“Reminds me of Social Security.”

I know I’m beating it to death, but Best of the Web pointed out something that fits with what I’ve been saying.

Americans agree major changes are needed in Social Security: 45% say they should be made in the next year or two; 36% say within the decade.

So 81% of people agree that something needs to be done, but the Democrats continue to ‘Just Say No’ to any reform. I caught a few minutes of Pat Leahy on Fox this weekend, doing an amazing job at outright evading Chris Wallace’s attempt to get him to propose an alternative plan. Leahy stuck to his guns, calling for the President to embrace bi-partisanism. I’d love to see Leahy honestly define the term, but I won’t hold my breath.

The Left thinks they are winning the battle, but in reality Bush is fighting the normal lethargic inertia of the population. It takes a long time to turn a big ship. I’m confident that long term serious analyses will bring us to private accounts and less of a Washington slush fund to be used as Senator Byrd’s private building allowance.

The Democrats are confusing voter apathy with a rally behind their banner. I can see how they could make the mistake, considering a true Leftist rally is by definition both pathetic and apathetic.

With each passing year, naturally mortality is thinning the ranks of those that have the most to preserve in opposing any change in the system, while those who stand to lose the most in the status quo are reaching voting age. Bush is on the right side of demographics even if he takes a short term hit in the polls. Again, leaders lead, while politicians poll.

No, I didn’t watch the President’s press conference last night. If you can’t already tell, I’ve been a bit burned out on politics, and I just didn’t feel like sitting through an event that will have three essential elements inherent in any Bush press conference.

1). I will likely agree with most of what he says.
2). The press will continue to demonstrate their complete inability to assemble a clue.
3). The general population won’t give a crap.

These are all particularly true in the case of Social Security. CNN is trumpeting the numbers; 64% disapprove of Bush on SS, and 51% are against private accounts.

Gee, ya think? I’m not surprised with the meticulous, intricate research into the issue made famous by the general population. I’m certain they’ve approached the issue with the deliberate methodology that has become a hallmark of the American voter.

As I’ve said many times, this is a marathon, not a sprint. A smart politician would take a look at the polls and back off the issue completely. A good leader will dig in and fight it out despite the erosion. While Bush isn’t going to get everything he wants, it is a poor negotiator that extends his final goals as an opening position. I’m sure he’d be happy to get ANY form of private accounts codified, since Washington is a town of precedent. Once you have it, just about anything is conceivable.

Meanwhile, the wizened class will continued to fund AARP and their shameful TV ads, while the Left will gloat about poll numbers and be complacent in their role as the paperweight party. The Shafted Generation is slowly becoming aware of the magnitude of the Shaft, and cold fiscal reality has a way of concentrating the mind.

Reform is inevitable. Private accounts are unstoppable. The only real item of debate is who gets the credit and which president signs the bill.

Everything going on right now is pre-game.

A quick post this morning before my day gets too busy.

Take a few moments and read about Galveston County, Texas, and their success after opting out of the Social Security system.

•Workers making $17,000 a year are expected to receive about 50% more per month on our alternative plan than on Social Security — $1,036 instead of $683.

•Workers making $26,000 a year will make almost double Social Security, $1,500 instead of $853.

•Workers making $51,000 a year will get $3,103 instead of $1,368.

•Workers making $75,000 or more will nearly triple Social Security, $4,540 instead of $1,645.

•Our survivorship benefits pay four times a worker’s annual salary — a minimum of $75,000 to a maximum $215,000 — rather than Social Security’s customary onetime $255 survivorship to a spouse (with no minor children). If the worker dies before retirement, the survivors receive not only the full survivorship but get generous accidental death benefits, too.

The Galveston County case has been well know to people itching for reform. It’s time Bush uses this as the centerpiece example of reform efforts. It isn’t theory. We have a documented test case.

The media frenzy has been churning for a few months now, since Bush nominated Social Security reform as the centerpiece of his second term domestic agenda, and as one might imagine, the media focus has been overwhelmingly negative. Coupled with the assault by the Democrats and the AARP, initial public support has weakened somewhat.

A new survey by the Pew Research Center for the People and the Press showed support for such accounts tumbling despite an intensive nationwide sales campaign by the president. The survey said the idea has 46 percent backing, down from 54 percent in December and 58 percent in September.

Excuse me? I know I’ve been sick the past few weeks, but I haven’t seen much of the President barnstorming the country, pushing the plan. There isn’t even a plan yet, really. A lot of proposals have been tossed out there, but nothing concrete has been drafted by White House proxies. Yet the media, and a lot of weak Republicans, are seeing an 8 point shift in opinion as a portent of doom.

What gives?

A ‘centerpiece issue’ implies a long span of time, covering a few years of the current term. Just last year, Social Security was the impossible third rail, and now after being on the table for two months, the critics are wailing that it hasn’t been solved yet.

I think the critics are engaging in a bit of ‘misunderestimation’ of the President. They’ve spent a lot of energy and time attacking a plan that hasn’t been formally proposed, staking out thier objections and positions that are quite clear for all to see.

And the President hasn’t even set up his pieces yet.

He still carries a lot of political capital, and his modus has frequently been a process of lulling the opposition to sleep before turing on the heat.

I don’t know if he will pull this one out, or if his capital will be sufficient, but I do know enough about the past four years to not count him out too soon. This is going to be a long, uphill battle, and to me he seems to be laying in logistics for a long campaign.

The other side fought a skirmish against a phantom enemy.

Stay tuned…

As George Will said last night on ABC…”This WILL happen.”

In the post-speech sample, 70 percent of respondents said Bush’s policies on health care were positive, while 66 percent approved of the president’s plan for Social Security.

Two thirds are now open minded to Social Security reform and limited privatization. While it isn’t a slam dunk, I’m questioning the sanity of the Democrats in getting in the way of this. But then again, what do they have left if Social Security is taken away from them as an issue?

The thread of comments below by Chris G. has raised some deeper issues that I would enjoy talking about. If you haven’t already read the section, go here and get caught up.

What started as a policy discussion has lead to some questions of core philosophy that are worth taking the time to discuss. Specifically, it revolves around the role of government and the responsibility of the individual. It seems that Chris and I may have a reasonable disagreement between two reasonable people, which is just fine, and makes things interesting.

The issue of Social Security privatization has never been a question of social benefit or a matter of fiscal calculus to me. Not directly. While I firmly believe that a privatized system, even on a small scale, will indeed create more wealth for all Americans, the fundamental issue for me revolves around the question of freedom and responsibility. In short, the federal government has no Constitutional role in establishing a retirement program, and any such program is an infringement on the right of the individual. No where does the enumerated powers of the Federal Government include a retirement scheme, and despite the potential benefit of such a program, any exercise of this sort of power is a step down the path of unbridled Federalism. Unfortunately, that step was taken a long time ago, and we are well down that path.

Moving to a more practical argument, now that we have Social Security, the issue becomes a matter of choice and the exercise of some freedoms in how the money is invested and returned to the people. The current ‘pay as you go’ system has few advantages I can see. For one, while the benefit is ‘secure’ and known, it is far less than can be obtained in the private securities market. Choose any thirty year period and you will see a vast difference in the rate of return between Social Security and the market. The volatility of the market is something to be concerned about in the short term, and private holders of 401(k) accounts buffer this risk in later years by moving the investments to low yield, safe bonds, to preserve capital. A private system of investment would by necessity offer the same options. Another problem with the current system is the termination of benefits at death. Classes of people with a lower life expectancy are essentially cheated of the full ‘benefit’ of the program by having the misfortune of dying young. Blacks and Hispanics, powerful elements of the Democratic base, are especially prone to this problem. Finally, the demographic wave moving through the population will place a massive burden on younger workers, forcing two workers to support the benefits of one retiree. Such a system can’t be sustained.

There are other answers to these problems, such as reducing the benefit, increasing the payroll tax, or extending the retirement age. All of these, to me, seem to be poor solutions. Of them all, raising taxes would probably get the most support from people, since it would quickly assemble a numerical majority to seize money from a wealthy minority. I have serious moral issues with the ability to grab another man’s money, just because I have a friend with a like mind, outnumbering the rich guy. I might as well knock him over in a dark alley and take his wallet.

Why appropriate more money from the wealthy when private accounts offer so much?

Addressing some specific concerns raised by Chris –

Yes, 401(k) accounts exist and are currently available. But this is an additional cost on top of the 6.5% FICA taken from each check. Some people have a hard enough time socking away 5% in a 401, why can’t they have the option to cut into some of that 6.5% if they do so under specific controlled situations, waving away some of their future ‘benefit’ from Social Security (and an increasing number of young people are dangerous skeptical about the future of the program when they hit retirement age)? The foundation of a private plan would still involve government oversight, as distasteful as I find that on a level of principle. For example, my plan at work limits me to a certain mixture of mutual funds. The only pure stock I can buy is in Pfizer. A private plan would not offer a pure security. I’d even settle for limiting it to a mixture of bonds, since even those would provide a higher rate of return.

Private plans such as 401s are a great vehicle, yet we don’t have the ability to opt out of the current plan. It’s a bit ironic that Congress has given themselves the ability to opt out and invest in private programs, but we don’t have the same ability? As it stands now, we are forced to invest in a lousy program AND bear the added cost of taking care of ourselves responsibly through private investment.

The benefits of private investment also add liquidity to the market, which touches on an entire different topic of the catalytic affect of investment on wealth creation. But that’s for another long post.

Finally, Chris has the following concerns, with which I respectfully disagree –

But I have a real problem with this from a historical point of view. There is a very good reason why we have a high death tax in the US. The founding fathers realized that there needed to be a restriction on family money…this was because of their experience with European monarchy and and other blue-blood simply living off ancestors money and never themselves contributing in a positive way to the society. While over the centuries the US political spectrum has managed to counter some of these restrictions (to a bad end IMHO) and we are now seeing a huge disparage between the rich and the poor like never before – the estate tax is still a valid social concept – and one I support. I know that is not popular, but I don’t see why I should expect to directly benefit from my father’s (and mother’s) efforts beyound being raised in a manner that they can afford. I should be able to hold myself up on my own effort and merit.

While the Founders did have a healthy fear of aristocracy, they did nothing about the generational transfer of wealth. A search of the online Federalist Papers reveals nothing about the topic, and the estate tax was not even created until 1916, under the influence of an unhealthy fit of Populism. The Founders had a healthy respect for wealth creation, and indeed expected people to be able to pass on this wealth to their children. They addressed the concern of aristocracy through the system of representation.

Federalist #57 (The Alleged Tendency of the New Plan to Elevate the Few at the
Expense of the Many Considered in Connection with Representation) addresses the issue directly.

THE THIRD charge against the House of Representatives is, that it will be taken from that class of citizens which will have least sympathy with the mass of the people, and be most likely to aim at an ambitious sacrifice of the many to the aggrandizement of the few. Of all the objections which have been framed against the federal Constitution, this is perhaps the most extraordinary. Whilst the objection itself is levelled against a pretended oligarchy, the principle of it strikes at the very root of republican government. The aim of every political constitution is, or ought to be, first to obtain for rulers men who possess most wisdom to discern, and most virtue to pursue, the common good of the society; and in the next place, to take the most effectual precautions for keeping them virtuous whilst they continue to hold their public trust. The elective mode of obtaining rulers is the characteristic policy of republican government. The means relied on in this form of government for preventing their degeneracy are numerous and various. The most effectual one, is such a limitation of the term of appointments as will maintain a proper responsibility to the people.

Equal protection under the law is the most effective means to combat the influence of an oligarchy. One of the most crucial debates of the Founders was centered on the question of representation. The fear was that too dilute of representation would result in an unresponsive government, prone to undue influence by moneyed men. If representation is confined to a local level, meaning that a representative is responsible to a smaller constituency, then a corrupt officer would quickly be identified and turned out by a small electorate.

Who are to be the electors of the federal representatives? Not the rich, more than the poor; not the learned, more than the ignorant; not the haughty heirs of distinguished names, more than the humble sons of obscurity and unpropitious fortune. The electors are to be the great body of the people of the United States. They are to be the same who exercise the right in every State of electing the corresponding branch of the legislature of the State. Who are to be the objects of popular choice? Every citizen whose merit may recommend him to the esteem and confidence of his country. No qualification of wealth, of birth, of religious faith, or of civil profession is permitted to fetter the judgement or disappoint the inclination of the people. If we consider the situation of the men on whom the free suffrages of their fellow-citizens may confer the representative trust, we shall find it involving every security which can be devised or desired for their fidelity to their constituents.

A representative must be responsible to the whole of the people, and this is affected by devolving power to the local level. The essential problem in the current Federalist system is the removal of power to far away DC, and the current level of representation, making it easier for a corrupt politician to still retain office through districting and a general detachment of the electorate from the day to day actions of their representatives. This is one of the reasons the Founders so strongly opposed direct election of Senators. To win election in such a large region, and over such a large number of voters, a candidate would have to possess qualities of appeal that would remove them from the specific interests of local regions. An elected Senate would breed an aristocracy of name and image, which is exactly what we ended up with today!

A corrupt oligarchy is exactly what results as we leave the principles of the Founders behind. This is ultimately why I am so opposed to Democracy in general.

As for the potential problems of inheritance of private accounts, I don’t see the problem. An aristocracy of wealth is by definition exclusive. That exclusion doesn’t square in a universal system of privatization, when each and every citizen gains the ability to bequeath a benefit to their children. It is fundamentally equal.

It’s a deep issue, and I doubt this post will see the end of it. The nature of wealth creation, the non-zero-sum nature of the economy, and the moral issues of security haven’t even been addressed yet, but in the interest of brevity (of a sort), I’ll leave those for later.

Chris, thanks for the debate, and I hope you keep at it. THIS is why I like to blog.

Social Security reform is a done deal. Bush might not get his plan through right now, but the system is dead as it stands today, and it will succumb to a simple shift in expectations.

Social Security was designed and pitched to a generation that was used to having very few choices. They had two or three television channels, a handful of radio stations, limited selection of grocery brands, and limited expectations when it came to investments, if any. Social Security was a nice, vanilla scheme tailor made for a generation used to standardization, and quite put off by the idea of roiling, turbulent capitalism. The entire power base of the Democratic Party, birthed by FDR, was built on the idea of stability for all that are willing to forego choice. While that has served the party well, the seeming inability to reconcile themselves with the changing dynamic will doom them in the end.

The generation that embraced Social Security is still a powerful force, and their gullibility at the hands of the Democratic Party will continue to present obstacles for much needed reform. Preaching numbers, retirement age, and rates of return aren’t going to change their mind, but fortunately, reform won’t turn on that kind of data.

Tap a twenty-something on the shoulder and try to explain to them that they shouldn’t have any choice in how their money is invested. Bring it up while they wait in line at Starbucks to order their sixteen syllable personal variation of coffee. Explain it while they grab their personalized Whopper delivered in under ninety seconds at a drive thru window. Run an infomercial on one of five hundred television channels available to them. Run ads on the radio and hope they aren’t listening to one of several thousands songs available at their fingertips through various media players. Explain to them that they aren’t capable of making choices. Explain that they shouldn’t exercise ownership over some portion of their own account.

Good luck.

The younger generations grew up in a vastly different world. The turbulence of capitalism is a comfort for most, providing new opportunities and challenges each and every day. They live in a dynamic world, and nearly fifty percent of them own stock in some form or another. Much has been made of the growing wave of retirees, but I think the real wave is on the other end of the demographic scale. They aren’t going to tolerate a static system with a pathetic rate of return, and more importantly, lack of ownership of their accounts for the sake of their dependents.

And the Democratic Party faces an agonizing choice in the face of this coming shift in political power. They can stand with the aging (and ultimately declining) FDR generation, riding them into the sunset of political power, or they can embrace the coming wave of politically active voter and try to get ahead of the GOP push for privatization and choice. Either way, a very important segment of the Democratic Base will find themselves out in the cold.

The coming reform is as certain as the morning. It remains to be seen if Bush is the man to pull it off right now, but it will happen.

UPDATE – I found a well written entry on Social Security here at Dave Friedman’s Soul of Wit, speaking to some of the concerns raised by Chris in the comment section. Mr. Friedman has a nice take on the issue, namely that there are many other valid reasons for attacking the current system, so take your pick. As I said below, and maybe hadn’t made clear in the main entry, I do favor a menu approach to investing with private accounts. By some means, various risk classifications would have to applied to an approved list of securities or Mutual Funds, much like most 401(k) accounts. While I prefer as much freedom as possible, and would ultimately strive for complete freedom to invest as you will, I bow to the reality of emotion and irresponsibility. But even in the face of human failure, ultimately, private accounts are both prudent, fiscally sound, and morally just. I can really see no compelling reason to pool money as we have in the current program.

It’s been some time since I’ve beat up on my second favortie New York Times columnist, but I stumbled over this early in the week and haven’t had time to post it. In typical Krugmaniacal fashion, Paul has conflicting views on the solvency of Social Security. I guess it depends on who is in office, or what he wants to accomplish with each column. Good stuff.

Krugman is spouting his usual lies and banality about the Social Security system and how it must be preserved. I love the way he says the system is essentiall robust and only a ‘modest’ infusion of money will keep it going for the next 75 years.

I love these people who insist that individuals can’t take care of their own retirement costs, yet those same individuals can afford take care of everyone else’s retirement PLUS a huge federal bureau to administer it.