Friday, December 17, 2004

Again with Social Security

Sorry to keep coming back to Social Security, but it's kind of important, you know?

Paul Krugman again weighs in on this topic today, and there are two points in particular that he makes that I want to emphasize. The first is the administrative costs of privatized pension plans. Krugman writes,
"More than 99 percent of Social Security's revenues go toward benefits, and less than 1 percent for overhead. In Chile's system, management fees are around 20 times as high. And that's a typical number for privatized systems."
I think more than anything else that's the key to why we are having this whole debate at this time. Few serious people are worried that Social Security is going to go bankrupt in forty years, much less that the system is in crisis now. Bush and his ilk want to privatize Social Security because they want the securities industry to get its hands on those administrative fees. As with virtually every other initiative to come out of the White House in the last four years, this is driven by Bush's desire to transfer money from people who work and from government to those who are already rich. I have no idea what drives him to so single-mindedly pursue that goal, but there is no other rational explanation.

The other point Krugman makes has to do with the risks of privatized pension plans. Social Security was established in this country to shield people from poverty in their retirement should the markets fail. It wasn't some abstract theory, it was born of the experience of the 1929 stock market crash. Privatization plans to varying degrees remove this shield. In the event of a complete or partial market collapse that wipes out the retirement funds of large number of people (which could happen), or even in the event of bad investments by individuals that leave them with no or inadequate retirement funds (which will happen), are proponents of privatization willing to let these people live under bridges? At what point does government step in to help out these people? If proponents intend for government to step in to help these people, doesn't that belie their whole initial argument for privatization and expose the proposals for the money grab that they actually are?
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