Daily Social Security Chatter

3.2.2005

Greenspan Endorses Personal Accounts.... - Derrick A. Max
Act Sooner, not Later

In testimony before the House Budget Committee, Federal Reserve Chairman Alan Greenspan made the following remarks on Social Security:

To be sure, favorable productivity developments would help to alleviate the impending budgetary strains. But unless productivity growth far outstrips that embodied in current budget forecasts, it is unlikely to represent more than part of the answer. Higher productivity does, of course, buoy revenues. But because initial Social Security benefits are influenced heavily by economywide wages, faster productivity growth, with a lag, also raises benefits under current law. Moreover, because the long-range budget assumptions already make reasonable allowance for future productivity growth, one cannot rule out the possibility that productivity growth will fall short of projected future averages.

I fear that we may have already committed more physical resources to the baby-boom generation in its retirement years than our economy has the capacity to deliver.

If existing promises need to be changed, those changes should be made sooner rather than later. We owe future retirees as much time as possible to adjust their plans for work, saving, and retirement spending. They need to ensure that their personal resources, along with what they expect to receive from the government, will be sufficient to meet their retirement goals.

Much attention has been focused on the forecasted exhaustion of the Social Security trust fund in 2042. But solving that problem will do little in itself to meet the imperative to boost our national saving. Raising national saving is an essential step if we are to build a capital stock that by, say, 2030 will be sufficiently large to produce goods and services adequate to meet the needs of retirees without unduly curbing the standard of living of our working-age population.

Unfortunately, the current Social Security system has not proven a reliable vehicle for such saving. Indeed, although the trust funds have been running annual surpluses since the mid-1980s, one can credibly argue that they have served primarily to facilitate larger deficits in the rest of the budget and therefore have added little or nothing to national saving.

In my view, a retirement system with a significant personal accounts component would provide a more credible means of ensuring that the program actually adds to overall saving and, in turn, boosts the nation's capital stock. The reason is that money allocated to the personal accounts would no longer be available to fund other government activities and--barring an offsetting reduction in private saving outside the new accounts--would, in effect, be reserved for future consumption needs.

Crafting a budget strategy that meets the nation's longer-run needs will become ever more difficult the more we delay. The one certainty is that the resolution of the nation's unprecedented demographic challenge will require hard choices and that the future performance of the economy will depend on those choices.

2.24.2004

Taxing Labor - Derrick A. Max
Even Economists Agree
The saying goes that the only way to get economists to agree on anything, is to cut off one of their hands so that they can't say, "on the other hand..." However, there is one principle that is universally shared by economists: Whatever we tax, we get less of. Tax cigarettes and we get less smoking, tax luxury boats, we get less yachts. The same goes for labor -- tax workers and we will get less hiring.

So the question is, why would the AFL-CIO be attacking Social Security reform that will limit tax increases when the Social Security Administration has reported that taxes will have to be raised by 50 percent if we don't fix Social Security now? Such a tax hike would significantly reduce employment and shrink the ranks of American labor.

I suspect it has something to do with the concern about workers becoming capitalists -- as they create wealth managed independently of the union leadership -- and their interests begin to diverge from union scare tactics to shareholder value. Not only will the union leadership lose the fees they currently capture through union pensions, but workers will begin to care about corporate profit and loss.

Then again, that is just my suspicion.

2.21.2004

Finally, A Democrat Alternative - Derrick A. Max
Rep. Sabo's Trust Fund Math
U.S. Rep. Martin Sabo announced today that he will introduce a bill in Congress that he says will guarantee Social Security solvency through 2080 by increasing the interest rate on Treasury bonds in the Social Security trust fund.

Of course, Rep. Sabo appears to not understand that the Trust Fund is just an accounting device, and that the bonds are merely a reflection of what one hand of government owes the other. Paying ourselves more interest by FIAT is just proof positive that the trust fund is meaningless.

If Rep. Sabo really believes in this bill -- why doesnt he just double or triple the interest rate and increase benefits for retired seniors? I mean, hey, its free money, right?

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