Diagramming Krugman: In today's New York Times, Paul Krugman
writes about the Bush proposal for social security. The current system works like this:
Krugman describes the Bush plan this way:
Privatization would begin by diverting payroll taxes, which pay for current Social Security benefits, into personal investment accounts. The government, already deep in deficit, would have to borrow to make up the shortfall.
Which is shown below:
But then Krugman goes on to say:
... in essence, such schemes involve having the government borrow heavily and put the money in the stock market. That's because the government would, in effect, confiscate workers' gains in their personal accounts by cutting those workers' benefits.
Once you realize that privatization really means government borrowing to speculate on stocks, it doesn't sound too responsible, does it?
Also, the scheme assumes there will be high stock returns, but Krugman says that's not realistic.
This is what Bush means when he talks of "fixing" Social Security.
posted by Quiddity at 12/10/2004 08:09:00 AM
I think you missed one arrow. My understanding is that the Bush plan calls for redirecting current boomer payroll taxes into private accounts. That means that less money will be available for current retirees. Thus you need one more arrow from the Fed to current retirees. The increase in the deficit will happen now, not when us boomers retire.
I wish the pundits would stop calling Bush a "conservative." That used to mean someone who paid his bills on time.
The social security system never was a pension or insurance program. It is a welfare program to guarantee that people who can't work due to age or disability are not in dire poverty as was often the case before it was enacted. It simply taxes working people and transfers the money to older or disabled people. Ending it will mean more poor people.
This sounds like class warfare to me.
In order to keep the diagram reasonably clear, I had to simplify. While boomers may be able to divert some money to private accounts, they've already put in - for 30 years - a substantial proportion of their FICA contributions - and these funds built up the S.S. surplus.
The point was that those participating in private accounts, regardless of which 'generation' they are in (overwhelmingly gen Y+), are, in effect, acting as a conduit for putting Federal borrowing into Wall Street.
So, I'm curious...
Exactly where is the 'security' part that this new version of Social Security is meant to augment?
