Posts Tagged ‘privatize’

Let’s Reflect On The History Of Social Security: On The Government Takeover And Of The FAR Better Privatized Option We Should Have Had

February 3, 2012

I begin by quoting from Burton Folsom, Jr.’s New Deal Or Raw Deal? to illustrate the history of the disaster that is otherwise known as “Social Security”:

Roosevelt’s social security plan created an array of problems. First, it retarded recovery from the Great Depression by contributing to unemployment. From 1937 to 1940, employers and employees were docked for social security, and that money was out of private hands and lying fallow in the treasury. Lloyd Peck of the Laundryowners National Association concluded, “The burden of this proposal for employers to carry, through a payroll tax, will act as a definite curb on business expansion, and will likely eliminate many businesses now on the verge of bankruptcy.”

Second, social security was unsound financially.  Unlike life insurance policies, workers had to live to age sixty-two to collect anything.  Life expectancy in 1930, the year of the most recent census, was almost sixty years, which meant that most people of that time would lose money from their paycheck every month for thirty to forty years, and neither they nor their children would ever receive a return on it.  In the case of black Americans, who had only a forty-eight-year life expectancy in 1930, most contributed to pensions that would disproportionately go to whites.  What’s more, the payroll tax was regressive – Henry Ford and Andrew Mellon paid in the same amount as their employees who earned $3,000 a year.

While some Americans were soaked by social security, others, especially the first retirees, rolled in benefits after making only minimal payments.  Ida Fuller, for example, a legal secretary in Ludlow, Vermont, paid a total of $24.75 into social security from 1937 to 1940, when she retired at age sixty-five.  Her first monthly social security check of $22.54 almost matched her entire contribution.  At her death in 1975, she had received $22,888.92 from social security, a payout of roughly $1,000 for every dollar she paid in.

When an accountant quizzed Roosevelt about the economic problems with social security, especially its tendency to create unemployment, he responded, “I guess you’re right on the economics, but those taxes were never a problem of economics.  They are politics all the way through.”  Roosevelt explained that “with those taxes in there, no damn politician can ever scrap my social security program.”  That’s why, as Roosevelt admitted, it’s “politics all the way through.”  Most politicians, following Roosevelt’s lead, have taken delight in raising social security payouts and using that gift to plead for votes from the elderly at election time.

In the original debate in the Senate on social security, Senator Bennett Champ Clark of Missouri wondered if private pensions for retirement might outperform the government pensions proposed in the social security bill.  He introduced the Clark Amendment, which would have allowed private employers to opt out of social security.

The key provision in the Clark Amendment was that employers had to at least match the government’s social security program in benefits to the employee and in premiums extracted from the employee.  The employer also had to agree to place the premiums with an insurance company – to an approved alternative – and to give all employees the right to choose the government-run program instead of the private alternative.

When the Clark Amendment was debated before the Senate in 1935, the advocates of a government monopoly were on the defensive.  On of them, Senator Robert La Follette, Jr., of Wisconsin complained: “If e shall adopt this amendment, the government having determined to set up a federal system of old-age [insurance], will provide in its own bill creating that system, for competition, which in the end may destroy the federal system.”  La Follette was perceptive.  If private insurance or mutual funds were allowed to compete with the government, no one might choose the government plan.  The Senate decided that workers ought to have a choice and voted 51-35 to make the Clark Amendment part of the social security law.

President Roosevelt was furious at the Senate, and threatened to veto the social security bill if it came to him with the Clark Amendment attached.  When the House passed a social security bill without the Clark Amendment, Roosevelt and his supporters used a parliamentary tactic to gain victory.  The House-Senate conference committee met to work out a compromise bill, and naturally the Clark Amendment was the main point of debate.  The committee decided to submit a final bill to Roosevelt with the government monopoly intact.  But they agreed to appoint a special joint legislative committee to study the Clark Amendment and report to Congress the next year on how best to provide for competition.  but after the government monopoly was instituted, the promised meeting in 1936 was never held.  Given that many private pension plans over the last sixty years have returned around 8 percent a year, and that social security benefits have averaged less than a 2 percent return, Senator Clark’s alternative showed much wisdom, but he couldn’t overcome Roosevelt’s political skill. — Burton Folsom, Jr., New Deal Or Raw Deal?  How FDR’s Economic Legacy Has Damaged America, 2008, pp. 116-118

Can we document the fact that FDR massively undermined workers and created devastating unemployment with his stupid and immoral policies?  To quote Obama, “Yes we can!”  For one thing, economists can now calculate that FDR prolonged the Great Depression and all the misery that accompanied it by seven years.

Don’t believe those economists?  Okay, then allow me to quote Henry Morganthau, FDR’s close personal friend and Secretary of the Treasury:

“We have tried spending money. We are spending more than we have ever spent before and it does not work. And I have just one interest, and if I am wrong… somebody else can have my job. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. We have never made good on our promises… I say after eight years of this Administration we have just as much unemployment as when we started… And an enormous debt to boot!” – Henry Morganthau, FDR’s Treasury Secretary, May 1939

In April 1939, for the record, unemployment was 20.7%

Don’t believe the economists or FDR’s own treasury secretary?  The how about Barack Obama’s former chief economic advisor?

Larry Summers blasphemy: Hitler saved FDR’s ass
by Lee on July 23, 2011 21:16 pm

Larry Summers is often quotable and Charlie Rose is occasionally watchable. Put ‘em together and you get the very definition of a blind sow finding an acorn.
 
The whole clip is interesting, but the money quote begins a hair after the 21:30 mark when Summers says something about left wing icon FDR that will undoubtedly result in fewer dinner invitations in the Hamptons this summer:

“Never forget, never forget, and I think it’s very important for Democrats especially to remember this, that if Hitler had not come along, Franklin Roosevelt would have left office in 1941 with an unemployment rate in excess of 15 percent and an economic recovery strategy that had basically failed.”
 
Why next thing you know Summers will be saying that Keynesian economics don’t work.

Clip here to watch the video: CharlieRose.com
http://www.charlierose.com/view/interview/11777

You might also be interested in finding out what Obama’s former chief economic advisor had to say about the massive and massively failed $862 billion (and actually, according to the CBO, $3.27 TRILLION) stimulus.

It is a documented fact that FDR and the Democrat Party failed America.

Now consider one country that tried what that Democrat Senator (Bennett Champ Clark) proposed achieved:

Chile’s Privatized Social Security Program is 30 Years Old, and Prospering
Written by Bob Adelmann   
Tuesday, 03 May 2011 16:40

As a quiet example of how privatizing Social Security works in the real world, Chile’s 30-year experiment is succeeding beyond expectations. Instead of running huge deficits to fund the old “PayGo” system, private savings now exceed 50 percent of the country’s Gross Domestic Product.

Prior to May 1, 1981, the Chilean system required contributions from workers and was clearly in grave financial trouble. Instead of nibbling around the edges to shore up the program for another few years, José Piñera, Secretary of Labor and Pensions under Augusto Pinochet, decided to do a major overhaul of the system:

We knew that cosmetic changes — increasing the retirement age, increasing taxes — would not be enough. We understood that the pay-as-you-go system had a fundamental flaw, one rooted in a false conception of how human beings behave. That flaw was lack of a link between what people put into their pension program and what they take out….

So we decided to go in the other direction, to link benefits to contributions. The money that a worker pays into the system goes into an account that is owned by the worker.

The system still required contributions of 10 percent of salary, but the money was deposited in any one of an array of private investment companies. Upon retirement, the worker had a number of options, including purchasing an annuity for life. Along the way he could track the performance of his account, and increase his contribution (up to 20 percent) if he wanted to retire earlier, or increase his payout at retirement.

How well has the system performed? John Tierney, a writer for the New York Times, went to visit Pablo Serra, a former classmate and friend in Santiago a few years ago, and they compared notes on how well their respective retirement programs were doing. Tierney brought along his latest statement from Social Security, while his friend brought up his retirement plan on his computer. It turned out that they both had been contributing about the same amount of money, so the comparison was apt, and startling, said Tierney:

Pablo could retire in 10 years, at age 62, with an annual pension of $55,000. That would be more than triple the $18,000 I can expect from Social Security at that age. OR

Pablo could retire at age 65 with an annual pension of $70,000. That would almost triple the $25,000 pension promised [to me] by Social Security starting a year later, at age 66. OR

Pablo could retire at age 65 with an annual pension of $53,000 and [in addition receive] a one-time cash payment of $223,000.

Tierney wrote that Pablo said “I’m very happy with my account.” Tierney suggested that, upon retirement, Pablo could not only retire nicely, but be able to buy himself a vacation home at the shore or in the country. Pablo laughed it off, and Tierney wrote: “I’m trying to look on the bright side. Maybe my Social Security check will cover the airfare to visit him.”

According to Investors Business Daily, the average annual rate of return for Chilean workers over the last 30 years has exceeded 9% annually, after inflation, whereas “U. S. Social Security pays a 1% to 2% (theoretical) rate of return, and even less for new workers.”

As expected, the capital accumulated in these privatized accounts have generated substantial growth in Chile’s economy. As noted by Wikipedia, “Chile is one of South America’s most stable and prosperous nations, leading Latin American nations in human development, competitiveness, income per capita, globalization, economic freedom, and low perception of corruption.” [Emphases added.]

High domestic savings and investment rates helped propel Chile’s economy to average growth rates of 8% during the 1990s. The privatized national pension plan (AFP) has encouraged domestic investment and contributed to an estimated total domestic savings rate of approximately 21% of GDP.

This was anticipated by Piñera when the plan was originally designed and implemented in 1981. In reviewing the success of the plan after just 15 years, Piñera said, “The Chilean worker is an owner, a capitalist. There is no more powerful way to stabilize a free-market economy and to get the support of the workers than to link them directly to the benefits of the market system. When Chile grows at 7 percent or when the stock market doubles … Chilean workers benefit directly, not only through high wages, not only through more employment, but through additional capital in their individual pension accounts.”

All of which should resonate with American workers who have been forced to contribute to a failing Social Security system for years. And yet when given the opportunity to support any sort of privatization, as during the Clinton and Bush administrations, the idea gained little traction. And now that Rep. Paul Ryan’s “Road Map” offers the chance for those same workers to contribute just one-third of their Social Security taxes to similar private accounts, the idea continues to fall on deaf ears.

However, according to Rasmussen Reports, that may be changing. Nearly half of those polled now correctly understand ‘that making major long-term cuts in government spending will require big changes” in Social Security, Medicare, and defense. That figure, adds Rasmussen, “suggests a growing awareness of budgetary realities among the American people.”

To privatize Social Security makes nothing but sense, as in dollars and cents. The ownership of private property has always propelled economic prosperity, higher wages and improved standards of living. Only those whose goals are to impoverish the American worker and reduce his ability to manage his own affairs and control his own future would resist such an attractive alternative. As noted by Piñera,

This is a brief story of a dream that has come true. The ultimate lesson is that the only revolutions that are successful are those that trust the individual, and the wonders that individuals can do when they are free.

I think of the misery that FDR inflicted upon every single American worker for the sake of a Democrat-controlled boondoggle that would “progressively” rob one generation of Americans after another compared to what they could have had if a privatized system (such as Chile’s or such as Clark’s) had been implemented instead.

But it is not enough to say America could have had much more than what Franklin Delano Roosevelt afflicted us with as a result of his partisan political takeover to give government a sole monopoly of something it never should have involved itself with in the first place.  The simple fact of the matter is that ENTIRELY because of FDR and the increasingly despicable Democrat Party that would follow, America is now in a situation in which it is guaranteed to economically implode.

Social Security was ALWAYS a Ponzi scheme and it was ALWAYS guaranteed to ultimately fail and result in the collapse of the American dream and the very nation itself.

Consider what Boston University economist Laurence Kotlikoff, writing in the September issue of Finance and Development, a journal of the International Monetary Fund, discovered:

A National Debt Of $14 Trillion? Try $211 Trillion
by NPR Staff
August 6, 2011

When Standard & Poor’s reduced the nation’s credit rating from AAA to AA-plus, the United States suffered the first downgrade to its credit rating ever. S&P took this action despite the plan Congress passed this past week to raise the debt limit.

The downgrade, S&P said, “reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed to falls short of what, in our view, would be necessary to stabilize the government’s medium-term debt dynamics.”

It’s those medium- and long-term debt problems that also worry economics professor Laurence J. Kotlikoff, who served as a senior economist on President Reagan’s Council of Economic Advisers. He says the national debt, which the U.S. Treasury has accounted at about $14 trillion, is just the tip of the iceberg.

“We have all these unofficial debts that are massive compared to the official debt,” Kotlikoff tells David Greene, guest host of weekends on All Things Considered. “We’re focused just on the official debt, so we’re trying to balance the wrong books.”

Kotlikoff explains that America’s “unofficial” payment obligations — like Social Security, Medicare and Medicaid benefits — jack up the debt figure substantially.

“If you add up all the promises that have been made for spending obligations, including defense expenditures, and you subtract all the taxes that we expect to collect, the difference is $211 trillion. That’s the fiscal gap,” he says. “That’s our true indebtedness.”

We don’t hear more about this enormous number, Kotlikoff says, because politicians have chosen their language carefully to keep most of the problem off the books.

“Why are these guys thinking about balancing the budget?” he says. “They should try and think about our long-term fiscal problems.”

According to Kotlikoff, one of the biggest fiscal problems Congress should focus on is America’s obligation to make Social Security payments to future generations of the elderly.

“We’ve got 78 million baby boomers who are poised to collect, in about 15 to 20 years, about $40,000 per person. Multiply 78 million by $40,000 — you’re talking about more than $3 trillion a year just to give to a portion of the population,” he says. “That’s an enormous bill that’s overhanging our heads, and Congress isn’t focused on it.”

“We’ve consistently done too little too late, looked too short-term, said the future would take care of itself, we’ll deal with that tomorrow,” he says. “Well, guess what? You can’t keep putting off these problems.”

To eliminate the fiscal gap, Kotlikoff says, the U.S. would have to have tax increases and spending reductions far beyond what’s being negotiated right now in Washington.

“What you have to do is either immediately and permanently raise taxes by about two-thirds, or immediately and permanently cut every dollar of spending by 40 percent forever. The [Congressional Budget Office’s] numbers say we have an absolutely enormous problem facing us.”

Democrats want to self-righteously lecture us about the giant spending of Reagan or Bush.  But don’t just consider that Barack Obama demonized George Bush for increasing the debt by $4 trillion in eight years before he increased the debt by $6 trillion in only three years.  Go beyond that and divide Bush’s debt by the $211 trillion that Democrats have saddled us with after giving us toxic boondoggles loaded with lies and pork.  I come up with 1.9 percent; what do you get?

Virtually every single penny of toxic, staggering, insurmountable, unpayable debt that we have been saddled on us by Democrats.  And they have done so while giving us massively inferior boondoggles such as Social Security and Medicare.

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