RE: Gen-X Viewpoint

[Michael <powderfinger99@yahoo.com>]

<<<
Actually, that wasn't a distinction that I was making at all. The
point was that 'investments' are not 'risk free' in any true sense.
It is fine for you to put the liability off on the gov't, SS was
born at a time of many bank failures and a stock market collapse
to boot. Not predicting either, but who knows what the future holds.
>>>

James,

Doomsday scenarios are not a good reason to eliminate the use the
private markets for retirement security. Under nearly all reform
proposals the government would still be bearing all of the risk to
provide a "minimal benefit". However, bearing the risk is not the
same as how the funds are invested.  The funds could be invested
anywhere, including the private sector.  The government has chosen
to invest the funds IN GOVERNMENT.  So, investment risk is really
a red herring when it comes to Social Security reform. The main
issue is where the money is invested.  Rep. Thurman and colleagues
want to continue to invest Social Security in government. The
reformers, including the Cato Institute, want the money to be
invested in private markets.

Government is not the proper place to invest retirement money. Government
cannot create wealth, they can only tax and redistribute wealth. 
Therefore your "return" on your Social Security investment is tied
to how much Rep. Thurman can tax your children and grand children.
Some politicians want to keep the program as is because this structure
enhances their power. However, it does nothing to insure retirement
security for people. That's the goal isn't it?


I posted before on the board about how Social Security is attempting
to accomplish two goals: a retirement program + a retirement safety
net. Most of us on the side of reform do not want to see the
guarantee eliminated from the program. In this sense, the government
will be assuming the "risk" for people that somehow are dealt
a bad hand in life. 

However, should 5% of the workers dictate how the other 95% secure 
their retirement? The program is sold as a "retirement system" as
well as a "safety net". Ideally, the "safety net" part should come
from general revenues, since this part is redistributative. 

There should be a guaranteed benefit which would be provided from
either the "safety net" or individual retirement account. Any shortfall
in ones individual retirement account would be covered by the
"safety net". Chances are most people would do so well with
their retirement accounts, the safety net would not be required.

The main gripe reformers have with the current system is that
redistribution does not work for a retirement system. It works for
a social welfare program, but not a retirement system. A retirement
system needs real assets which compound interest. The government
cannot do this since it does not create wealth.

<<<
Actually, SS is inflation adjusted.
>>>

The negative 1% return includes whatever inflation adjustment the 
SSA assumes.

<<<
Also, you neglect the diasability and life insurance aspects of
SS. And make no allowances for the spousal benefits that SS may
pay. That changes the balance, but is more difficult to fit into
a simple example.
>>>

The insurance aspects can easily be added using the private markets.
at a relative low cost. Spouses could inherit the individual account
plus whatever factor (if any) required to bring the benefit up to
the minimum.


Michael