SS: Private Accounts through Benefit Cuts

Having watched the President's news conference Thursday night, I wanted to blog its most important element - a suggestion to cut SS benefits in order to mitigate the transition cost to private accounts. Before I could do so, I received a TIA Daily email from Robert Tracinski (I subscribe to his print publication, but not the email service) with a thorough treatment of the event. On the subject of benefit cuts Tracinski said:

The news from the press conference is that Bush has fully embraced "progressive indexing," an idea put forward by economist Robert Pozen (see http://tinyurl.com/dekan). The idea is to increase Social Security benefits at the current, higher rate (indexed to growth in wage rates) for low-income retirees, while increasing benefits at a lower rate (indexed to keep pace with inflation) for higher-income retirees.

On the negative side, this is an appeal to altruism (as when Republican Sen. Chuck Grassley admonishes retirees not to be "selfish"; see http://tinyurl.com/a8bqp, and thanks to TIA Daily reader Erich Veyhl for sending me this link). But over decades, Social Security payments will become relatively insignificant for most workers, making it an expensive, onerous, and (it is hoped) unpopular welfare program for the poor.

Combine that with House legislation in the works that increases 401(k)-style investment programs and which Rep. Bill Thomas describes as "a retirement bill" and not "just" a Social Security bill (see http://tinyurl.com/8yxep), and what do you get? You get a proposal to phase out Social Security--over a period of 30 to 70 years. It looks like that's the boldest thinking we'll get from our leaders at this time.

[Remainder reprinted in "Continue reading."]

To this I will add that the important change is reduction in benefits (in conjunction with private accounts, of course) and not the way in which the reductions are structured. Yes, the egalitarian element of this proposal is objectively immoral, but as a political tactic to compel Democrats to accede to benefit cuts it is masterful. (As is Senator Grassley's appeal to altruism, referenced by Tracinski above. In context, he directed it toward those who oppose reform.)

And the value of private accounts more than outweighs the reduction in benefit growth as proposed. To the extent that our tax policies are compromised philosophically and can only change incrementally, the President's reform plan is a substantial increment of change in the proper direction - toward individual liberty.

UPDATE: May 2, 2005 - The WSJ editorial page makes a similar observation this morning. 'President Bush calls the Democrats' bluff on Social Security.'

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Commentary by Robert Tracinski

1. The Bush Press Conference: Phasing Out Social Security--Over 70 Years

The biggest news today is the president's press conference from last night, and there is a great deal in it that is worth commenting on. So all five news links today will be items from this transcript. (First, an apology: in yesterday's TIA Daily, I passed on an Associated Press report that the president's press conference would be held at 8:30; it actually started at 8:00. I will be less trusting of AP in the future.)

Bush offered fewer specifics than expected. One commentator, at http://tinyurl.com/93mnn, offers a good guess as to why: offering a specific plan allows Democrats to claim they oppose it because of a flaw in the plan. Offering a general direction but no specifics means that the Democrats come across (accurately) as being "obstructionists," dogmatically opposed to any change to Social Security.

The news from the press conference is that Bush has fully embraced "progressive indexing," an idea put forward by economist Robert Pozen (see http://tinyurl.com/dekan). The idea is to increase Social Security benefits at the current, higher rate (indexed to growth in wage rates) for low-income retirees, while increasing benefits at a lower rate (indexed to keep pace with inflation) for higher-income retirees.

On the negative side, this is an appeal to altruism (as when Republican Sen. Chuck Grassley admonishes retirees not to be "selfish"; see http://tinyurl.com/a8bqp, and thanks to TIA Daily reader Erich Veyhl for sending me this link). But over decades, Social Security payments will become relatively insignificant for most workers, making it an expensive, onerous, and (it is hoped) unpopular welfare program for the poor.

Combine that with House legislation in the works that increases 401(k)-style investment programs and which Rep. Bill Thomas describes as "a retirement bill" and not "just" a Social Security bill (see http://tinyurl.com/8yxep), and what do you get? You get a proposal to phase out Social Security--over a period of 30 to 70 years. It looks like that's the boldest thinking we'll get from our leaders at this time.

http://tinyurl.com/bz7by

"Transcript of President Bush's Press Conference," New York Times, April 28

"Our duty to save Social Security begins with making the system permanently solvent, but our duty does not end there. We also have a responsibility to improve Social Security by directing extra help to those most in need.... I believe a reformed system should protect those who depend on Social Security the most. So I propose a Social Security system in the future where benefits for low-income workers will grow faster than benefits for people who are better off. By providing more generous benefits for low-income retirees, we'll make this commitment: If you work hard and pay into Social Security your entire life, you will not retire into poverty. This reform would solve most of the funding challenges facing Social Security.... [I]n terms of the definition of whose benefits would rise faster and whose wouldn't, that's going to be part of the negotiation process with the United States Congress. As a Democrat economist [a reference to Robert Pozen] had a very--he put forth this i!
dea. And he had a level of--I think 30 percent of the people would be considered to be on the lower income scale."

2. The Bush Press Conference: In the Long Run, We'll All Be Dead

The other half of any presidential press conference is the games the White House press corps play to try to push their own agenda. The most obvious game was a concerted effort to prevent President Bush from talking about Social Security by asking him about Iraq and al Qaeda--an attempt to push the discussion into the familiar "quagmire" territory that the mainstream press prefers.

The first two question were about public opinion polls, the third was about Iraq, and it wasn't until the eighth question (asked by conservative reporter Bill Sammon) that the discussion briefly returned to Social Security--then the next question immediately steered back to Iraq. Some reporters criticized Bush later for offering few specifics on Social Security--so why didn't they press him for details at the press conference?

But the most interesting trend was a series of questions and answers in which Bush explained how he was pursing plans (on gasoline and Iraq) that would lead to success over the long term--explanations the reporters brushed off impatiently while demanding to know what effect those plans would have today--which, come to think of it, integrates with the reporters' obsession with the very latest public opinion polls.

http://tinyurl.com/bz7by

"Transcript of President Bush's Press Conference," New York Times, April 28

"BUSH: The legislative process is just getting started, and I'm optimistic we'll get something done.

"QUESTION: Polls... (OFF-MIKE)

"BUSH: Polls? You know, if a president tries to govern based on polls, you're kind of like a dog chasing your tail. I don't think you can make good, sound decisions based upon polls. And I don't think the American people want a president who relies upon polls and focus groups to make decisions for the American people....

"QUESTION: Can you explain for us how, if it were passed soon after it were introduced, the energy bill would have an effect on the current record price of oil that we're seeing out there?

"BUSH: Actually, I said in my opening statement that the best way to affect the current price of gasoline is to encourage producing nations to put more crude oil on the market.... But, listen, the energy bill is certainly no quick fix. You can't wave a magic wand. I wish I could.... It just doesn't work that way. This is a problem that's been a long time in coming. We haven't had an energy policy in this country. And it's going to take us awhile to become less dependent on foreign sources of energy.... So these are longer-term projects, all aimed at making us become less dependent on foreign sources of energy.

"QUESTION: Do I read you correctly that the energy bill would not have had an affect on today's high gasoline and oil prices?

"BUSH: It would have 10 years ago.... It's taken us a while to get there, it's going to take us a while to get out....

"In the long run, like I said earlier, the way to defeat terror, though, is to spread freedom and democracy. It's really the only way in the long term. In the short term we'll use our troops and assets and agents to find these people and to protect American. But in the long term, we must defeat the hopelessness that allows them to recruit by spreading freedom and democracy. But we're making progress.

"QUESTION: So in the near term you think there will be more attacks and more people dying?"

3. The Bush Press Conference: Putting Religious Politics to Rest?

President Bush is certainly sympathetic to the religious right, giving it crucial aid and comfort, as when he flew back from Texas last month to sign the unconstitutional edict about Terri Schiavo. But when he is asked directly about his views on religion in politics, what he has to say is often, paradoxically, quite good--as in this answer that ought to (but won't) put the kibosh on what I have dubbed the Jihad on the Judiciary.

http://tinyurl.com/bz7by

"Transcript of President Bush's Press Conference," New York Times, April 28

"QUESTION: Mr. President, recently the head of the Family Research Council said that judicial filibusters are an attack against people of faith. And I wonder whether you believe that, in fact, that is what is motivating Democrats who oppose your judicial choices. And I wonder what you think, generally, about the role that faith is playing, how it's being used in our political debates right now.

"BUSH: I think people are opposing my nominees because they don't like the judicial philosophy of the people I've nominated. And some would like to see judges legislate from the bench. That's not my view of the proper role of a judge....

"Role of religion in our society? I view religion as a personal matter. I think a person ought to be judged on how he or she lives his life or lives her life. And that's how I've tried to live my life: through example. Faith plays an important part in my life individually. But I don't ascribe a person's opposing my nominations to an issue of faith.

"QUESTION: Do you think that's an inappropriate statement?

"BUSH: No. I think people oppose my nominees because of judicial philosophy.

"QUESTION: Sir, I asked you about what you think of...the way faith is being used in our political debates, not just in society generally.

"BUSH: Well, I can only speak to myself. And I am mindful that people in political office shouldn't say to somebody, You're not equally American if you don't happen to agree with my view of religion. As I said, I think faith is a personal issue. And I take great strength from my faith. But I don't condemn somebody in the political process because they may not agree with me on religion. The great thing about America is that you should be allowed to worship any way you want. And if you chose not to worship, you're equally as patriotic as somebody who does worship. And if you choose to worship, you're equally American if you're a Christian, a Jew, a Muslim. And that's the wonderful thing about our country and that's the way it should be."

4. The Bush Press Conference: What I Learned from George Bush

I hate to admit it, but occasionally I learn something from President Bush. One little-noted point that he made last night speaks to a profound insight in his thinking on the war: that success against terrorism cannot be achieved merely through a negative--through the destruction of existing terrorist groups--but has to be achieved through a positive: the spread of opposing political (and, I would add, philosophical) ideals.

His approach to this positive goal (as to the necessary but "negative" tasks of "homeland defense" and killing terrorists overseas) is riddled with errors. But it is, nonetheless, an important truth.

http://tinyurl.com/bz7by

"Transcript of President Bush's Press Conference," New York Times, April 28

"QUESTION: Mr. President, your State Department has reported that terrorist attacks around the world are at an all-time high. If we're winning the war on terrorism, as you say, how do you explain that more people are dying in terrorist attacks on your watch than ever before?

"BUSH: Well, we've made the decision to defeat the terrorists abroad so we don't have to face them here at home. And when you engage the terrorists abroad, it causes activity and action. And we're relentless--we, America and our coalition partners. We understand the stakes. And they're very high, because there are people still out there that would like to do harm to the American people.

"But our strategy is stay on the offense, is to keep the pressure on these people, is to cut off their money and to share intelligence and to find them where they hide. And we are making good progress. The al Qaeda network that attacked the United States has been severely diminished. We are slowly but surely dismantling that organization. In the long run, like I said earlier, the way to defeat terror, though, is to spread freedom and democracy. It's really the only way in the long term.

"In the short term we'll use our troops and assets and agents to find these people and to protect American. But in the long term, we must defeat the hopelessness that allows them to recruit by spreading freedom and democracy."

5. The Bush Press Conference: The Metaphysics of Social Security

The reason President Bush's push for a partial quasi-privatization of Social Security is faltering is that he has not challenged the altruist morality behind the system--indeed, he has embraced that morality. So the only hope of passing his plan will be if he can make headway on a new theme he has been emphasizing recently: the metaphysics of Social Security.

He certainly doesn't put it this way, but there is a clear, deliberate trend in his statements of emphasizing the fact that Social Security represents "promises" and "a filing cabinet full of IOUs"--while private accounts represent "real assets" that won't "just go away" because of an arcane government rule (as Social Security benefits do when a spouse dies before age 62).

http://tinyurl.com/bz7by

"Transcript of President Bush's Press Conference," New York Times, April 28

"BUSH: I feel strongly that there needs to be voluntary personal savings accounts as a part of the Social Security system. I mean, it's got to be a part of the comprehensive package. And the reason I feel strongly about that is that we got a lot of debt out there, a lot of unfunded liabilities, and our workers need to be able to earn a better rate of return on their money to help deal with that debt.... Now, it's very important for our fellow citizens to understand there is not a bank account here in Washington, DC, where we take your payroll taxes and hold it for you and then give it back to you when you retire. Our system is called pay as you go. You pay into the system through your payroll taxes and the government spends it. It spends the money on the current retirees and with the money left over, it funds other government programs. And all that's left behind is file cabinets full of IOUs.

"The reason I believe that this ought to work is not only should a worker get a better rate of return, not only should we encourage ownership, but I want people to have real assets in the system. I want people to be able to say, Here is my mix of bonds and stocks that I own, and I can leave it whomever I want....

"One other point on Social Security that people have got to understand is that the system of today is not fair for a person whose spouse has died early. In other words, if you're a two-working family, like a lot of families are here in America, and two people working in your family, and the spouse dies early--before 62, for example--all of the money that the spouse has put into the system is held there, and then when the other spouse retires, he or she gets to choose the benefits from his or her own work or the other spouse's benefits, whichever is higher, but not both. See what I'm saying? Somebody who's worked all their life, the money they put into the system just goes away.... If you have a voluntary personal savings account and you die early, that's an asset you can leave to your spouse or to your children."

Second Bush Administration Posted by JohnGalt at May 1, 2005 1:09 PM