Tue, 22 Feb 2005

States' Private Pensions Make a Weak Showing

Are we as a society incapable of learning from experience?

... when Nebraska's state and county workers were given do-it-yourself accounts, they made so many investment errors that they ended up making less than colleagues with fixed-benefit pensions — and less than what analysts have said is needed for old age. Their poor performance led the Nebraska Legislature two years ago to junk the accounts for new employees.

Managing an investment account takes a lot of skill and, more importantly, discipline. That's a commodity in short supply in today's America, where we are constantly bombarded with inducements to "spend now".

But Bush is, in a sense, right in his assessment of the Social Security system being "broken". As designed, it failed to take into account the effect of falling birthrates and rising life expectancy - rendering it little more than a Ponzi scheme today.

Over the years, Congress has refused to raise Social Security taxes to the level needed to fund it: that's been a n effort led mostly by Republicans, who don't want to raise taxes ever. The Democrats, for their part, have been eager to add new spending to the original system, mostly in the form of disability and educational payments. The effect has been a conspiracy to bankrupt the system.

Bush is off base, however, as to the immediate "crisis" - best estimates are that the system won't collapse for another 40 years or so. And I think he may be discovering why folks call the system the "third rail" of American politics (named after the electrically conductive track in a subway system - touch it and die).

I know how his plan would effect us: between us we have better than $350,000 "invested" in Social Security - we'd both have to live to be 85 before we got all of that back, assuming we don't contribute any more. Since I'm not contributing much right now, I'd have little or nothing to put into any private account scheme - but the shortfall caused by others in the system moving to private accounts would have to be made up somewhere, otherwise my mom would find her benefits reduced. That shortfall can only be recouped by raising general revenue taxes - which I would end up paying, one way or another.

So from my perspective, moving to a partially private system now is distinctly flawed. But I'd still be willing to go along with it, if I thought it would fix the system for my grandchildren. And that's where we should look at states that have tried this and learn from their mistakes. It doesn't seem to fix anything.

Nice try, Dubya.

Los Angeles Times - WASHINGTON — President Bush believes Americans are so eager to join the "ownership society" that, given a chance, two-thirds of those eligible would divert funds from Social Security into the personal investment accounts he proposes.

(link) [Yahoo! News: Top Stories]

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