Subject: RE: Transition Costs to Privatize: A Myth
>From: Richard Arnold
>>>>To see the phoniness of "transition costs", let's discuss a hypothetical situation:
>>>>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.
Of course, those retired need money to live on. A bond really does most no good. They would need an annuity to replace SS. That's a lot of 'bonds' to dump on the capital markets all at once. What would that do to interest rates, and maybe the stock market prices?
>>>>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.
Funding liability and debt is not merely a matter of issuing bonds. Indeed, if that were so, we would have no SS problem. To fund the liability, you have to come up with REAL MONEY.
>>>>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.
Indeed. Taxing? I thought a tax increase is what the reform was trying to avoid. Borrowing? There goes the benefit of all that private savings, as we borrow that much money out of the capital markets. Creating Money? Good old inflation to destroy the private savings of all those people who we enticed out of SS and the 'real value' of those bonds we issued to those not yet retired. Reducing other government spending? What else is left to be cut? Defense?
This analysis seems seems to avoid all those details that can have a significant effect on the real financial world. You seem to be saying that the reform solution is going to cause all those problems we are trying to avoid.
>>>>There is no more reason to finance the repayment of this part of the funded debt by a payroll tax than any other part.
Say hello to inceased income taxes and/or borrowing. How is this scenario any better than what we have under the current system?
