Philzone.org Discussion Board: Archive 2004: Politics Archive 2004: The Privatization of Social Security ????

One of the only half way decent programs set up for our elderly ageing rich and poor and they want to rid of it, and have us privatly invest, in what ENRON STOCK?, A 401k that gets butchered because of corrupt corporate slime balls??

The ownership society:

Rich people own things, poor people work or die.

You shouldn't make rich people pay taxes, because they already had to pay tax on it once to get it in the first place.
Once they have a lot of capital, it is unfair to tax it again, isn't it?

Implication:
Only work should be taxed, not wealth.
Taxes are for working people.

Those smart enough to be born rich shouldn't be expected to have to pay taxes.
Only those who have the poor taste to be working should have to pay tax.

This is an example of Grover Norquist's wet dream of getting government down to a size where "we can drown it in the bathtub."

Our financial system has a HUGE problem (amongst many):

The baby boomers are KEY here. They are about to retire, and are set to begin collecting Social Security and Medicare benefits - AND begin drawing money out of the STOCK MARKET.

This creates 2 stresses: A massive run on the market when they retire, and not enough money coming in as new investment to sustain the market's overall value. It's economics 101. The solution is that the SS monies of the young will (hopefully) be sufficient to sustain the market, by steering those SS funds into private accounts invested in stocks.

This solution has problems: First, will the declining wages and lesser numbers (as a percentage of population) of the younger generations allow for sufficient investment back into the market to replace what the baby boomers pull out of the market? If not, CRRRRRASHHHHH!!! In a less painful scenario, think Japan's Nikkei index......stagnant performance for 20ish years.

Second, there will be a 2 - 3.5 TRILLION dollar bill issued to cover those "in the middle" of the SS setup - those who are not invested in SS private accounts, but are due to collect benefits. That bill must be paid.

With Medicare, the scenario is this: Again, a large %age of the US population is set to begin needing these benefits. The future projected costs are astronomical. So, the plan is as follows, which has both financial implications on the individual, and follows a political plan - to split the Democratic party in half, and create a Republican gubmint for as far as the future can see.

It works like this:

A pilot program is in place for Medicare (called "Medicare Preferred" or something similar). This plan is intended for more "well heeled" retirees who can pay a larger %age of thier own premiums. It will be a better plan in terms of benefits.

The old program will be for those who cannot afford the higher premiums. This plan, in time, will go bankrupt because there will be too many on the plan drawing benefits and will be mostly funded by the Gov.

Those who are on the "preferred" plan will be happy. Those on the other plan will be SOL. The repubs will pitch this to the "better off half" that "we came through for you", and thus have the future votes of these retirees. Those on the bankrupt plan will be forgotten by the GOP.

So, here's the score:

51% current majority + 7-10% of elderly Dems who are better off and still have a decent health plan = 60ish% majority (and a projected future permanent GOP majority).

And finally, the moral of the story: If you cannot afford your own health care or retirement, tough shit. You are on your own. You better get to work on it.

Welcome to the "Ownership Society".

its about time.. finnaly the gov't can get rid of this pyramid scheme started by bleeding heart libs to take care of useless old people... call the glue factory everyone... j/k

Glad you added that j/k, Pat. I was beginning to wonder about you.

Regardless, the privitization of SS is the WORST idea for people but the BEST idea for corporate America. They get stock market investments GUARANTEED by Uncle Sam. Just another corporate handout.

Worst thing about the idea: If the market tanks, where's your cash?

Question I'd most like to ask Bush about the plan: You claim the best way to help the economy and people is to let them keep more of their own money (i.e. tax breaks), why not just let people HAVE that money to invest, save at the local bank, keep in a cookie jar or under their mattress instead of mandating that it must be invested in the stock market??

Come on, Mr. Conservative Pat, address that question...

JBH

Regardless, the privitization of SS is the WORST idea for people but the BEST idea for corporate America. They get stock market investments GUARANTEED by Uncle Sam. Just another corporate handout.

Worst thing about the idea: If the market tanks, where's your cash?

Question I'd most like to ask Bush about the plan: You claim the best way to help the economy and people is to let them keep more of their own money (i.e. tax breaks), why not just let people HAVE that money to invest, save at the local bank, keep in a cookie jar or under their mattress instead of mandating that it must be invested in the stock market??

Come on, Mr. Conservative Pat, address that question...

JBH


I agree this is nothing more than more corporate welfare.. not to mention a way to absolve the government of a huge social program.. which does seem tempting.. but that wasnt the purpose of creating social security was it? The whole idea was guarunteed retirement.. that doesnt exist in a stock market than at times can be volitile.

It is better for the economy to let people make their own decisions with their money. Oddly enough it isnt always whats best for them. However, we live in a free society and part of that involves letting people make their own decisions as free agents in that society, especially concerning their finances. I have no problem allowing folks to make their own financhial decisions. I suppose the question is if we commit ourselves to saying the economy is better off when people keep more of their own money for retirement.. and people are better off because of it.. why have social security to begin with?

It sounds like the actual debate here is whats best for the economy as opposed to whats best for the people. Hmmm the two arent mutually exclusive in all cases..

To add to that:

In the theoretical sense, privatization of a program like Social Security is always an improvement over having Government continue to run it. As currently configured, all Social Security does is apply a supplemental tax to current workers to pay for benefits for current retirees. Despite accounting devices that attempt to structure the program like a savings program, it is in fact run more like an entitlement program. On one hand, all individuals receive something from Social Security even if they never worked. On the other hand, there is no mechanism to store surpluses from monies taken from current workers.

Social Security was created in 1935, a time when life expectancies were much shorter than today and when families had more children. These demographics will be a challenge for us regardless of what type of "reform" is adopted.

There are many good arguments for a gradual privatization of Social Security. One, markets are a proven source of return. Annualized, the S & P 500 has returned 10% a year in the last century (7% after inflation). This period includes the Great Depression. Secondly, taking away responsibilities from Government and returning them to individuals makes a freer society. There are many more points that I can make, and if there is demand I will post some articles.

The fact remains though: There are good and bad ways to privatize a government resource. We have had some examples in the past 20 years to draw on: The transition of Communist nations to markets, privatization of Social Security programs in Chile, privatization of government industries in Great Britain, privatization of government programs in New Zealand. All of these examples have had good and bad points to learn from.

Closer to home we had the California power utility privatization which was done in a botched manner.

Our current administration shows a tendency to favor the more well off in it's economic agenda while offering much less for the middle class.
That said, Social Security privatization, while not likely to be a disaster, probably will be done in a manner which leaves much to be desired.
(I still feel it will be an improvement over what is currently in place).

The reason I write this: Dissenters of the administration need to understand that this is a good idea, but the implementation makes all the difference. Learn the issues and argue for an approach that is more worker friendly. If you just rail against the entire idea, you stand no chance in shaping its outcome.

>>>understand that this is a good idea, but the implementation makes all the difference.

Exactly.

why is it a good idea???? that means that people now cant rely on anything but advise from some investors on where to invest their 401k, and what about all the uneducated or other folks who cant figure out how to invest properly in private funds, they get screwed for not being smart enough? And who makes profit on these funds, the rich of course.

Oh and instead of making health care better, they want to make it more difficult for mal practice suits to get settled, so if the doctor cuts off the wrong limb you cant get compensation. This is fucked!!!

....

>>why is it a good idea???? that means that people now cant rely on anything but advise from some investors on where to invest their 401k, and what about all the uneducated or other folks who cant figure out how to invest properly in private funds, they get screwed for not being smart enough? And who makes profit on these funds, the rich of course.

Part of being an ADULT is taking responsibility for one's life. We need to get away from the concept of needing Big Mommy or Daddy Government to hold our hand and walk us through life. I'm all for offering a helping hand for those who have encountered misfortune, but enough is enough. Investing is not rocket science. Just put your money in a diverse index fund and leave it there for your working years. It will do several times better than you will do giving it to the government and collecting Social Security.

And how exactly do the rich make a profit on these funds?

>>Oh and instead of making health care better, they want to make it more difficult for mal practice suits to get settled, so if the doctor cuts off the wrong limb you cant get compensation. This is fucked!!!

I'm all for full compensatory damanges for malpractice, but as far as punitive damages go, there have to be some caps put in place or we all will suffer from more expensive medical care.
Again, how this is implemented is everything.

As far as reforming our health care system, check out this approach. I posted it before but in the runup to the election it received no discussion:

http://www.reason.com/0411/fe.rb.mandatory.shtml

Just put your money in a diverse index fund and leave it there for your working years>>>>>>

but what if they are investing in socially irresponsible corporations, like weapons manufactures, or whatever.

We need to get away from the concept of needing Big Mommy or Daddy Government to hold our hand and walk us through life.>>>>>

insnt privatizing SS doing exactly that, telling us now we have to invest privatly and we will show you how and where, but theres no guarantees it will definitly be there.

And how exactly do the rich make a profit on these funds?
>>>>>>>>

Well somebody will have to set all this up, stock brockers , mutual fund investment companies, investment bankers, and they are not going to do it for free, or for our current taxes we pay.

What happens to the market when large generations.. i.e. the boomers take their money out of the stock market and gov't privatized stock accounts?? Probably a large sucking sound as the market goes down the drain..

>>but what if they are investing in socially irresponsible corporations, like weapons manufactures, or whatever.

I take it you refer to defense contractors who are part of the "military - industrial complex".
The operation of corporations is and should be subject to laws created by the political process.
The solution to the problem of corporate influence on the political process is political in nature and not directly relevant to this topic. If a corporation is engaging in ILLEGAL conduct, it goes without saying it is improper for investment. Beyond that, what is "socially irresponsible" is a matter of opinion and personal choice.

>>insnt privatizing SS doing exactly that, telling us now we have to invest privatly and we will show you how and where, but theres no guarantees it will definitly be there.

First of all, the current proposal is for only a part of earnings to be invested in private accounts. Nobody will HAVE to take advantage of them, it will merely be an OPTION. Right now, the Federal Government takes 15.3% of your earnings for Social Security. The plan is merely to give you the OPTION to keep some of that money and invest it privately.

I haven't seen the investment options yet, I don't even know if they exist yet. I would support the widest range of choice possible, perhaps akin to IRA rules.

>>Well somebody will have to set all this up, stock brockers , mutual fund investment companies, investment bankers, and they are not going to do it for free, or for our current taxes we pay.

Thousands of mutual funds exist already. This would merely mean a transfer of money to existing funds. Yes, these entities would benefit. However I know of funds that charge 2/10 of a cent on the dollar for operating fees.
The smart investor would seek to use these low expense funds and pocket this money him or herself.

Egoist...
I have a question for you....if you were to choose an online broker who and why?
I was inching towards fidelity because my 401k is thru them...but, it's a min 2500 and I was just interested in 500 in one stock.

>>Part of being an ADULT is taking responsibility for one's life.

That's where you lost me, Michael. That's a very myopic attitude, and doesn't factor in the notion that some people, especially the elderly, CANNOT take responsibility for their own money. They have none. My great-grandmother, bless her heart, had no job and lived until she was 97. She had NO WAY to make enough money to live. That's why SS helped when she got old and when her husband died.

As for your assertion that: "Investing is not rocket science. Just put your money in a diverse index fund and leave it there for your working years. It will do several times better than you will do giving it to the government and collecting Social Security." I couldn't disagree more.

My mother's husband lost $20,000 in a week last year when the market tanked. A WEEK! That's not a lot of money to most folks, but it is a SHIT LOAD to my folks. As for him being an adult and taking care of himself, he did. Now he's retired, collecting disability for Agent Orange exposure. Still, the market is NOT a safe place for his own private retirement funds, so what guarantee is there that the market will take care of MY SS money?? The answer: none.

No one answered the fundamental question I posed above: If the Repubs are so intent on letting each person decide their own money fate, why not let me just KEEP my SS money??

JBH

The smart investor would seek to use these low expense funds and pocket this money him or herself. >>>>>>>>>>>>

and the dumb investor gets screwed!!! {{{ i got mine and you got yours}}}} More republican capitialist tripe! "thats not my fellow man, thats someone i can screw out of their own money, come here old man"

>>Egoist...
I have a question for you....if you were to choose an online broker who and why?
I was inching towards fidelity because my 401k is thru them...but, it's a min 2500 and I was just interested in 500 in one stock.

Personally I don't know much about online brokers. I don't do individual stocks myself.
I'm not saying it's bad to do, but you need to really know the insides and outsides of the company and how it relates to a variety of political forces.

I'm into Vanguard because most of their funds have no yields and the expense ratios are low.
In my opinion get a broad index fund: S & P 500 or better still Wilshire 5000. Contribute regularly and forget it for 30 to 40 years.
About 5 years before you expect to need the money, start putting some of it (25%) into something less volitile, maybe a money market fund.

>>That's where you lost me, Michael. That's a very myopic attitude, and doesn't factor in the notion that some people, especially the elderly, CANNOT take responsibility for their own money. They have none. My great-grandmother, bless her heart, had no job and lived until she was 97. She had NO WAY to make enough money to live. That's why SS helped when she got old and when her husband died.

In no way am I saying that we shouldn't take care of those who have nothing. That is something entirely different from privatizing Social Security. Let's stop having a one size fits all approach. Let those who can invest their own money.

>>My mother's husband lost $20,000 in a week last year when the market tanked. A WEEK!

Markets do bounce around a bit. In the worst year of the Great Depression, the S & P 500 lost 43% of its value. If you had money on it in 1929, you would be down in 1939. By 1949 you would be ahead of where you started. Lesson: throughout American history broad segments of the market always turned a profit for investors OVER THE LONG HAUL. They are not a place to play around. I wouldn't keep money in the market if I expected to need it within the next 5 years. As far as I'm aware, the current plan is to ALLOW, NOT MANDATE putting some of your money in the market. If you don't want to, you can stay in the current system. What's wrong with that?

>>No one answered the fundamental question I posed above: If the Repubs are so intent on letting each person decide their own money fate, why not let me just KEEP my SS money??

I'm not a Repub so I can only guess what the motives are. I know Social Security came about as people failed to have enough saved to meet their needs in old age. So we developed a program that herded everyone in together. I can understand the concept: "you must save so you are not a burden on the state later on", but if you can show you are saving sufficient assets to provide for your own retirement needs I feel you should be allowed to opt out.

>>>Why not just tell Americans they are responsible for buying their own health insurance from now on?

I think Mr. Bailey answered his own question when he mentioned that sooner or later the cost of health care comes from workers' wages. But in developed countries like the USA that no longer have a viable labor movement (unlike France and Germany) wages have been stagnant or declining for most workers since the 1970s (so has productivity--when measured in units of time--relative to these other "socialized" countries) due to the pressure of global competition for low-wage labor, validated by "free trade" agreements, and the astronomical increase in corporate dividends and executive salaries, validated by no one accept exclusive corporate boards of directors. The notion of a direct exchange of wages for benefits is great in theory (just like "free markets"), but it does nothing to consider the countervailing pressures exerted by these huge discrepancies within the globalizing economy. Bailey's proposal if implemented would do nothing but hurt most people and benefit a few--just like every other libertarian, free market idea. If you want the free market to work for most people, something has to be done to define its parameters (i.e. re-nationalize the economy, especially labor) or provide some kind of substantial cushion (i.e. welfare) against the devastating impact the transition back to economic liberalism will (does!) inevitably entail, especially but not only for the most disadvantaged in a society. And one way or another everyone will have to pay for that transition (i.e. tax increases).

Ok.

Let's assume we allow folks to "invest in the market".

What happens if the market starts to fall big time about the time that many investors REALLY need that investment?

Could many folks end up selling at the bottom?
And therefore end up with not enough to live on?

Will the government at that time be "strong" enough to ignore the starving suffering baby boomers?

Or will government be forced to come to the rescue as the ultimate insurer?

Do not discount the value of having a safe, riskless "safety net".

Life without a net would probably brings throngs of homeless old people onto the street....an appealing notion to the "ownership" society?

If not, then what safety net will have to be created, and at what cost?

Matt: Good to see you back. Where is the answer to my last posting on race and opportunity?

I will try to answer this discussion tomorrow.
for tonight I'll just add that I have some material that challenges the notion that wages have been static or declining for the past 30 years. I'll try to find it.

>>>Where is the answer to my last posting on race and opportunity?


What thread was that under Michael? I was out of town for a few days and lost track of our discussion, but I would like to read your reply.

We privatized the election process so we can surely privatize Social Security right???

Good one page article in last week's New Yorker about the dangers associated with the privatiztion of SS and how it's disastrous risk management.

So if the US Market is gonna tank, wouldn't it make sense to take a look at the currency market? Watching the current market cycles, the Euro, Swiss Franc, and the Sterling Pound are all way up against the dollar. Given the structure of the Euro, it seems to be the most prudent investment option today. Rather than being based on the economic performance of a single company or country, it is diversified through the economies of the EU countries who decided to go to the Euro. So if this market tank is in order, you'd expect a devaluation of the dollar along with the crash. While other currencies may suffer, barring a total depression across most of Europe, the Euro won't tank as quickly. At this point you end up ahead in the dollar column. Take this money, invest it back into the stock markets, keep working hard, and watch the economy recover from the crash while your wealth grows. Retire when you have enough to live off of for the rest of your life.
Maybe this plan will work, maybe it won't. As a 26yo male, I'll take the chances of my plan to provide me something in retirement rather than hedge my bet that Social Security will be there for me.

>>>Where is the answer to my last posting on race and opportunity?


>>What thread was that under Michael? I was out of town for a few days and lost track of our discussion, but I would like to read your reply.


"Dont let the Republican Goverment distroy this community!"

>>We privatized the election process so we can surely privatize Social Security right???

I think the "privatization" of the election process was a bad idea.

>>Good one page article in last week's New Yorker about the dangers associated with the privatiztion of SS and how it's disastrous risk management.

Is this online? if so can you post it?

>>If you want the free market to work for most people, something has to be done to define its parameters (i.e. re-nationalize the economy, especially labor)

Matt can you be more specific on what this would entail?

>>I think Mr. Bailey answered his own question when he mentioned that sooner or later the cost of health care comes from workers' wages. But in developed countries like the USA that no longer have a viable labor movement (unlike France and Germany) wages have been stagnant or declining for most workers since the 1970s (so has productivity--when measured in units of time--relative to these other "socialized" countries) due to the pressure of global competition for low-wage labor, validated by "free trade" agreements, and the astronomical increase in corporate dividends and executive salaries, validated by no one accept exclusive corporate boards of directors.

I think the problem of "stagnant wages" is exagerated. See the following:

http://reason.com/9512/COXfeat.shtml

Despite this, I agree there is a problem here. One thing that interests me is possible ways to control things like executive salaries. Isn't it possible that Mutual Funds, which control large blocs of stock can be called upon to exert control over the corporations they hold? If existing Mutual Funds are unwilling, how about forming a "union" of small stockholders to exert voting control?

I completely agree with Michael. I don't usually post messages but, this topic really has my interest. I would love to see social security partially privatized. One thing I don't know if anyone already said: it is only 2% of the 7% of SS that would be privatized. So the other 5% percent is in the governments hands earning nothing! I will gladly take my money from the government and invest it. I know that investing is scary to a lot of people after Enron, stock market crashes, The Great Depression. When one hears stories about losing 20K in a week, who wants to take that gamble? But, there are a lot of precautions that one can take to decrease the risk of investment.

1. Diversify - Don't put all your eggs in one basket

Don’t just buy one stock and ride the roller coaster. Buy several stocks. I could go into Beta’s and correlation coefficients (numbers that measure risk), but that would bore everybody to tears.

There are even stocks that are known to do better in bear markets.

2. Mutual Funds / Exchange traded funds

There is already a lot of diversification built in. It is important to look at no-load funds/ and index funds because they have a much lower expense ratio (which I believe was mentioned earlier)
3. Risk/Return

Risk and Return are positively correlated, high risk, possibly high return! Want lower risk; probably have to sacrifice some return.

4. Do your research!

Read articles, financial statements, etc. to get as much information as possible.

I like Vanguard I currently have a REIT index fund with them.

Morningstar.com has a mutual fund screener that one can use to research mutual funds if anyone is interested.

It is easy to criticize what one doesn't fully understand. If the market stills sounds too risky - try high grade bonds. Although, you don't see the same high returns, there are many that are very low risk.

I wonder if the author of that article in the New Yorker has any investments of his own... or do think he just has his money under his mattress?

The stock market can be fun, don't let the rich have all the fun…

Seija,

I am new here. But, I thought I would let you know a couple of things. Scotttrade has a $500 investment min to open an account. There you can invest in stocks & more. But, if you are interested in mutual funds, go directly to the fund company. (avoiding any commission fees) You can screen mutual funds for free at morningstar.com

Here is the direct link:

http://screen.morningstar.com/FundSelector.html

With that mutual fund screener you can type in what your minimum investment is, as well as other criteria. It will search through the vast amounts of funds for you. Another important thing to look at is the expense ratio. Index funds expense ratio will be lower, less management, less fee. I never see a reason to buy load funds either. There are plenty of no load.

There are many funds that allow less than a $2500 min. invest, some as low as $250.

Hopefully that helps...

Jason,

I am willing to bet that the 20K that was lost in a week was not in diversified index fund.

First, how much was the total investment. 100,000, 300,000? 1,000,000? In other words at the begining of the week and at the end of the week - What was it worth? And where is at now?
Has it recovered?

I do agree though 20K is a lot of money.

I've got one word for Mr. Cox and Mr. Alm of Reason magazine: CREDIT.

Their article is the worst apology for a growing income gap that I've ever read. To talk about improved consumption as a sign of individual economic health and not discuss the increasingly astronomical amount of borrowing done by most Americans is incredible--especially since our president and his party have made it the basis of their public policies! The kinds of living standards improvements they point to--more leisure through house-cleaners, attending games and concerts, etc.--are paid for by a very limited segment of the population (remember, the rich are getting richer--whether with old or new money). The other "attendance" gains in these areas can rather quickly be accounted for by pointing to the increasingly indebted middle class. (The sub-middle class don't even have access to credit, in general, and are left to fend for themselves, as usual. I also recently read that many companies now run credit-checks when hiring new employees, further accerbating the situation for a working class struggling to improve their lot in life.) This is all a recipe for economic disaster (or a class war), not celebration--whether you're a "declinist" or not. Growing income stagnation and inequality are FACTS of American life right now, and the kind of targeted denials offered by Cox and Alm are not going to change that unpleasant reality.

And, as I said earlier, privatizing social security would only make the situation worse by adding to the public debt in the short term and increasing economic inequality in the long term by funneling income into corporate capital (the engine of inequality) with no guarantee of equivalent returns.

I'm sorry that I don't have links to back up my argument. I derive most of them from books that are too lengthy (and sometimes too convoluted) for quick references. I could cite some of these books though, if you like.

>>If you want the free market to work for most people, something has to be done to define its parameters (i.e. re-nationalize the economy, especially labor)

In a "free market" workers should be able to negotiate their compensation separately or collectively depending on circumstances--just as capitalists are allowed to incorporate. Collective bargaining was gutted by the Taft-Hartley Act of 1947, which outlawed "sympathy strikes" among other labor tactics, and by the anti-labor activities of subsequent presidential administrations, especially Reagan's. The final nail in the coffin of truly "free markets" in which supply and demand would offset one another has been the transnationalization of the marketplace in which capital "moves" much faster than labor, thus preventing any real bargaining. If the national boundaries of the marketplace were re-established for both labor and capital via "protectionist" measures (immigrant labor-recruiting regulations, etc.)--or if their fluidity were equalized--then markets might actually work as Adam Smith and other economic liberals (like Hayek) envisioned. But these regulations have obvious drawbacks, especially for immigrants. So....

Michael, I have a lengthy reply in mind for your other point about racism and economic opportunity, but I'll have to try and post it tomorrow. One of my roommates moved out, and it was his computer I was using on a regular basis. I now go to the public library everyday to do my internet stuff, but I can't stay here for very long at a time given my current workload. Have a good evening.

Some silly facts about losing $20,000 in a week:

The S&P 500 Index (nmost common index fund) has exhibited the following returns in the past few years:

Week ended Monday 9/21/01: 1-week return = - 11.6%
Week ended 3/16/01: returned -6.7% for the week.

Week ended 4/14/00: returned -10.5% for the week.

2 Week ended 7/19/02: retuned -14.8% for the two weeks.

If you had a $250,000 index fun, you would have lost between $16k (-6.7%) to $37k (-14.8%) during those weeks shown above.

By the way, most planners would tell you that a $250,000 portfolio would provide you with about 5% income each year, or $12,500 per year. Can you live on that?

So if you think you need more than that, do a little math and see how much wealth you might be risking in the market even in a nice safe index fund.

Matt:

I never said there isn't a problem. My use of this admittedly old article is to show some examples of why it isn't as bad as some make it out to be. I also think that a rising tax burden on the middle class also plays a large role in the equation. I haven't studied labor policy a lot, but your argument about collective bargaining makes a bit of sense to me. As to immigration and free trade: don't you feel that eventually the cycle will be closed when less developed countries wages rise enough to make outsourcing and immigration less attractive?
Also how about my point about strategies to leverage corporate policy?

Steve:

You would be surprised how big a porfolio one can accomplish if they save regularly over a 40 year career. $2500 a year for 40 years isn't $100,000, at 10% a year, the historical rate of return for the S&P 500, this could be several hundred thousand dollars.

>>>Some silly facts about losing $20,000 in a week:

Week ended Monday 9/21/01: 1-week return = - 11.6%
Week ended 3/16/01: returned -6.7% for the week.

Did you know that we were in an official recession from 3/2001 to 11/2001 although many figures point to the recession beginning in 2000!

4/14/2000 maybe ???

Why don't you pull some S&P figures from 1999?

Tell me what is the overall S&P average rate of return? 10yr; 5yr

Let me also point you to an interesting website:

http://www.heritage.org/research/features/socialsecurity/welcome.asp

TO ANYONE:
Here is a page with dozens of links on investing:

http://clem.mscd.edu/~mayest/FIN3600/FIN3600_Links.htm

Bottomline: you can pick many weeks in history that show positive returns and negative ones. It is just plain stupid AND MISLEADING to only discuss one side of the story. That is why averages are taken into account. It is extremely unfair to people that would truly like to understand the market to only discuss the negative aspects. Nobody is going to make anyone invest, but some people may want to take advantage of the offer. It is up to the individual to decide how much or how little risk they choose to take. (There are some very low risk options, where one can at least generate 5% - 8% return if not more)

>>>>You would be surprised how big a porfolio one can accomplish if they save regularly over a 40 year career. $2500 a year for 40 years isn't $100,000, at 10% a year, the historical rate of return for the S&P 500, this could be several hundred thousand dollars.

YES!!!!!
If I hadn't misplaced my fin. calc. I would spit out some #'s. Here's some from a book:

Investing $200/mo starting at age 25, and retiring at age 65 at a return of:

4% - $237,180 (t-bills anyone)
7% - $528,025 (maybe bonds)
9% - $943,286 (S&P/index funds)
12% - $2,376,484 (if your lucky ha! ha!)

I've put over 50k into this crap so far. I think they should give everyone their money back.

>>>don't you feel that eventually the cycle will be closed when less developed countries wages rise enough to make outsourcing and immigration less attractive?

No, corporate capitalists are rather finicky about where they choose to deploy resources. They demand many profit-friendly circumstances, especially a pliant, non-unionized labor force. You don't see many companies flocking to nations with strong labor movements (like most South American countries) or to impoverished regions like North Africa, and they don't need to because the impoverished workers in these countries will emigrate if they can to the more developed economies like that of the USA (we have a booming Somali population here in Minneapolis--go figure?!?), keeping wages low and disrupting any potential labor movement.

>>>Also how about my point about strategies to leverage corporate policy?

It's a remote possibility in some unusual, isolated cases, but it's almost never a democratic situation of one stockholder, one vote. From what I remember of high school economics, stockholder voting requires preferred stock, which requires more substantial resources and investments. I don't think most individuals have that kind of capital at their disposal, buying common stock instead. Those that do are more likely to be concerned with growing profits rather than disbursing them, especially if they've bought enough preferred stock to have a controlling interest in the company. These two goals (growth and distribution) are thought to have an inverse relationship--kind of like how Republicans want to grow their way out of economic trouble and Democrats want to more equally distribute the wealth generated by a sustained economy of limited growth. I suspect that growth can be coupled with redistribution; it just won't be as rapid. But most preferred stockholders demand high returns for their high investments, so they are willing to pay high salaries to the executives who meet their dividend demands by slashing labor costs, streamlining production, emphasizing short term profits over long-term growth, etc.

The bottom line is that corporations are not very democratic because democracy is not as efficient as capitalist hierarchies when it comes to generating wealth.

I wasn't refering to what corporations would LIKE to do. Obviously they want cheap labor.
If we get population growth to stop, at some point we get a closed system where labor will develop more of a balanced amount of power.

Hey Mandy,

wanna debate finance sometime?
Bring it on, baby.

Why don't you guess the average return for the S&P for the past 10 years?

a) 12%
b) 10%
c) 8%
d) 6%
e) 4%

What's your guess?

drum roll...............




Oct 2004: 1112
Oct 1994: 467

compound avg return= 9%



How about last Four years:

assume you made it to October 2000, surviving that recession that began in April 2000 (LOL!)....

S&P 500 10/00 = 1469
10/04 = 1112

a loss of about 25%.

Assume you retired in 2000 with $2million.
You could spend about 5%, or $100k.

But by 2004, you are down to less than $1.5 million, because i) even if you spent nothing, the market lost 25%, and ii) you spent $100 k per year.

You might be down to almost $1 million....thus cutting your projected lifestyle by 50% in 4 years.

This JUST HAPPENED to many recent retirees...you think they might be glad social security is still going up every year for them?

And Mandy. lets hear about those low risk options to earn 5-8%?

Im quite curious.

Oh, and what do you think the S&P returned over the past 40 years?

Q: what was average rate of return for S&P from 1964 to 2004?


a) 12%
b) 10%
c) 8%
d) 6%
e) 4%

drum roll.................






...................




10/64 S&P 500 = 85
10/04 S&P 500 = 1112

compounded annual return = (1112/85)^(1/40)-1 = 6.6%

note that inflation ran about 3% during that period, so you actually earned about 4% more than inflation in the market over the past 40 years.

Still optimistic?

P/E levels are still near the highest they've been for the past 80 years. So that means that much of the growth in stock prices over the past 75 years has been expansion of the P/E multiple (we now pay 20 times earnings, used to pay 12).

So unless the P/E multiples keep getting bigger, don't expect the stock market to bail you out.

Steve,

Sorry haven't had time to check back for awhile. Well, I would have guessed about 10% for the S&P over 10 years. If I had retired in 2000 with 2 million I would have moved my money from stocks to bonds and cash. So I probably would not have lost as much as you say I would have. But, I will add my parents lost a couple hundred thousand in the recession as well. It is part of the game. They also made a lot over the years as well. Secondly, even if I did lose 25% of money I would still be better off than if I didn't invest anything at all. As for your figure of 6.6% over the last 40 years I find that interesting because I have known several people that have done quite well, but even if they hadn't I would say once again 3.6%-4% (after inflation)is better than nothing.
If you think that you are unable to manage your money yourself, and you have more faith in the government. Fine! I don't - I would like to make my own choices in life. Thank you!

Mandy,

You appear to be arguing that letting young folks invest on their own is better than having them pay SS taxes in support of existing senior citizens.

I cannot argue with you, I'd rather invest money in my own account than pay SS taxes too.

And as for individual investments, stocks are fine, but MAYBE NOT for a program designed as a SAFETY NET.

Please ponder the following:

1) If the younger generation gets to put money in their own accounts instead of paying SS taxes, then WHO PAYS for existing seniors?

2) What if we take away the SAFETY NET, and some percentage of the new "investors" happen to earn subpar returns? When they are old and poor and starving, will society just say "that's the free market at work, too bad"? or will we feel obligated to create a new program to look out for those who lost their savings in the market?

3) Are you SURE stocks are going to earn a return above inflation for the next forty years? I'm not. Neither are many many finance scholars (folks that actually understand markets pretty well, and certainly aren't scared of it because they don't undersand it). Most of the stuff you read about how stocks are great is based on the fact that the US stock market did amazing things in the 20th century. But P/E ratios today are far higher than in the past. So much of the growth in the value of stocks came from rising prices paid for the same earnings. To see similar returns in the future, earnings would have to grow at extremely high rates, or the price paid for earnings will have to get even more extreme. Remember, the price paid for earnings is very similar to the yield on a bond. The reason P/E ratios are generally higher than the inverse of a bond yield is that earnings are generally expected to grow.

I could probably keep rambling, but at any rate, please keep in mind the INHERENT riskiness of stocks: if stocks were guaranteed to beat bonds, nobody would own bonds, because it would be stupid; if stocks were guaranteed to beat cash, nobody would own cash. Please note that investors in aggregate own more bonds and cash than they do stocks.

>>1) If the younger generation gets to put money in their own accounts instead of paying SS taxes, then WHO PAYS for existing seniors?

This is going to be a problem no matter what we do. The crunch is coming soon. In the future we will need to cut spending or raise taxes no matter what. This issue needs to be judged on it's own merits.

>>2) What if we take away the SAFETY NET, and some percentage of the new "investors" happen to earn subpar returns? When they are old and poor and starving, will society just say "that's the free market at work, too bad"? or will we feel obligated to create a new program to look out for those who lost their savings in the market?

I don't think this is about taking away the SAFETY NET and I'd oppose any attempt to do so.
The SAFETY NET needs to be means tested. Right now Bill Gates would be eligible if he were 62.
We should be trying to create means....make less people need the safety net.

>>3) Are you SURE stocks are going to earn a return above inflation for the next forty years? I'm not. Neither are many many finance scholars (folks that actually understand markets pretty well, and certainly aren't scared of it because they don't undersand it). Most of the stuff you read about how stocks are great is based on the fact that the US stock market did amazing things in the 20th century. But P/E ratios today are far higher than in the past. So much of the growth in the value of stocks came from rising prices paid for the same earnings. To see similar returns in the future, earnings would have to grow at extremely high rates, or the price paid for earnings will have to get even more extreme. Remember, the price paid for earnings is very similar to the yield on a bond. The reason P/E ratios are generally higher than the inverse of a bond yield is that earnings are generally expected to grow.

Let's make the program allow investment in bonds as well.

>>>And as for individual investments, stocks are fine, but MAYBE NOT for a program designed as a SAFETY NET.

First of all, not all of the SS $ has to be invested privately. Some suggest 2-5%. I don't believe that you will only be allowed to invest in stocks. The program will probably look very similar to a mutual fund/exchange traded funds. Where one can invest in stocks, bonds, T-Bills, etc. Depending on the risk you want to take. You will have choices! Maybe you will want to stay 80/20 stocks until age 50, then move 50/50. Then as you edge closer to retirement you can move into strictly bonds & cash.

>>>>Neither are many many finance scholars (folks that actually understand markets pretty well, and certainly aren't scared of it because they don't undersand it).

Finance scholars.... Well I am no scholar.. although I am a Finance student earning a BS in Finance (graduate in May). My concentration is in the Financial Services area, and I will be getting my CFP next year. I will ask my professors, PHD's in Finance, what they think about privitization of SS! I will warn though you -- they are republicans!

Secondly, there is nothing wrong with people learning about the stock market. It is shameful, that more people in this country will not take the time to understand their finances. Although, they certainly figured out how to pull out a piece of plastic, and say charge it! Why is that we as a country have to continually take care of people (and I am not talking about the truly poor) who choose not to save, and take care of themselves! I understand that there are some that fall on hard times, and we should take care of those! It is hard to draw the line, and distinguish the difference sometimes though.

I posted this link once before.. check it out!
It is a SS calculator...

http://www.heritage.org/research/features/socialsecurity/welcome.asp

another article I found on the same site....I read the first page or so...tons more articles as well...


http://www.heritage.org/Research/SocialSecurity/bg1811.cfm

Where are you in School, Mandy?

(what university?)

The Heritage Foundation?

Now that's a fair and balanced viewpoint.

>T-Bills

LOL! isn't that what they 'use' already? (if'n they actually had any money after the pyramid pay-outs.)

guess, under the plan you'd pay a broker, too....probably once to buy, once to sell and the entire time to 'manage' all of the 'assets'.......certainly won't be restictive to 'no load'..... so much for privatization and healthy return on investments

besides the obvious boondoggle when all the babyboomers show up with their collective hands out to cash-in the same day. can you say bigger crash than '29? I knew that you could...... oh wait that's gonna happen anyway when they go to cash in their 401(k)s invested in the 'mutual' market.......

The Heritage website apparently assumes that the historical rate of return for stocks will continue in the future.

My opinion? HIGHLY UNLIKELY.

Is my opinion shared by many Finance Professors?
Yes.

Does this make the Heritage website misleading?
Yes.


Don't forget that the current system provides:

a) life insurance for your family (if you die, SS pays your spouse forever and your kids until 21).

b) a disability benefit.

That is because it is a "Social Security" program, NOT a personal investment account.

The Bush program seems like a bait & switch to me: offer a little tiny personal account, and use that to hide the cuts in benefits that will be needed to pay for it.

I like the idea of a RISKLESS growing SS benefit as a baseline anchor in old age.

>>Don't forget that the current system provides:

>>a) life insurance for your family (if you die, SS pays your spouse forever and your kids until 21).

>>b) a disability benefit.

>>That is because it is a "Social Security" program, NOT a personal investment account.

>>The Bush program seems like a bait & switch to me: offer a little tiny personal account, and use that to hide the cuts in benefits that will be needed to pay for it.

>>I like the idea of a RISKLESS growing SS benefit as a baseline anchor in old age.

I think these things should continue to be done.
Why not have some hybrid of the two approaches?

wow this thread really took off. I like the idea of SS, i mean its not much, but atleast it is something.

Just another way that Bush is using the treasury and the US people as his personal ATM machine.