Monday, February 07, 2005


While discussing Social Security reform with a multimillionaire friend of mine, he slammed a money clip on the table and asked, "why the excitement?" He said if the polititians want him to contribute an extra $1,000 to a personal account he is ready and it is no big deal if personal accounts do not pass.

I beg to differ. SS reform is a big deal. Polititians have spent 11 trillion dollars that is supposed to be in the trust account. Young payees will be hit hard when the paying rate drops to 73% of the pay-out rate. It is morally wrong to leave our children with the burden of reconciling the accounts.

Besides, we are not talking about $1,000. Four percent of the contributions of maximum payers is $3,600 the first year. As we all know, pay rates go up over time. If we assume pay rates rise by 3% per year and if we assume an average stock market return of 11%, the young person starting out today will accumulate about $6,000,000.00 in his personal social security account.

Multiply $6 million times millions of participants and we are talking real money. The kind of money that is needed to start businesses and to create millions of new jobs. Something needs to be done.

My millionaire friend says the reform will never happen. He says democrats will not pass any "invasion" of the trust and Bush will veto any tax increase. Business Week and others keep perpetuating the inaccuracy that taking money from the main account and putting it in personal sub accounts is withdrawing money from the SS Trust. The money is still there it has simply been designated for a specific persons benefit. The liability from the main account would be decreased at the same time the sub accounts are created.

There are many bones that can be thrown to a few democrats to get a deal done. In the process of reform, the minimum guarantees can actually be raised. The "safety net" can even be improved. Who knows? Maybe we will have to build a new sub-way system in Boston to get the deal done but even a Boston Boondoggle will not cost us 11 trillion. Solving the problem is too important not to do.

One simple solution would be to index the benefits to price increases rather than to wage increases. Benefits would continue to grow but only as fast as the increase in prices. This one change would provide room to start private savings accounts and to increase the minimum benefits. Wages rise faster than prices over time. Productivity would eliminate the deficit.

Those who want to make money in the stock market should read the previous few articles. Democrats and republicans should support reforms to social security because it would be good for individual payers and for the country. Yesterday, Greenspan paid tribute to the Scottish economist by the name of Adam Smith. Mr. Smith was the originator of the idea of the invisible hand. We have known for hundreds of years that resources are allocated best by free markets. We need government to stop spending our retirement dollars. We need to create millions of $6 million dollar personal Social Security accounts that can be spent by the individual or passed on to his aires.


Jack's Old Merrill Pal said...

I appreciate all of the talk about the social security and its shortfall. It seems very simple to me that the social security program is nothing more than just another federal government program. As Americans we have to ask ourselves, how much of our income, easily measured by govt expenditures/GDP, do want the govt to be? Its that simple to me. The mechanism Bush is attempting now is a veiled attempt of reducing Federal receipts and consequentially a measure to assist reducing federal expenditures. I'm all for it.