Progressive Arguments in Favor of Partial Social Security Privatization
I have never understood why more progressives don't favor some form of partial privatization of social security, as long as it is designed correctly. The most common plans I have seen have been something along the lines of the following: individuals would have a small portion of their regular SS contributions placed in an individual investment account in the person's name, analogous to a 401k. It wouldn't be an ordinary investment account; only certain categories of investments would be eligible (i.e., no junk bonds or cattle futures). The money would actually belong to the individual but he/she wouldn't be able to withdraw the money until retirement age. However, the money would be inheritable as it would be a part of his/her estate. I would also add that upon retirement, the government would guarantee a certain level of income, but only to supplement the amount that's in the individual retirement account. E.g., if the guaranteed minimum was $30,000 per year, and your retirement account only had enough in it to support $25,000 per year, then the government would kick in only $5,000 per year.
I think there are plenty of good progressive reasons to support this:
1. It is a source of inheritable wealth for everyone. One of the cruel ironies of the current social security system is that it disproportionately disadvantages minorities because they tend to die younger than white folks. Hence white folks tend to get more SS money out of it than minorities do, and the system ends up being a transfer of wealth from minorities to whites. That would change with a partially privatized system: the money in the account would belong to the person's estate regardless, and it would be an active step in fighting white privilege.
2. It relieves the government of a significant financial burden. Instead of having to provide for a barely minimal retirement fund for everyone, the government would only have to provide a supplemental retirement fund for some, and then only if necessary. Whatever money is left over could be devoted to other purposes.
3. It is more consistent with the original intent of SS, which was to be a supplemental retirement fund. Right now it isn't that; more and more people actually depend on it for their retirement nest egg and that trend is bound to continue as more baby boomers retire, not all of whom have healthy 401k's.
4. This is one issue in which progressives can realistically expect to find common cause with conservatives and actually get something done in a deadlocked Congress.
5. And - let's face it - one reason why, IMO, progressive ideas fail at the ballot box is because they tend to stress communitarian goals over individualist goals. This is a way to have it both ways - to preserve the essential communitarian nature of social security while still acknowledging that individualism remains an important factor in people's voting decisions.
The arguments that I tend to hear against partial privatization are that (1) it would cost too much, (2) it would "destroy" SS, (3) the money would be lost in the stock market anyway so it would be just throwing good money after bad, and (4) it would only put money into the hands of greedy bankers.
For the first argument: SS is going to have to change, one way or another. The status quo is untenable. So the question is do we have to bear huge costs, because the answer is yes. The real question is: how much is it going to be, and when will the bill come due? The current unfuded liability for Social Security is approximately $11 trillion. This figure is NOT included in the national debt figures, so it is in addition to what the government already owes its creditors. We can either pay this figure later - and then keep paying it, and keep paying it, as more and more people retire and the wage-earner-to-retiree ratio goes further out of whack - or we can spread out the pain a little bit so we aren't forced with huge debts later. Think of it as prepayment on a balloon mortgage payment. It's easier to make smaller, regular payments in advance than to try to save up the money yourself, resisting the temptation to spend the money on something else (and we all know that Congresscritters always resist temptation!), then when the balloon payment comes due, you have to scramble to find the cash. And the beauty of this plan is that prepayment now will actually lead to lesser obligations by the government in the future, as the retirement account grows on its own.
For the second argument: SS as a form of social insurance wouldn't be destroyed as long as the guaranteed minimum benefit was retained. Yes the system would change but the concept would not. It would simply be a different means to reach the same goal.
For the third argument: The data are in, and investing in the stock market for the purpose of retirement actually works. Since 1926, the average annual return for the Dow Jones Industrial Average was 11%. This time period includes the Great Depression, wars, unrest, recessions, two precipitous stock market crashes (1929 and 1987), 9/11, and all sorts of other bad stuff. Yet over the long haul, people make money. Of course if you speculate in the market you are likely to lose your shirt. But that is not the same as long-term investing, which works.
And for the fourth argument: Well, this borders on paranoia and I can't help you there. If you are stuck on this argument then you must tremble in fear that every time you go to the supermarket some big corporation somewhere is exploiting you. Greedy bankers or no, ordinary people still manage to make money in the stock market.
As a matter of full disclosure: If you read my profile you will learn that I am a conservative Republican, not a progressive. Yup it's true. If it were up to me I would completely privatize social security. But I know it's not up to me and, fortunately, never will be. But I hang around a lot of progressive folks, and these are the things that they tell me; what's more, I've learned a lot about progressivism from my conversations with them. So I really don't think these are inauthentic arguments. My progressive friends are all keenly interested in issues of social justice, for instance, and I don't doubt their sincerity. So this is a proposal in which progressive ideals can be applied in a way that benefits conservative values as well.
I await your constructive criticism.
I think there are plenty of good progressive reasons to support this:
1. It is a source of inheritable wealth for everyone. One of the cruel ironies of the current social security system is that it disproportionately disadvantages minorities because they tend to die younger than white folks. Hence white folks tend to get more SS money out of it than minorities do, and the system ends up being a transfer of wealth from minorities to whites. That would change with a partially privatized system: the money in the account would belong to the person's estate regardless, and it would be an active step in fighting white privilege.
2. It relieves the government of a significant financial burden. Instead of having to provide for a barely minimal retirement fund for everyone, the government would only have to provide a supplemental retirement fund for some, and then only if necessary. Whatever money is left over could be devoted to other purposes.
3. It is more consistent with the original intent of SS, which was to be a supplemental retirement fund. Right now it isn't that; more and more people actually depend on it for their retirement nest egg and that trend is bound to continue as more baby boomers retire, not all of whom have healthy 401k's.
4. This is one issue in which progressives can realistically expect to find common cause with conservatives and actually get something done in a deadlocked Congress.
5. And - let's face it - one reason why, IMO, progressive ideas fail at the ballot box is because they tend to stress communitarian goals over individualist goals. This is a way to have it both ways - to preserve the essential communitarian nature of social security while still acknowledging that individualism remains an important factor in people's voting decisions.
The arguments that I tend to hear against partial privatization are that (1) it would cost too much, (2) it would "destroy" SS, (3) the money would be lost in the stock market anyway so it would be just throwing good money after bad, and (4) it would only put money into the hands of greedy bankers.
For the first argument: SS is going to have to change, one way or another. The status quo is untenable. So the question is do we have to bear huge costs, because the answer is yes. The real question is: how much is it going to be, and when will the bill come due? The current unfuded liability for Social Security is approximately $11 trillion. This figure is NOT included in the national debt figures, so it is in addition to what the government already owes its creditors. We can either pay this figure later - and then keep paying it, and keep paying it, as more and more people retire and the wage-earner-to-retiree ratio goes further out of whack - or we can spread out the pain a little bit so we aren't forced with huge debts later. Think of it as prepayment on a balloon mortgage payment. It's easier to make smaller, regular payments in advance than to try to save up the money yourself, resisting the temptation to spend the money on something else (and we all know that Congresscritters always resist temptation!), then when the balloon payment comes due, you have to scramble to find the cash. And the beauty of this plan is that prepayment now will actually lead to lesser obligations by the government in the future, as the retirement account grows on its own.
For the second argument: SS as a form of social insurance wouldn't be destroyed as long as the guaranteed minimum benefit was retained. Yes the system would change but the concept would not. It would simply be a different means to reach the same goal.
For the third argument: The data are in, and investing in the stock market for the purpose of retirement actually works. Since 1926, the average annual return for the Dow Jones Industrial Average was 11%. This time period includes the Great Depression, wars, unrest, recessions, two precipitous stock market crashes (1929 and 1987), 9/11, and all sorts of other bad stuff. Yet over the long haul, people make money. Of course if you speculate in the market you are likely to lose your shirt. But that is not the same as long-term investing, which works.
And for the fourth argument: Well, this borders on paranoia and I can't help you there. If you are stuck on this argument then you must tremble in fear that every time you go to the supermarket some big corporation somewhere is exploiting you. Greedy bankers or no, ordinary people still manage to make money in the stock market.
As a matter of full disclosure: If you read my profile you will learn that I am a conservative Republican, not a progressive. Yup it's true. If it were up to me I would completely privatize social security. But I know it's not up to me and, fortunately, never will be. But I hang around a lot of progressive folks, and these are the things that they tell me; what's more, I've learned a lot about progressivism from my conversations with them. So I really don't think these are inauthentic arguments. My progressive friends are all keenly interested in issues of social justice, for instance, and I don't doubt their sincerity. So this is a proposal in which progressive ideals can be applied in a way that benefits conservative values as well.
I await your constructive criticism.
