The Pirate-ization of Social Security

I just don't get it...or... maybe I do.

President Bush wants to "fix" Social Security by privatizing it, i.e. allowing people to divert a portion of their Social Security contributions into stocks and bonds. If Social Security will be in trouble down the road, such a maneuver would have no impact on the solvency of Social Security whatsoever.

The problem, if it exists, is that the population of the future that will be contributing to Social Security will not be making sufficient contribution to cover the demand of payouts to a retiring baby-boomer generation.

It is a classic bait and switch scam. First, communicate that the plan is in trouble. Then claim that the "fix" is to change the program to guarantee solvency yet the recommended change has absolutely no impact on the problem.

Then we hear from Dr. Alan Greenspan in this article who "embraced President George W. Bush's vision of an "ownership society" on Thursday, saying private accounts could foster feelings of wealth among poor Americans."

Read those words carefully. It's classic Greenspan speak.

How and why does a privatized Social Security account make an "ownership society"? The individual has no more "ownership" of the account than they did of the Social Security account.

Such private plans have already been tried in Britain and Chile among other countries and have resulted in net losses for the participants.

While the plan to privatize Social Security might foster "feelings" of wealth among poor Americans, it won't do anything to actually increase the wealth of poor Americans. The only Americans who's wealth will increase are the fund managers who manage the private accounts and take a cool 1.5% of the total value of the account each year for providing the "service" to those poor Americans for "managing" their private accounts. 1.5% might not seem like much but consider that if the personal account gains 3% for the year, the account managers get 50% of the profit. If the account breaks even or loses money for the year, the account managers still get their percentage. In other words, President Bush's idea of an "ownership society" creates an opportunity for "poor Americans" and every other American (unless you're a congressman who has doesn't have to participate in Social Security because we fund a better retirement plan for them) to pay a previously non-existent load on their retirement account.

In fairness to Dr. Greenspan, the article says:

While he did not specifically endorse Bush's plan and admitted private accounts, in and of themselves, would not improve Social Security's shaky finances.

Yet he goes on about the silly wealth effect:

"These accounts, properly constructed and managed, will create ... a sense of increased wealth on the part of middle and lower-income classes of this society, who have had to struggle with very little capital," Greenspan told the House of Representatives Financial Services Committee.

"While they do have a claim against the Social Security system ... as best I can judge, they don't feel it is personal wealth the way they would with personal accounts," he said as he took questions from the panel.

"It's crucial to our stability that people all have a stake in this system," he said. "I don't perceive that Social Security is conceived that way and I think it is very important to people to have a sense of ownership."

This is cacca doodle. Just ask any AARP member if they don't believe they have ownership of their Social Security benefits and are entitled to them because they've paid into the system all of their working lives.

Ownership is not a promise, it is tangible property in hand. It's about directing ones affairs as they see fit.

If their words of an "ownership society" are sincere, then we should be able to allocate our private accounts in a way we choose. The acid test for the rhetoric of President Bush and Dr. Greenspan is simple...can I allocate the contributions to my private Social Security account to the acquisition of gold?

The quick answer is No. Why? Read this link for an explanation from Dr. Greenspan himself.

So much for an "ownership society".