue's theoretical stock investments from 1950 to 1994 would have surely outpaced the return on government bonds.

Let's REALLY Fix Social Security

The Conservative mantra about social security has been "privatize" for years but a commentary from the New York Times and a study by the Century Foundation show that it hasn't been working in other countries. Maybe we should take a long second look at this idea! Below is an excerpt from the NYT article.

As the Bush administration tries to persuade America toconvert Social Security into a giant 401(k), we can learn alot from other countries that have already gone down thatroad. Information about other countries' experience withprivatization isn't hard to find. For example, the CenturyFoundation, at www.tcf.org, provides a wide range of links.Yet, aside from giving the Cato Institute and otherorganizations promoting Social Security privatization thespace to present upbeat tales from Chile, the U.S. newsmedia have provided their readers and viewers with littleinformation about international experience. In particular,the public hasn't been let in on two open secrets:

Privatization dissipates a large fraction of workers'contributions on fees to investment companies.

It leaves many retirees in poverty.

Decades of conservative marketing have convinced Americans thatgovernment programs always create bloated bureaucracies,while the private sector is always lean and efficient. But when it comes to retirement security, the opposite is true. More than 99 percent of Social Security's revenues go toward benefits, and less than 1 percent for overhead. InChile's system, management fees are around 20 times ashigh. And that's a typical number for privatized systems.

And...

Privatizers who laud the Chilean system never mention thatit has yet to deliver on its promise to reduce governmentspending. More than 20 years after the system was created,the government is still pouring in money. Why? Because, asa Federal Reserve study puts it, the Chilean government must "provide subsidies for workers failing to accumulate enough capital to provide a minimum pension." In other words, privatization would have condemned many retirees todire poverty, and the government stepped back in to save them.

The same thing is happening in Britain. Its Pensions Commission warns that those who think Mrs. Thatcher's privatization solved the pension problem are living in a"fool's paradise." A lot of additional government spending will be required to avoid the return of widespread poverty among the elderly - a problem that Britain, like the U.S.,thought it had solved.

Britain's experience is directly relevant to the Bush administration's plans. If current hints are an indication,the final plan will probably claim to save money in the future by reducing guaranteed Social Security benefits.These savings will be an illusion: 20 years from now, anAmerican version of Britain's commission will warn that big additional government spending is needed to avert a looming surge in poverty among retirees.