To see the phoniness of "transition costs", let's discuss a hypothetical situation:
As of Jan 01, 2000, the current SS system is repealed. To meet current commitments, every participant in the system will receive a government obligation equal to his or her actuarial share of the unfunded liability.
For those already retired, that would be an obligation, a treasury bill or bond, with a market value equal to the present actuarial value of expected future benefits minus expected future payroll taxes, if any. For everyone else, it would be an obligation due when the individual would have been eligible to receive benefits under the current system. And the maturity value would equal the present value of benefits the person would have been entitled to,less the present value of the person's future tax liability, both adjusted for mortality.
The result would be a complete transition to a strictly private system, with every participant receiving what current law promises. The total unfunded and funded debt of the U.S. would not change by one dollar. There are no "costs of transition." The unfunded liability would become funded. The compact between the generations would have left as a legacy the newly funded debt.
How would that funded debt be paid when it came due? By taxing, borrowing, creating money, or reducing other government spending. There are no other ways.
There is no more reason to finance the repayment of this part of the funded debt by a payroll tax than any other part. Yet that is the implicit assumption of those who argue the "costs of transition" mean there can be only partial privatization.
Copyright Miltn Friedman from "Speaking the truth about Social Security Reform".
People, let's look at the fundamentals. With a proper understanding of SS's current unfunded liabilities, there are no real transition costs to privatizing SS, merely the explicit RECOGNITION of current implicit debt.
