Why Social Security can't be Privatized- By Scott Baker

Found here. Our comments in bold.

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The author must have intended to write a different article. He never answers the Quora question, preferring instead to extoll the virtues of SS.

But most troubling is the idea that government should not have any restraints on spending. The author thinks that revenue is irrelevant and therefore spending is irrelevant. 

Astounding.

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A lot of people ask questions like this one from Quora. Herein, my answer:

What are the reasons behind the impossibility of privatizing Social Security? Is there a way for individuals to invest their own money in pensions instead of relying on the government?

We already have something similar in 401k's (403k's for universities). (The author is not off to a very good start. 

SS is not similar to a 401k in any way. The contents of a 401k is owned by you. SS is not. You can cash in a 401k. You cannot cash in your SS account. A 401k is voluntary, while SS is compulsory. You can choose your 401k investment strategy, but not with SS.

In short, there's no comparison. At all.)

These retirement funds are typically paid into for 5% of one's pre-tax salary by the employer and another 5% from the employee's salary, optionally up to 10%. It's pre-tax, so it's more money than a taxable salary portion would be, with the theory that the tax will be paid at retirement, when the employee's salary is lower or absent altogether and he/she is in a lower tax bracket. Until then, the money has a chance to grow. Sounds great! There's a problem though. Most people are pretty bad at investing their money. (That is, choice is a bad thing because some people are not good at choosing.)

A 401k lets the employee choose from an often dizzying array of stock and bond funds, or cash. (That's what the investment advisor is for, to assist in choosing.)

But people tend to choose a hot fund after it's made most of its gains, neglecting funds where stocks might be cheaper. (People should not have a choice, because they might make a bad one...)

Worse, they sell near the bottom, thinking they'll get back in when the market goes back up, but they rarely do. (People are stupid...)

No one rings a bell at the bottom or at the top. 

Social Security is a surer bet. (So if you're stupid it's better for government to extract money from your paycheck and give it to someone else.)

The government invests in safer assets, consistently, and forever. (It doesn't matter what SS invests in, because no matter how those investments perform it doesn't change a person's SS benefit.

But more importantly, the author will later assert that there is no need for government to obtain revenues at all. So we wonder, what does it matter that government "invests" safely?)

It's a myth that one gets back the payments they put in. Employees pay for current retirees. (Remember when the author compared SS to a 401k? Would you, dear reader, drop money into a 401k that paid for someone else's retirement?)

When THEY retire, the next generations of employees pay for their retirement. That's how it's worked from the beginning, even though you do get more if you've contributed more over the course of a working lifetime. (A perfect description of a Ponzi scheme.)

When SS was first devised, the average 65-year old could expect to live to 67. (That is, it was planned to pay little to no benefits.)

No one foresaw that 65-year olds would live into their mid to late 80s, even 90s (So SS is a "surer bet" even though government bureaucrats are really bad at forecasting obvious things like increasing lifespans.)

(it's longer than the average lifespan because by the time you reach 65, you've already survived the things that could have killed you before then). So, the retirement age is gradually being increased to 67, (i.e., benefits have been cut. And benefits most certainly will be cut again.)

though some people will opt to take SS earlier, at a lower payout, if they have health or other issues that prevent them from working until the optimal age. Naturally, this is hard to figure out. How long you will live, how much you will need, what is your tax situation - and your spouse's if he/she is still working - since SS became taxable in the 1980s for higher income earners. All of these things, and more, factor into making a decision about when to take Social Security. ("Hard to figure out." But remember, a 401k's investment choices are a bad thing because they're confusing.

And what happened to SS being a "surer bet?")

Given all these factors, it's easy to see why just trusting people to invest their own money and have enough for retirement is a bad way to go, (Yet we are forced to trust SS...

Again the author condescends. You see, you just can't be trusted with your own money.)

even before considering that social security was never supposed to be one's entire retirement income in the first place. It's supposed to be a supplement, (Waaait. The author has been extolling the virtues of SS, but now he admits it isn't enough? That means that people still must do their own saving and investing in addition. Um, like, investing in a 401k. 

We are no longer confident the author is thinking clearly.)

but it's the whole income for a large percent of the population, who often have to struggle against inflation to pay their bills. Social security does adjust annually for inflation, but not for inflation for the elderly, which has a different set of factors, usually having more to do with healthcare, which has been inflating faster than the CPI for decades. (Having pumped up SS he now is slowing deflating it...)

Before social security, there was usually nothing. (What about family, charity, or not retiring?

The idea of retiring and doing nothing productive for the rest of one's life is a relatively new concept. For some reason we think that we are entitled to leech off of society simply by virtue of living a long time.)

A few people had pensions, but if the company went bankrupt, their pensions could disappear too. (Wait til SS disappears.)

Poor houses were overwhelmed and generally terrible. There were fewer old people (i.e., life expectance was a lot less, so the possibility of outliving one's resources was lower and the possibility of collecting extended SS benefits was not likely.)

and more children, so children more often had to take care of their elderly parents etc. (That is, the intact family unit, slowly being disassembled, provided care for the elderly.)

Today, the situation is almost reversed, with more older people over 65, than under 21. Also, people move more, so they may not live and work in the same communities as their elders. In any case, what if someone didn't plan well for retirement? In any other part of life, if you can't afford something, you do without. In retirement - which, by definition means you are no longer earning an income - if you can't afford it, you starve and go homeless, aside from the imperfect things listed above. (No, you choose to delay retirement.)

So, despite some libertarians and conservatives wishing to privatize social security, and providing a fat fee for fund managers who are always happy to sell retirees and workers funds that may not be right, or may not be diversified because they carry the same types of investments, etc., the public generally rebels whenever such a proposal is put forward. George W. Bush tried it and was soundly defeated. No president has seriously considered it since. (This is a non-sequitur from the previous discussion. What has privatization to do with comparing a 401k with SS?

And when is the author going to tell us why SS cannot be privatized?)

Who knows? Another administration may try again since social security is "supposedly" running out of money by 2034, (Supposedly??? It's out of money now. The SS Trust Fund contains no money, it contains only government bonds. Government has already taken all the money and spent it, leaving nothing but I.O.U.s. Remember when the author wrote, "The government invests in safer assets, consistently, and forever?" These "safer assets" are government IOUs. 

It's nothing but a shell game.)

and it will then pay out only a portion of what it owes, about 80% is the latest prediction. (Sounds like a benefit cut...

So, Mr. Baker. When an organization can only pay 80% of what it owes, what is the descriptor for such a situation? "Insolvent," perhaps?)

But this is grossly misleading. ("Grossly." We can't wait to read how this 80% projection is "grossly" leading people to a wrong impression.)

The federal government is monetarily sovereign (Well, there's a new phrase. But the author will never explain it. Yet being "monetarily sovereign" is the panacea that should calm our fears. Why? Well, we don't know, because the author will not tell us.

We will do the author's work for him: 

Modern monetary theory (MMT) is a heterodox macroeconomic supposition that asserts that monetarily sovereign countries—such as the U.S., U.K., Japan, and Canada, which spend, tax, and borrow in a fiat currency that they fully control—are not operationally constrained by revenues when it comes to federal government spending.

Put simply, modern monetary theory decrees that such governments do not rely on taxes or borrowing for spending since they can print as much money as they need and are the monopoly issuers of the currency. Since their budgets aren’t like a regular household’s, their policies should not be shaped by fears of a rising national debt.

This is a dream scenario for those who believe the government is the answer to all our problems. Can you imagine having unlimited spending power? 

It used to be that people thought that government should be subject to prudent spending practices, and that running up debt was a generally bad idea. But with the idea that a "monetarily sovereign" country should not be constrained from profligate spending gives carte blanche permission to set money on fire.)

and could continue paying social security even if no payroll taxes were ever collected again. (It's astonishing that the author sees no downside to the government printing money. He doesn't appear to understand that there must be consequences to increasing the money supply, like hyper-inflation.)

In fact, due to the money multiplier, and the fact that social security tends to be spent, not saved (for retirement), it stimulates the economy. Two studies I cited in my book, "America is Not Broke!" showed social security generated 80 cents to 1 dollar for every dollar spent, respectively. (This is spectacularly false. There is no multiplier. A SS dollar spent by one person came from another person who would have spent it themselves. There is no new money in this scenario, and no multiplier effect. The author lies to us.)

Social security is the best senior anti-poverty program ever invented. It's a win-win-win for the employee, the worker, and the government.

(Hmmm. The author never told us why SS can't be privatized.)

Scott Baker is a Managing Editor & The Economics Editor at Opednews, and a former blogger for Huffington Post, Daily Kos, and Global Economic Intersection.

His anthology of updated Opednews articles "America is Not Broke" was published by Tayen Lane Publishing (March, 2015) and may be found here:
http://www.americaisnotbroke.net/