Sunday, December 18, 2005

Social Security and the Dummies Against It

Josh Marshall is totally right when he says that Democrat privatization pushers like Klein and Bai are wrong when they claim that Social Security and Medicaid are obsolete in our modern economy.  But as usual, I find it necessary to take this further.

First off, as I’ve explained before, the main reason I believe that Klein and his ilk want privatization is because they don’t need Social Security, and that Social Security is surely the least productive member of their retirement plan.  I also agree with Josh that their argument is at least partly due to their love of buzzwords and the desire to seem up-to-date and into new ideas; even if the buzzwords are empty and the ideas bad.  But the reason they’ve picked this particular topic is because it affects them so much.  They have this whopping 15.3% sucked out of their earnings and very little to show for it.  So of course they’d like to turn that into more productive resources.  They’re not worried about not being able to retire.  For them, this whole Social Security thing is just a scam.  They pay in almost $14,000 annually, and see a very low return on investment.  And so it’s just natural that they’d want to turn Social Security into something which reflects their other retirement funds.

And I’m not necessarily thinking this is just selfishness (though it probably is).  It could be that, because of their situation, they’re just out of touch with the needs of people less fortunate than themselves.  They’ve got job security, and good insurance, and a very healthy retirement plan; and so they just don’t understand what we’re talking about.  Because they’ve got the argument completely backwards.  For them, they’re saying that modern workers need privatized funds, because they don’t have a pension and could really use the boost that a stock market funded Social Security could give them.  Being unaware of the true purpose of Social Security, they’re just looking for something that can replace the well-funded pensions of the past.  That’s what their retirement fund looks like, and so they’re just trying to share the wealth.  401k’s for the common man.

And they’re not even looking at this from a risk perspective.  They don’t see Social Security as the last-resort safety net that it is.  Because they don’t need a safety net and don’t worry about their long-term future.  For them, this is the least productive part of their retirement plan.  And so they’re wanting us to have a more productive retirement plan too.  But perhaps if they were to lose their retirement plans, they might begin to understand the importance of that safety net.  This isn’t about giving Joe Worker a great retirement plan; this is about making sure that Mr. Worker can survive, and be able to at least have a partial retirement.  And while a white-collar worker has a few post-retirement options; those with physically demanding jobs can literally be worn-out by the end of their careers and unable to work even a part-time position.  For them, retirement is not an option; it’s a necessity.

Social Security’s Origins

Overall, the Dem Privatizers even have the first part of this argument wrong.  They act as if Social Security is no longer necessary in our modern age; comparing it with the pension-laden “work for one company” career paths of the past.  But that wasn’t when Social Security was created.  It was created during the Great Depression; when there weren’t great pension plans or great jobs that you stayed with your whole career.  It was a time of job insecurity and real doubt as to one’s long-term future.  

And so in that light, once the economy improved and workers began to get their great pensions (many of which are now considered jokes); that’s when Social Security became less necessary.  Because the safety net wasn’t needed when people had a secure retirement.  But even then, there were lots of people who didn’t have a great pension or a lifetime job.  And so Social Security remained necessary.  And now that pension plans are on the wane and job security is largely down the tubes; Social Security is more necessary not less.  

While guys like Klein and Bai talk as if our economy has made great strides since the pension-era; we have, in fact, taken several steps backwards.  The supposed innovation that Bai speaks of as Walmart’s “new world economy” is, in reality, just the old system reborn.  And to be honest, I am amazed and disappointed that a supposed Democrat could possibly praise the screwing of the American worker.  But again, this is all to the benefit of his own retirement plan, so this really shouldn’t be surprising at all.  If anything, this is yet more evidence that the “New” Democrat is simply an old-school Republican.  If Clinton were dead, he’d be rolling in his grave.


And this doesn’t even touch upon the other things that Social Security provides for; such as disability pay.  As things stand, if I get injured in a car wreck and can’t work, I have no insurance and would be totally screwed.  And because I’m self-employed, I don’t even have a kindly boss who could assist me in anything.  But…I have been paying into Social Security for all my adult life and will be somewhat provided for by Social Security.  And if we were to switch to a privatization system, this would all go down the tubes.  I’d either be screwed and couldn’t touch my retirement funds, or I’d start eating them up early and ruin my retirement.  And if I was never able to work again, I’d have used-up my retirement fund long before retirement and be totally screwed for the rest of my life; relegated to some form of public assistance.  And that’s not what this is about.  

And then there is the issue of my death.  If I die right now, my wife will receive benefits until my youngest child turns eighteen.  And while the benefits won’t match what I currently earn (thus giving incentive to Mrs. Biobrain to not murder me), it will certainly help.  But were we to have a privatized retirement, those benefits could eventually run-out.  It would all be dependent on how much I earned and how well my investments did; with the payout being doled out as the government allowed.  And sure, maybe with a privatized fund, I might leave even more for them to live on; but perhaps I would have left them with even less.  And it’s that gamble that Social Security was designed to prevent.

And that’s one of the reasons Social Security has such a seemingly low return on investment; because that’s not what it is.  This isn’t an investment I’m making for retirement; but rather payment into an insurance plan.  Mandatory insurance in which the premiums are based on a percentage of what I earn; with the payout determined by what I put in.  And maybe I won’t get as much out as what I put in, or maybe I’ll get back far more than I put in.  But that’s the nature of insurance.  If insurance always paid out exactly what was put in, there would be no point of having it.  The whole point is to spread the risk over a large group of people; and thus greatly reducing the risk for everyone.

And that’s what Social Security is about.  It’s not about providing a decent retirement for workers; and it’s not a good investment for those with a real retirement plan.  But for those without a retirement plan, it’s a damn good idea.  And even those with a real retirement plan benefit from it; both directly and indirectly.  Because if our seniors weren’t being supported by Social Security, we’d have to support them in some other way.  I’m sure the Joe Kleins would love to opt-out of it, but that’s not what insurance is about.  We need the Kleins in it even more than those who need it.  And were they to have a clue as to what they were talking about, they’d know that their arguments are idiotic and what fools they were making of themselves.

One Last Point

One last point I’d like to address is regarding Bai’s article.  Bai writes that it makes no sense for companies to finance “lavish” healthcare plans (I’ve had insurance, but not one I’d describe as “lavish”); and that this is a burden that the government would be better at handling.  And I agree with that completely.  Removing that burden would do much in making American companies more competitive; while also aiding our citizens greatly and making them more productive.  But then he also knocks our Social Security system, writing: “Isn't the very notion of a payroll tax for workers antiquated and inequitable in a society where so many Americans earn stock dividends and where a growing number are self-employed?”  

Say what??  He seems to make the opposite argument of Klein, perhaps suggesting that, because workers have other retirement plans, that they don’t also need the safety net.  Or maybe he’s making an opposite point, I can’t tell.  But in either case, his point is obviously whack.  First off, most Americans aren’t making dick on stock dividends, but rather on capital gains from the sale of stock.  Secondly, most Americans aren’t making a great retirement on said stock, and can certainly benefit from the stability of Social Security.  And thirdly, this doesn’t cover a large portion of America (including myself); and ignores the entire insurance side of Social Security.  

And what does the self-employment thing have to do with anything?  Does he not know that even the self-employed pay FICA?  I do their damn taxes and I can tell you that every self-employed person is always miffed at that extra 15.3% I add to their taxes (it’s actually slightly less than that, due to a related deduction).  That’s the hardest part for them to swallow and is one of the lousier parts of my job (I really hate telling people they owe money).  But because many self-employed people don’t have insurance or a keen 401k, they need Social Security as much as anyone.

But the main thing is that his point is suddenly the exact opposite of his first one.  First, he’s saying that the government needs to get into the health insurance business, as it makes more sense; but then makes the opposite point regarding retirement insurance.  He suggests that this idea that is new and innovative for health insurance is “antiquated” for retirement; and seems more inclined towards the free-market system.  And partly, this is due to his misunderstanding of Social Security; and partly due to his love for new ideas and buzzwords.  Overall, we’re again seeing a New Democrat who can’t see the forest for the trees.  He invokes the memory of Clinton, while doing his best impression of Bush.

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