Article Link: http://online.wsj.com/article/SB122204378523361477.html
The idea for a private (at least semi-private) Social Security system was important in the 2000 Presidential election, and again in 2005, and even between elections the mention if it drew up all sorts of banter from politicians and workers, regardless of the color of their collar. The idea, as explained in this cbs marketwatch opinion article is that part of your %12+ payroll deduction to go into the government-run social security fund would be added to an account that could be controlled and invested in the stock market.
But with the recent downturn in the financial markets, Barack Obama is asking if this plan is still a good idea. Obama points that the entire country (except the savviest of investors) would lose their retirement (if they haven't already lost it) in a major stock slump. The McCain camp sees this as merely scare tactics and sticks by the GOP ideals of self-made riches. The McCain camp even goes on the offensive, saying that if Obama believes that this idea in this market is bad, that the United States runs the risk of up to 8 more years of a bad economy under his leadership.
Both groups make very valid points. What would happen under a system where individuals have their money in their hands. Cnn.com has an article on this as well from the 2000 campaign. Questions still remain such as who would run the accounts? Would a private bank like Bank
Of America or Wachovia control these? Would it be the choice of the individual, using stockbrokers like etrade or Fidelity? Or would it be the responsibility of the Federal Reserve? And if so, would the costs of such account management outweigh the benefits? See the Washington post image to the right and imagine in your mind where the lines would shift if the government had control of the accounts. Would individuals pay more attention to their money since they can control it?
Of America or Wachovia control these? Would it be the choice of the individual, using stockbrokers like etrade or Fidelity? Or would it be the responsibility of the Federal Reserve? And if so, would the costs of such account management outweigh the benefits? See the Washington post image to the right and imagine in your mind where the lines would shift if the government had control of the accounts. Would individuals pay more attention to their money since they can control it?Discussion Questions
Question #1: Would you pay more attention to the stock market if your retirement was in it? If you lost money, would you accept the blame or blame the system?
Question #2: Would this plan be scrapped at the next economic downturn? Would a market collapse scare the president into removing the program?
Question #3: Do you think this is a good idea? For this question I want you to remove party names and just think of it in terms of your pay stub (not your paycheck). Look at the deductions section and eye over how much is taken out for Social Security. Those who work part time (like me), think about how that number could be multiplied by 6 or 8, even 10 times what is being deducted now, as your salary will increase.
Question #4: Do you see this happening in the next 4 years? 8? 20?
Question #5: If Obama wins this election, will this plan be completely scrapped as just "something left over from the Bush administration?"
Image source:Google Images, accessed 9-22-2008.
2 comments:
I think social security privatization is a very risky program; the current situation explains why. The financial crisis that we are going through is a good example of the market’s instability; therefore social security contribution shouldn’t be attached to it.
Yes, I would pay more attention to the stock market if I would be investing in it for my retirement, but I guess it would be hard to accept the blame if anything goes wrong. I would most likely blame the system because I think when the government makes this kind of decisions that affect almost all American workers, it should be certain that no body will be affected by it.
Before we decide whether it is a good idea or not, I think we should ask ourselves the following:
- Wouldn’t be costly for the government to establish the system that could eventually affect the income for the working class?
- How would people’s awareness about the program be handled?
For the first point researches show that in the past social security privatization did not work for other countries, such as Great Britain, Chilli and most Latin American countries. These countries acknowledge that there had been higher costs involved in it, such as administrative costs to convert the system and manage the new private accounts.
Even after the privatization, it has been a disappointment for many; people didn’t gain much out of it as was predicted before the program.
The second point is that people have to be aware of the relationship between the market’s performance and their individual accounts. Some economists suggest that it doesn’t mean people will get higher returns if the market does well; they have to bear some of the costs associated with it, like commissions and administrative costs . Stock market is not a day to day activity for most people; therefore I think people would think twice before investing.
And as A.J pointed out, the higher our income the higher the deduction will be and in my opinion riskier, since the market hasn’t been stable.
I don’t see it happening in the next 4, 8 or even 20years because, in my opinion, fixing the market will be the number one priority for the winning candidate before doing anything else. I think it would be harder to convince people to get involved in the system and even those who want to implement it will have a hard time to be 100% sure about it.
Right now the stock market is like playing poker and not being dealt any cards. Its a lose lose. So the idea of having my money let alone my retirement in the market right now scares me to death. I have people in my classes who are older and have families, and no matter what subject the class is they all comment on our breaks about how scared they are about their retirement. I am even receiving advice about how to protect my money. Roth IRA's are the most popular.
I look at my parents right now and see two people who were looking forward to retirement in 5 years, now just watching the years stacking up in front of them. If I lost money I would definitely blame the system. We are the most powerful country in the world, yet we depend on foreign countries to help us with our national debt. It would make even the staunchest republican look for something different, but thats not the only issue our country faces.
Question 2... well we are at that economic downturn and Wall Street has relocated to Washington DC. Social Security is being used up by the billions as I sit here and write this. Who is going to take care of me when i'm old, frail and hitting on nurses in my nursing home while kicking butt at bingo? We need to find a different way to save for social security. Privatization of social security is not the answer, but im not saying that I have the answer. The government is not doing a very good job of keep the money flowing either. Maybe splitting it up would work but who really knows till we try it...
One of the benefits of coaching tennis is that I am paid straight cash:) Even though i benefit through this loophole in the system I can understand how frustrating it is to see your hard earned money taken from you to fund a program that might be gone by the time that you need it. Its a little ridicules and definitely unfair. I think taht any idea that would offer low risk and high reward is the way to go.
As I sit here and think, I am reminded of something Prof Matthews said. It was somewhere in the area that, "someone was going to get rich off of this downturn." The market can only go up from here. Maybe the gov should put money into the economy in the form of social security money and see what happens. NO NOT ALL OF THE MONEY.... A test run.
You know i do see something similar to this happening sometime in the future. I guess it just needs sometime in the spotlight to get attention. With the recent economic downturn and the wars it might take some time for this issue to come to the forefront of political talks.
I think that Obama's message of change will spurn the administration to throw away many of the Bush administration's ideas and try to find new ways to make the country better. But in the end they all say the same thing right...?
Post a Comment