>>>>As the plan indicates, the cost of the transition is the cost of the increased savings, and thus no change in the inflation pressure is experienced.
You are wrong. First, you seem reluctant to admit what CATO states explicitely: the 'increased savings' come strictly from the magic $100 billion in other gov't spending cuts which are not in any way related to SS reform, not from the re-direction of the payroll taxes to private investments. Secondly, only part of the cost is paid this way: the payment of benefits for current SS recipients. The recognition bonds are another matter, and involve issuing new debt, not based on current 'money'. That is where the inflationary risk is.
>>>>On the contrary, less dollars in the economy buying the same amount of products produces a reduction in prices across the board.
That is a great economic theory. Did you just make that up? McDonald's charges the same for a burger no matter what your wages are. The 'same amount of products' will not be bought! That is the point. The gov't will cut spending by $100 billion, and what was bought with that money will no longer be bought. You have to decrease consumption in order to get savings, because the 'costs' of production are still there even if the 'price' were to go down! And that will have an effect on the economy, how big or small I don't know. Producers do not want to produce what they cannot sell at a profit.
>>>>Moreover, the availability of larger capital stocks stimulates the economy by a) companies having more money to fund R&D; projects; b) companies having more money to expand their operations; etc.
But merely putting money into the 'secondary' stock market does not add any capital to a company at all. It merely increases the return of the person who sold you the shares. A company must issue new stock to take advantage of that (or issue bonds). And they are going to do that usually only if they see a market for their products. A decrease in 'consumption' is the other side of the 'savings' coin. Look at Japan.
>>>>In any case, under an unfuded system, the government assumes the risk during economic crisis, and, thus, when hard economic times hit us again higher income and payroll taxes will be needed to fill the shortfall of revenues created by the unemployed workforce.
But, under the CATO plan, the govt assumes a risk also. They will provide a safety net benefit. And if we have economic hard times, or maybe a bout of inflation, that will effect how much of a safety net they will need to provide.
And note that CATO, like many of the other privatizers, likes to have the statistics both ways. They want to use the problem of SS solvency based on pessimistic GNP figures used by the SSTF trustees because of the Baby Boom demographics. But of course, when they are selling you on the great returns available from 'private investments', they switch to much more optimistic 'historical returns'. They really can't have it both ways. The demographics must be assumed to be the same under both options.
>>>>I all cases, when the government becomes smaller by $100B of reduced government spending, besides being a drop-in-the-bucket, taxpayers will basically feel like they received a tax-cut. Last years, $90B tax-cut had no negative effect for the economy that I know of, on the contrary many can argue that it added additional fuel to the economy.
You are mixing things up. Ask any politician. A tax-cut is very popular. A spending cut is not. Those are two very different things. The 'most popular' is a tax cut (like last years) not accompanied by any spending cut. The least popular is what you propose: a spending cut with no accompanying tax-cut. Most people will indeed accept the latter if they see it's necesssity. But it will take a sales job. And the lobbyists on the 'losing' side of those cuts will be out in force. They will ask why their group must assume the full 'cost' of SS reform.
And why would last year's tax cut fuel the economy? Because it provided for more consumption and less savings. Exactly the opposite of the CATO proposal.
>>>>The federal budget for the past few years has remained at the same level, $1.7T; indicating that no new spending by the government has been made and no adverse effect to the economy has been experienced.
I don't know where you are getting your budget figures, but they are wrong. The budget has been increasing by about 5% for the last several years. But then again, that misses the point. In order to provide for MORE SAVINGS, you must CUT SPENDING. It is not a matter of new spending, which we haven't basically been doing a lot of for years. The budget increases represent the increased costs of the existing programs, by and large. It is not a matter of us eventually running surpluses, which are in the projections. Because those surpluses already include a savings component in and of itself. For the CATO plan to provide for INCREASED SAVINGS, it must depend on DECREASED CONSUMPTION. That means we must CUT GOV'T SPENDING if we use their plan. It has nothing to do with any imagined new spending.
>>>>One last point, as a example, Chile presents us with a great deal of information that could be useful in drawing a parallel.
There is indeed useful information that we can get from Chile. But there are also caveats. Chile is a third world developing nation. It is unlikely that we would experience the kind of GNP rates experienced in Chile (around 7%) because of where we are starting. We do not have the kinds of problems Chile had. Also, since they had high inflation anyway, we have no way of determining the inflationary effects of the 'recognition' bonds which are traded on the secondary bond markets there.
Note what the World Bank (an unabashed supporter of the Chilean system) says:
>>>>The success of the Chilean AFP system is underscored by the rapid expansion of coverage and the large accumulation of funds. Membership rose from 38 to 95 percent of the labor force over 1981-94. However, this near universal coverage may be misleading, as a large number of affiliates are not active contributors. The latter, defined as those making a contribution in December of each year, increased from 30 percent of the labor force in the early 1980s to 54 percent in the early 1990s. Nearly 3 million workers were active contributors in 1994.
In other words, that 95% participation rate you always hear about is very misleading. It is like saying everybody in the US who has a bank account is a big saver. Indeed, what seems to be one of the problems in Chile is a lot of low-wage workers going 'off the books' with their income. Why? Well, the system was set up to try to provide the median wage earner with a retirement equal to 70% of their working wage. Those lower wage workers will be subsidized by a 'safety net' subsidy to bring them up to a floor amount. Of course, if I am a low wage worker, and the prospects look like I will have to be subsidized anyway, what incentive is there for me to 'save' 90% of that floor on my own as compared to say, 30%. None. Ergo, they are 'opting' for current consumption. One of the perverse incentives in the program that CATO tries to ignore by implying that everybody will make more from their 'private accounts'. But of course, that is not realistic for the low wage workers, and that is the reason even CATO admits that there needs to be a safety net. But no firm projections on what it will cost.
And your statement that Chile is a better place to live than Japan is revealing. Japan has a MUCH HIGHER savings rate than the US. Doesn't seem to have created the miracles there that you promise here.
