Saturday, May 07, 2005

Social Security: Insurance or investment?

The Bushies have miscalculated badly on the Social Security issue. First, they're having difficulty convincing today's what's in it for me in the short term populace that a funding crunch thirty-odd years into the future is a "crisis." (Hell, I'll be dead by the time things come to a head -- what do I care?) Second, they've badly misestimated the average American's desire for security without risk -- exactly what Social Security was meant to ensure in the first place.

You see, the Bushies and their fat-cat Wall Street friends want to convert everyone in America into one of the "investment class," by letting them invest part of their Social Security funds into private (or what they call "personal") accounts. The problem is, the average American doesn't want to be an investor. They view the stock market as Las Vegas for capitalists -- and while they're okay with playing the slots in Sin City, they're less wild about gambling away their retirement money. What they want for retirement is a big cushy ol' safety net -- the type of retirement insurance that Social Security promises -- not the high-risk gamble that the stock market presents. (And those few who have done some investing in the past are no doubt still tending their deep bruises after the market crash of a few years back; if they're like me, their IRAs and 401(k)s are still partially submerged.)

The difference is that the Bushies view Social Security as some sort of investment (and argue that your dollars can be invested better elsewhere), while the average American views Social Security as an insurance plan. You put in your X number of dollars a month, and then when you need the insurance, it's there. You're covered, and it's not about the return on your investment -- because insurance isn't an investment, it's protection. Social Security was never intended to be an instrument of investment, it was meant to be an insurance policy for when we're old. The Bushies not only see it in the wrong way, they see Americans equally incorrectly. Investment is risky (and we don't like risks), and don't you dare go messing with our old-age insurance.

But that's just my opinion; reasonable minds may disagree.


Joe said...

Hi Mike. I don't disagree with anything you said, but something has got to change. The Social Security system can't continue on the current course. I also tend to be a bit of a fatalist like yourself, feeling I won't live long enough to enjoy the benefit. Actually, I figure they'll keep raising the retirement age, always keeping it a few years ahead of my age... Here's what I think they should do: raise the maximum point at which wage earners don't have to contribute each year. What's it at now, $82K or so? Take it up to $100K. Also, provide smaller benefits to the wealthy upon retirement. I know, that means the rich kick in the most and get the least. Oh well. They also have the most to live off of outside Social Security. Can you imagine Bill Gates retiring some day and getting full payout? That's rather silly, regardless of whether he gives all his money away by then or not.

The Curmudgeon said...

Joe, we actually have the same solution for the so-called "crisis" (you know, the one that will hit after we're both dead). Raise the contribution cap some degree, and lower percentage benefits for the very wealthy. Not for the middle class, as President GW is proposing (it's part of a long-term plot to eliminate the middle class), but for the uber-wealthy -- the Bill Gateses, as you say.

Chord of Three Strands said...

I know some people who live on Social Security-- it is NOT a big cushy safety net.

saying that- I know very little about Social Security or polotics.

Do we get to choose whether we invest it or have the 'old school not-so-cushy safety net'?

The Curmudgeon said...

Chord: I didn't mean to imply that Social Security provided a "cushy" income, but rather that it is a safety net -- as you point out, for many people it's their only income. Which is all the more reason not to muck about with it; you don't want to risk that retirement or disability income. As to investing the funds yourself (as opposed to letting the government manage it, as it now does), while it's possible you could earn a higher rate of return, that's not likely. Britain actually privatized their system in the 1980s, and most retirees ended up earning far less than they would have otherwise. Investing is a risky business; there are normally more losers than winners, as the stock market crash of 2000/2001 illustrated. That's why we need to continue to think of Social Security as an insurance plan, not an investment scheme. There's nothing stopping us from investing more of our money, in IRAs and 401(k) plans, but it's prudent to also maintain the current Social Security insurance safety net.