Thursday, January 06, 2005

JustOneMinute and Dead Parrot Society on Social Security

JustOneMinute weighs in on the Social Security debate here, here and here.

Minuteman seems gloomy:
I am having trouble seeing how folks can rally around [CBO CSSS Plan 2].
No need to be gloomy, Minuteman. From an email I sent to a reader:
Like I said in my post, "the question is, is reducing the tax burden by 1% of GDP, stabilizing the Social Security System, and eliminating the 2050 train wreck worth that reduction in benefits, and will todays infants and preschoolers have time to prepare for the change?"

The cons are lower projected lifetime benefit levels (though the ratio of lifetime benefits to lifetime contributions is about the same) and a deficit for the first half of the century.

The pros are: 1% of GDP more in the private sector, no train wreck, and large surplusses by the end of the century. I believe future retirees (1990 and 2000 cohorts especially) have plenty of time to prepare for the lower benefit amounts. And don't underestimate the financial, political, economic and social turmoil that the train wreck will cause. It is a huge benefit to head it off before it happens. And it is much cheaper to do it now than if we wait a few more decades.

Chile is 20 years into their pension privatization and it is working. Sweden and Australia have privatization plans also.

To me that is more than defensible.

Dead Parrot Society comments here, here and here.

It is pretty heavy stuff, but there are two major questions about the CBO report: First, are the CBO's economic growth assumptions correct? And second are the rates of return in the private accounts correct? In fact, DPS points out the report's statement, "Thus, the returns are "risk-adjusted" and set equal to the returns on Treasury bonds." It seems like in reality the return will be a lot higher than that, no?

Of course, I will be very interested in anything that points to higher benefits out of the privatization plan than the CBO report suggests. But keep in mind that the lifetime benefit to lifetime contributions are the same in CSSS2 and the train wreck scenario.

I believe CSSS Plan 2 stands up as it is.

Josh Marshall, Atrios and Kevin Drum are pulling out all the stops to try to kill this reform bill, including using selected tidbits of the CBO report to make it look worse than it is. We'll keep fact checking as best as we can.

Lots more to read about Social Security on Carpe Bonum: