"Clinton Leads Toward a Plan to Invest Some Soc. Sec. Taxes in Market"

Tom Lehman uswa12 at lorainccc.edu
Fri Dec 11 09:51:51 PST 1998

Dear Max,

Nathan is probably suffering from some of the same delusions you and I suffered from in the early to mid seventies. Carl is being academic, I hope.

As far as investing private pension money, look where it got Hoffa Sr., Tony Boyle and others. Get my drift. Sincerely, Tom L.

Max Sawicky wrote:

> > . . .
> > No. Social security in its present form has the lowest administrative
> > costs in every objective study. The argument for change is that even with
> > higher administrative costs, higher returns from investments in equities
> > will more than make up for the higher administrative costs.
> Right.
> About 1% according to the SSA website.
> > The latter
> > argument is challenged in a number of other studies that point out that
> > privatization will lead to higher borrowing costs by the government (since
> > demand for Treasury bonds will drop if social security funds go to Wall
> > Street rather than Fed bonds) and to a variety of other costs of
> > privatization.
> Highly unlikely, since even the connection between
> overall Federal borrowing and interest rates is
> problematic.
> The bigger cost items associated with individual
> accounts are the annual management/administrative
> fees, the conversion cost of annuitization, and the
> tax increases needed to finance transition.
> A low estimate for management fees is .5% of assets
> (every year, just like a wealth tax!). But if these
> are instead more like 1.5 (highly plausible) or 2.5
> there is a huge implied bite out of the retirement
> nest egg. For tens of millions of low wage workers
> working for businesses who do their payroll
> with adding machines and paper records, rather than
> computers, these fees will be higher, both in
> absolute terms and as a share of assets.
> Yes Sir, Mr. Max!

> Similarly, annuitization, which means
> converting a lump sum at retirement time into a
> stream of annual benefit payments, has been shown
> to take a big chunk out of benefits -- 20 to 30% --
> as well. The tax increases are needed because
> one is moving from a pay-as-you-go system to a
> funded one, wholly or partially. Somebody's got
> to pay the extra. In this context, use of the
> current budget surpluses to finance transition
> (as in the Feldstein plan) should be understood
> as a tax increase, even if tax law is not changed.
> If not for the diversion of the surplus, Federal
> debt would be paid down and annual interest costs
> in the budget reduced, so there is a real cost to
> using the surplus; people tend to think of it as
> a free ride.
> Hot damn!
> Note these are all more-or-less
> explicit costs, relative to the increased risk
> implied by privatization. Ergo, uneven distribution
> of the further costs of bad luck.
> WOW!!!
> > . . .
> > -I should add that according to some recent Peter Hart polls, it's the
> > -security of an account with their name on it, rather than higher returns,
> > -that gets people interested in privatization. So private accounts might
> > -actually go down more easily than the kind of "partial privatization"
> > -schemes you're talking about.
> Quite right, until people understand the extra costs,
> as noted above.
> Can I caddy for you ,Max?
> > . . .
> > Partial privatization where the funds go to specified mutual funds would
> > keep the name on the account aspect of privatization, but would avoid the
> > administrative costs of collecting FICA taxes each month from employers
> > and dispersing it to 180 million different investment plans and options.
> The mutual funds would still have to charge management costs,
> as noted above. Incidentally, the NFIB is screaming bloody
> murder about the possibility of small biz being obliged
> to make the deposits to these accounts. They want it
> in the form of IRA's only.
> Whatever you say,boss.
> > . . .
> > In reality, the Right is not most alarmed by the theoretical bankruptcy of
> > social security fifty years from now, but is most alarmed at projected
> > massive surpluses when, on paper, the federal government will have
> > trillions of assets in the Social Security trust fund. It is a massive
> > bulge that looks alarmingly like the government takeover of the national
> > capital marketplace.
> I'd say if the assets are government bonds, the right
> wouldn't care at all. They would care if surpluses
> were used to expand the public sector or hold private
> sector assets. that's one reason we got a PAYGO system
> in the first place. The bonds can't be used for anything
> as things stand, except to loan money to the rest of the
> Federal govt.

> Bingo,Max. Thought you didn't believe in macro tools?
> I'm skeptical about the use of government ownership
> of financial assets for social reform, for a number
> of reasons. As jks noted, if trade unions are timid
> about this, what should we expect from a broader
> constituency?
> Corporatism, Max. The government being run for the benefit of the
> corporations.

Your email pal, Tom L. -------------- next part -------------- An HTML attachment was scrubbed... URL: <../attachments/19981211/a8967ac1/attachment.htm>

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