From: Joseph Marsden <marsden.joseph@worldnet.att.net>
Subject: General Comments
(I only tuned in today, so my apologies if I write anything redundant.)
As a matter of full disclosure, I am a pension actuary working for the Pension Benefit Guaranty Corporation (PBGC), which is the government agency that is responsible for insuring benefits from private employer pension plans when plans fail. I'm sure my employers would like me to mention to you, as they so often make quite clear to me, that the views I express are mine alone, and do not reflect any position, official or otherwise, of the PBGC. Let me also mention that the PBGC has equity investments in its portfolio, and that the return on these has been the primary reason that the agency has gone from a persistent deficit position to a surplus position. (I don't do anything related to investments at work, so don't expect me to be able to comment very much on exactly what is going on with that situation.)
I have mostly only read the summaries of earlier posts, so my comments are sort of in response to what is in those.
Intergenerational Equity -- I consider this an abused topic. Yes, earlier generations are making out much better from Social Security than current generations can ever hope to do. However, in the bigger picture, younger people are far and away receiving the better end of the deal. Without even getting into non-governmental transfers of resources (mostly education), earlier generations have built the roads and other infrastructure that we take for granted, as well as maintaining a level of general peace throughout the world. That ANYONE should complain that these people are getting an extra helping from Social Security is, when everything is considered, absurd.
Individual Accounts -- Actuarially, these are a very bad idea. As a matter of simple statistics, it is far cheaper to guarantee a level of income with pooled funds for a group than with individual accounts. We can know with a high degree of certainty what the distribution of time of death for a group of people will be, but for most individuals we have little idea when they are likely to die. Viewed another way, if our goal is to provide retirement income, then every dollar that gets paid out in the estate of an individual account holder who dies before exhausting his account is a dollar that is leaking out of the retirement system. It is far cheaper to fund a system that avoids such leaks.
Equity Investments -- We have been very spoiled over the last twenty years. A lot of the rise in stock prices is due to the decline in interest rates and the decline in the "risk aversion" of investors, which normally deflates the value of stocks. Interest rates and risk aversion cannot keep going down -- they are both generally limited at zero. It is probably more likely that the trend of the last twenty years for these two factors will be reversed than that it will be repeated. Stocks are no panacea.
Strain on Charity -- Many advocates of privativation believe that there will be few enough people who fail to provide themselves with sufficient retirement income that charity will be able to accomodate their needs. Without going into the likely volatility of such need over time, just the notion of presuming to add such a significant weight to the charity of the country strikes me as ill-conceived. I do not think that charity can be taken for granted -- when the charity of individuals is stretched to far, the situations that once seemed to them unacceptable and worthy of charity will start to be accepted and not met with charity. As an anectdote, many people who see just one or two beggars in a day will give them some change (I won't comment on whether or not this is a wise thing to do). But when there is a beggar on every corner, the band-aid of a few coins will often seem not worth it, and many people will give nothing at all. Reliance on charity is nothing like a retirement policy.
