Weekend Discussion: Would you rather…

Brian Brady Brian Brady 23 Comments

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Would you rather….

1- return to a hard currency, a dollar backed by gold and/or silver?

—–

OR…

2- privatize social security; permit individuals under a certain age to put some or all of their assets in a segregated account with multiple investment options?

A few rules:

1- you can’t answer “both”
2- you can answer “neither” but offer a credible defense
3- try to keep discussions on topic (why eliminating one is preferable to another)
4- try to remain in a state of curiosity rather than judgement–it’s possible that you might learn something
5- have fun

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Comments 23

  1. Awesome! Before we get into it can someone post what the objectives of both policies are? Its easier for people to evaluate what they prefer if there is agreement as to what these policies are supposed to do rather than liking them because they cater to an interest group or what their favorite politician backs.

  2. Why do we have to privatize social security in order to “permit individuals under a certain age to put some or all of their assets in a segregated account with multiple investment options?”

    Couldn’t we keep Social Security as the safety net it was intended to be (with modifications to account for the reality that people are living longer) while still allowing the use of IRA’s, 401-K’s, annuities and pensions to allow individuals to choose how much they are willing to forego now in exchange for a more comfortable life in retirement?

  3. Actually there IS a valid (though perverse) reason for the “either-or” limitation. Arguably the only politically viable solution for SS (and other govt pension) obligations is to inflate the currency while not raising the benefits as fast (if at all).

    Obviously inflation is not an option if we go to a value-backed currency.

    BTW, I’d be a bit circumspect about tying our currency to ONE commodity. Perhaps a “market basket” of commodities is the better way to go.

    My preference? Value backed currency. SS is doomed anyway — politically unfixable.

  4. Richard,

    You may be right about the lack of a POLITICALLY viable way to ensure Social Security’s viability, but there certainly are solutions and they are not very complicated. We must either contribute more while we are working, retire at an older age and/or collect less monthly in retirement.

  5. @Elliott– The only objective is to “improve the quality of life”. I’m intentionally keeping it broad.

    @HQ– you asked: “Couldn’t we keep Social Security as the safety net it was intended to be”

    and you subsequently answered: “We must either contribute more while we are working, retire at an older age and/or collect less monthly in retirement.”

    Couldn’t that be one of many investment options is a reformed SSI system?

    @Richard I tend to agree with you on all points but I”m not sure I understand how the “market basket” works. I’m not sure I don’t understand it either. Any follow up you might offer is appreciated.

  6. Sound currency.

    Retirement savings is a small portion of our lives, incomes, and assets, but the value of the dollar affects everything in the economy.

  7. I remember back in 1992 hearing that SS would be gone in 2003 or 2005 because it won’t happen in an election year. It won’t go out in a fantastic bust its fading away like a Napoleonic War Perpetuity. In the past it was retirement, then it was just the rent, then its just the food. Eventually it will be just the cable bill then a meal. Eventually some descendent of mine will wonder why they get 12% taken out of their pay but their grandparent gets the future equivalent of pennies from the government.

    As for privatizng it – I definetely see the value in having people plan AND OWN their future. the best way is to not have it at all. But the country has a long way to go to before we can take the trainig wheels off. Its a challenge to get the populace to think instead of buying multiple flat screen TVs to instead sock it away to the future and do it smartly. Now I appreciate the sentiment that they should learn the hard way. But that’s how we got SS in the first place. Senior citizens work 40+ years but because they vote in mass 47% of the federal budget goes to them. In the same scenario millions who maxed out credit cards for “the now” will vote in the future for their taxpayer retirement. Look, we still hear about state backed low-income senior housing which begs the question what did they do for the last 40+ years?

    Now a mandatory allocation to a private fund. As I understand it will be like CHile’s where you select from funds (like our 401Ks). Well, then it will no longer be private. Yes, the professional private sector will manage the cash instead of the quasi-ponzi scheme we have now. But do you think when the SS admin becomes their biggest customer with a massive bag of cash the free market will still exist normally? This thing will dwarf any pension and those pensions already have an outsize presence in the system. Some pensions are big activist investors – do we really want a future Democrat with the massive bag of SS money to pick and chose which funds to invest it? Solyendra would be nothing when we hear of what they invest in – union only corps? eco only corps? pull out of all oil companies and see them crash destroying our energy industry. Any shift in picking a specific type of company with any liberal operating bias will kill the other businesses in a heartbeat as word gets out who the govt is investing in and lemming traders follow.

    I understand the value of privatizing for individuals and the companies that would manage the cash but I’m nervous about giving the gov the ability to throw that much into the market. It will fulfill Obama dream of making America a “state capitalist” (check wiki) like Norway or China.

    Great topics guys – I do has some different proposals depending what the ultimate objective is. But I’ll be in and out the rest of the weekend. Still trying to see what is holding up on getting my username/password.

  8. I’ve changed my mind to neither. Social Security is an entrenched entitlement and there is little support for privatizing it especially since we can already supplement retirement with 401(k)’s, IRA’s, etc. A return to hard currency isn’t exactly one of the top issues that concerns Americans and, whatever one might think of the federal reserve, the current system actually still works. The immediately pressing problem is replacing the ACA with something else before that entitlement takes root. It would be totally awesome if opponents of the ACA would unite behind an alternative and push that in Congress and in the next election.

  9. Actually, the most likely outcome of SS is that it will metastasize from an “insurance” or “pension” program into a means tested program. For those who save in IRA’s, have other pensions, invest for the future, inherit money or otherwise improve their lot, that will (under some formula) count against their SS payout. Indeed, it’s already started — in that SS it taxable above a modest total income amount (it used to e tax free).
    I expect that recapture/disallowance of SS to incrementally continue with, bit by bit, the “well-to-do” being disallowed much if any payout for all the money that they put into SS. By doing it in increments, there will be no groundswell of opposition. And by starting with the “millionaires,” one can then work down one group a at a time. It will be one of the most massive confiscation of assets (or tax increases, if you like) in history, but — after all — it’s only “fair.”

  10. Post
    Author

    “A return to hard currency isn’t exactly one of the top issues that concerns Americans and, whatever one might think of the federal reserve, the current system actually still works”

    Does it? Purchasing power has been intentionally eroded by the Fed. Don’t Americans deserve a currency which has value?

  11. Post
    Author

    “It will fulfill Obama dream of making America a “state capitalist” (check wiki) like Norway or China.”

    That’s a problem because the State would have an undue influence on investments and thereby the economy. I”m thinking more along the lines of hundreds of investment advisers in segregated accounts

  12. Social Security.

    What about means testing before you receive benefits? Run it like the insurance it’s meant to be. Lower payments so less money taken from your paycheck. The financially secure wouldn’t need government supplied retirement checks. People would have more choices for their money that they earn. I’d imagine inflation would slow and increase how much your dollar can buy.

    Meanwhile, if someone is in need, the safety net is there.

    Would we need to privatize it?

  13. I like Michael’s comment on making it insurance like it was meant to be. Of course, when SS was passed when most people died before 65 and had way more than 2 kids which made it the current plan workable. So SS was doomed as soon as politicians failed to adjust it once society changed.

    But I’d like to take insurance plan a step further. I’d make it to so people have to invest in a fund of sorts on their own. Of course I don’t like the force part but since our democracy/mobocracy runs on emotion and too often patronage I know if people didn’t save and then they had nothing in old age they promptly vote for the first person that gives them a hand out. So that’s the only reason why I grudgingly accept that people have to be required to pay up front just to save us taxpayers from the inevitable bailout.

    But back to the insurance part. I’d have people invest in private funds (and not just wall street, private equity, VCs etc), pay a small amount of SS as a premium (and to buy out those to far down the line in the current SS system) but for current participants I’d only have SS insure their private investments.

    In my scenario let’s say they invest in an S&P fund excpecting 8% a year but then the market crashes on them. SS would kick in and cover you only up to the amount of your investment as if you were investing in securities. You wouldn’t get SS in boom years, the portfolio would be saved and built up until the cycle goes south.

    Of course I haven’t done the math but the intent here is:
    1) have people plan and own their retirement and investments (we need that skill set back)
    2) remove govt from managing people’s retirement ( its too often a political issue that people can run on or use to build a voter base)
    3) have the savings fuel investments for the economy (I’d prefer if people could back venture capitalists more than wall street since VCs actually do the original job wall street once did)
    4) create another source of equity for individuals that they can borrow from for education or housing (a lot of social mobility is hindered because people don’t have equity to borrow against to build wealth)

    So I guess I wouldn’t really privatize it, I just re do the system.

  14. Gold Standard

    One of my favorite lines is that our money has gone from gold to silver to paper to plastic to electrons. Its certainly true. But really value is a psychological thing so going to a tangible asset doesn’t mean it will make our money’s value safer.

    For a gold standard we do have gold valued in dollars so if you flip the denominator you have the value of a dollar fixed to gold. it just fluctuates based on demand throughout the day. And that’s the modern market – in old gold standard days things didn’t flip that fast. The markets weren’t global then so I’m not seeing how things would be better if we tried to fix it today when the price of gold itself would still fluctuate although our dollars were pegged to it.

    Now I have Ron Paul’s books but haven’t had the chance to read them. But from what I gathered the intent on going to the gold standard is basically to limit the fed’s ability to print money at will. So if we took it out of the fed and had it set to a specific amount of gold it would just move it from the fed to congress. It would be much slower, more public, but they’d still revalue it.

    On the other hand with the fed printing money affecting the value of the dollar you still have the free market there to question the value of the dollar and flee to other currencies. There is a bit of a check on the value of dollar with it being fixed to other fiat currencies instead of specie (as well as the bond markets plying their part).

    So I don’t know. I probably don’t know enough about it but I’m on the fence about having the government manage the value of the dollar versus the free market valuing the dollar.

  15. It really doesn’t make sense that people pay into it and then get the money they paid into it back simply for reaching a certain age.
    Car insurance doesn’t work that way. Health insurance surly doesn’t. Mortgage insurance doesn’t. Granted, some life insurance policies do accumulate a cash value, but that isn’t the same as Social Security. (I won’t go into details)

    It kind of defeats the purpose of insurance to return premiums (what you pay into Social Security) without a need. Take away the retirement plan aspect of Social Security and concentrate on it being for those in need. In other words stop giving money to people who aren’t in need from a government program set up to help the needy.
    Then there is no need to privatize it because there is no pool of money “owed” to you when you are in your 60s. Plus the cost to the tax payer goes way down, the expenses to the Social Security program go WAY down, and doing this has some good intended consequences that benefit low income wage earners and savers like slowing inflation.

  16. Michael,

    I do not necessarily disagree with your idea, but it does sound a lot like communism to me – everyone contributes to a central fund, contributions are based on your ability to pay (income) and the eventual use of the fund is based on need.

  17. Then all insurance products are communism.
    Insurance is designed to mitigate risk. In this case it is the risk of becoming poor or disabled especially when past the age of retirement. (I’m simplifying, I know.)

    Unfortunately, there is no private market for this since the government took over the industry so maybe that is why it is communism? I’d be open to private market solutions, but realistically, the government monopoly prevents this. So, as a reasonable middle of the road consensus view, I thought stopping the return of premiums to people who have not submitted a “claim” would be something everyone could agree on. If insuring against being poor, why give benefits to those who aren’t? Calling it “communism” seems like an extremist play Hypocrisy.

    Do you believe all insurance products (including Obamacare) is communism?

  18. The difference with insurance is that the premium is not based on your income (ability to pay).

    I believe that even though Social Security is called “insurance” it was really meant to provide a base level of retirement and should probably remain as such. There are many of other privatized vehicles available to supplement that base.

  19. I think you are right, Hypocrisy. That is an important difference, regarding the premium fluctuating depending on your income. Not to get too down in the weeds, but insurance premiums do vary based on the risk of what they are insuring. Someone who has a lot of income to replace is a higher risk than someone who does not. Just like if you are insuring a new Mercedes compared to an old Yugo, your premium is higher. So it in a real way, it makes sense that someone with a higher income would pay more than someone who has a lower income.

    I am trying to get to a consensus position. I am not totally in love with the entire result of what I am proposing or the entire current system, but I think most people can agree that we can phase in lower premiums combined with means testing for benefits to make the system a bit leaner and choices for individuals a bit broader.

    Right now the argument is privatize or not privatize. Basically that means should a chunk of money that is waiting for me to reach the right age be managed by me or the government. Rather than draw a line in the sand and make people pick a side, I believe what I propose is going another direction that more people can agree with. It’s certainly less toxic.

    Regarding the intent of Social Security, it was supposed to provide a base, you are right, but if someone is above that base, then there is no need to give them benefits to get them to a base that they are already above. Your desire is to keep it the way it is and you probably represent about half the nation (give or take). The other half (give or take) wants it to change. I believe both sides can fundamentally get what they want through what I am proposing. The same left who wants to raise taxes on the “rich”, I would think, would embrace halting Social Security benefits on the “rich” while increasing the take home pay of the middle class. Which they said just a couple years ago would help the economy. Great. Then let’s permanently help the economy.

  20. @Elliott consider this: the government ceded management of telecom and now we have unlimited long distance, a supercomputer, and texting on a phone you can carry, for 1/4 of the monthly cost. The government ceded management of television and we have 100 times the progrpammimg choices we had with better quality. I’m okay with the free market managing currency.

    @Michael if the government ceded management of SSI, in its current form, wouldn’t that be privatizing it?

  21. @Brian
    I always favor a free market. I just haven’t seen a solid free market response on currency yet. When the US created the fed in 1913 it was established on the promise that it would be a private entity with Banks holding stock in the entity. But that doesn’t appear to be what happened. Right now the Fed is charged with the paradoxical purpose of controlling inflation and controlling unemployment. Worse, its a total tool for bailouts for both politicians who economics don’t work *cough* Obama *cough* and for businesses that fail at the free market *cough* Wall Street *cough*

    I’m open to the idea of someone besides governments creating the medium of exchange. Now if a company created a currency and the existence of that company depended on them on maintaining value in its “product” (the currency) we could have something. But it would have to achieve reserve currency status fast. So far bitcoin has had the volatility of a banana republic’s currency. Doesn’t mean its impossible but I don’t think we have something yet so we have to hold our breath every time Bernanke opens his mouth.

    One guy…too much economic power…feels like central planning. ug.

  22. Michael,

    Point taken on the insurance comparison. Your idea certainly has merit in that it would take pressure off the current system and perhaps even provide the opportunity to lower payroll taxes. I would suggest a phasing out of payments at higher income levels as opposed to an all-or-nothing cut-off point. We probably don’t want to provide a disincentive to personal saving.

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