RE: Ms. W.'s Discussion Questions.

[ridgeway <riridgew@nyx.net>]

TO: Stephen Wyman   RE: Example of Treasury Snake Oil. 5/20/99
-------------------------------------------------------------------
Thanks for posting the link to the Concord Coalition.
The Concord Coalition and its founders have been very
helpful in bringing to the public's attention the problems
we are facing with the federal budget.  The press
release from the Treasury dept is the example james
asked wherein they make the doublespeak claim
of "paying down the federal debt" but what they've
mostly done is just shift stuff around (i.e. notice 
how they brag about lowering debt held by the public).  
James definition of what the federal debt is what it is, 
he doesn't understand that the politician's don't have to
conform to james's definition, they fudge it here and 
there to leave a different impression in the mind of 
the public --- i.e. political doublespeak.
The Treasury's press release supports what Sowell
was addressing; that james can't understand what's 
going on also serves to confirm that Sowell was also 
correct in that there will be some that "cannot 
follow the accounting sleight-of-hand".

Thanks for posting the Concord Coaliation link.
----------------------------------------------------------------
Now to the homework given to us by Ms. Weaver....

1. The downside risk scenarios:
>First, "What if we had another Great Depression or at least another 
>rotten period like we had in the 1970s.  Wouldn't a system of personal 
>accounts collapse?  How can you guarantee people that they won't end 
>up with nothing?"

Well first, the chances of another Great Depression
are small, not zero to be sure, however, we should not
let remote probablity events have an undue influence
on the design of a new system.  When it comes to worrying
about Great Depressions we should be more concerned that
we don't get an idiot Federal Reserve Chairman that
would raise interest rates in the face of a post-war
inventory correction recession coupled with government
trade-war tariffs and a whole host of other screwups.  
And as for the 1970s, didn't government blunders 
contribute to the "malaise" of that decade 
(e.g. wage and price controls, high taxes, etc...)?

I wish I had gone back and re-read the "Restoring Security
to our Social Security Retirement Program" section of the
_Report of the 1994-1996 Advisory Council on Social Security_
(Volume I: Findings and Recommendations), pages 102-134;
I would have been better prepared for this debate.  

Are you trying to move us toward your two-tier system?
Where, in brief, you propose that of the 12.4 percent
OASDI payroll tax the government keeps 7.4 percent for the 
first tier minimum benefit and benefits for disabled workers
and survivors; the remaining 5 percent of the payroll
tax is what becomes the Personal Savings Accounts, PSAs
(note: there is the default tier of the current 
Supplemental Security Income --- SSI --- still in place).

I'm sure you recognize by now that many, perhaps most, of us 
in this debate are libertarian in our political views and you 
are asking us to retain a substaintal component of 
government involvment in what we see as personal economic 
issues.  OK --- I'm willing to play, but in the end I 
reserve the right to continue the argument for 100 percent
personal liberty on this purely personal economic decision.

OK, *IF* the choice is between the current SS system
and your two-tier system, I'll pick your two-tier
approach.  Be sure and discuss the "Liberty Tax"
required to fund part of the transition --- but be
advised that I think that Concord Coaliation 
means testing should be applied to current benefits
and COLAs should be quickly phased out on
current benefits.  The current generation of
retirees and near retirees simply must help
pay for the transition, they are un-indicted
co-conspirators in helping set up this
Ponzi Scheme-like SS system, they need to take a 
haircut for "imposing a tax that [they were] not 
willing to pay" for the benefits the politicans 
(of both parties, but mostly Democrates) bribed 
them with to set the current system up as it is
--- the quote above was a paraphrasing from
the top left of page 129 of the Advisory Council book
I referenced previously --- paybacks are hell!!!

2. Asset allocation and political risk:
>Second, "Even if we have personal accounts, we ought to change the 
>investment policy for the trust funds. It just doesn't make sense to keep 
>the social security funds invested entirely in low-yielding government 
>bonds. With all the financial expertise now available, it ought to be easy 
>to figure out how to ensure the government invests in a neutral way, 
>without any political interference.  How can it be done?"

The assumption here is we have Personal accounts in place and
the remaining question seems to assume that there is still
"trust" funds that have to be managed by the government.
If you are saying there always has to be a "trust fund"
in place taken care of by the government?  I must reject 
this out of hand.  Unless Ms. Weaver has a trick
up her sleve, I just don't see how we can have the government
invest in a "neutral way without any political interference."
                                 ^^^
In terms of government contracting and hiring decisions, I know
of what I speak --- every possible angle in bid specifications or
job requirements presents an opportunity to spin the business to
a campaign supporter, personal friend, cronies, a busines
they have a stake in, ..., the polticians' minions in 
government know why they were put there without having to
get a fax everyday telling them in writing what they have
to do.  Even with index fund management, the time the 
trades take place, the sequence, etc... would present
targets of opportunity for mischief.  In fact you listed
several problems on pages 128 of the Advisory Council
book of risk here --- e.g. if there were a big correction: 
"Could Congress stand idly as the value of Social securty's
portflio dropped? ... Would it resort to General revenue
bailouts to 'hold the trust funds harmless?' What kind
of pressures might Congress bring on the exchanges
and on finanical regulators to slow market adjustments?"
etc...you named many other good examples of what could happen!

What are *your* safeguards to prevent politicians from getting
into another bidding war to increase the minimum SS benefits
under your two-tier system??????  Then we could be right back
to where the hell we started!!!!!!!!!!!!!!!!!!!!!!!!!!!
I hope I've beat up on you enough to balance out the
beating we gave Mr. R.  --- I hope he didn't take it
too personal.

Now, if you are suggesting there is a trust fund that
has to be managed till it disappears and at some point
in the forseeable future all that is left is the Personal 
Savings Accounts, then I might be willing to listen to
some arrangements that attempt to 'minimize' political
medeling.  Dare I say we might create yet another government
agency or quasi-government independent agency like the Federal
Reserve or Fannie Mae etc... to manage the government's trust
fund assets???? Even with index investing, or subcontracting
out to private companies, ...God help us --- the very thought 
scares me!!!  It has already been mentioned here what happens
to existing public employee retirement systems with 
political appointees in control who get involved in polticially
correct investment.  

IN fact I'm in a area that did that just that.
There are two big public employee retirement systems, one
has done real well and is in sound actuarial condition, the
other pursued politically correct investment and is
underwater currently --- the legislature has already
been advised that there is a need to subsidize it to the
tune of several tens of millions of dollars.  I would note
an interesting little tidbit that might be worth having
one of your research friends test out.  The system that
is underwater does NOT have the Legislature members in
it, they are in the other public employee retirement
system --- the one that's doing good.  The Legislature's 
pay is minimal, their main benefit (outside of brown bags 
full of money under the table) is a gold plated, quick 
vesting, high annuity pension.  Thus, the statistical 
question that comes to me is, of the public retirement 
system, how has the retirement systems whose members 
include the elected officials done in comparison to those 
public systems that do not include the elected officials??

>On a point of ongoing discussion, the Burtless findings on replacement 
>rates, a couple of participants have commented on how his estimates 
>for an investment-based system, even though prepared in a manner that 
>exaggerates volatility, stack up pretty well compared to those projected 
>for social security.  You make a good point and one that can be 
>strengthened.  The replacement rates you refer to, the ones the Social 
>Security Administration projects under current law, can not be met in 
>future decades with the current level of payroll taxes.  If the nation 
>sticks with pay-as-you-go financing, benefit levels and thus replacement 
>rates would have to be reduced significantly to close the long-range 
>deficit. 

Excellent point!  You are correct the replacement rate promises in the 
SSA publication can't be taken at face value due to the underfunding
of the existing system --- DAMN! they fooled me again, you see this is yet 
another case for james as to an example of how you simply can't take the 
government word on government financial matters as being straightforwardly 
true they'll weasel it around somehow --- sort of like how you can't take 
Clinton's statementes as being true at face value --- now what was 
it Clinton said: "Well, it all depends  on what the meaning of 'is' is." 

--------------------------------------------------------------
I really must bring in again something I posted some time ago.
I don't think there is anyway around it.  Young workers have
been screwed!  The reference below seems the most honest
evaluation of this whole mess:
-------------------------------------------------------------
http://dogbert.kepler-solutions.com/newswise/articles/1998/6/PONZI.UDE.html 
-------------------------------------------------------------
The summary of this article is:
"Nothing can save 40-something Baby Boomers from getting a raw deal at retirement 
because they're mired at the bottom of a massive pyramid or Ponzi scheme, according 
to a University of Delaware economist whose analysis of the Social Security system 
appears in the new issue of Humanomics, an international social science journal"
[ Vol.14, No. 1, January 1998]. 
---------------------------------------------------------

Ms. W, your questions are important ones; however, as stated
just above, the more I look at this, the more I don't think
there is anyway to avoid the fact ---- we've been had!
I hope I've contributed something to the debate.

Thanks for participating.
=========================================================================