The Privatization of Social Security

If you watched or listened to the State of the Union address on Wednesday, or if you've been following the news at all, you've heard about the Bush plan to privatize/"personalize" Social Security. The lingo is very much up in the air, since although Bush has been on the record for years in support of privatization, recently it's turned out that that particular word doesn't inspire confidence in the American people. So from privatizing, the push turned to "private accounts" and now to "personal accounts." Guess what? It's the same thing, just a different name. However, since poll numbers illustrate the level of public support dropping with certain terminology, the press has been pushed to adopt the less coherent, more vague "personal accounts." Some reporters have refused to do so, and they're being called biased by Republicans for shaping the debate in "Democratic" terms. The fact is, these reporters are simply calling the program what it actually is, and they're using the same terms Republicans were using just a few short months ago.

I tend to get very few comments on this blog when I discuss things like this, so obviously most of you are coming here to read about drunk girls and their antics than to hear about my politics, but hey, it's my blog and you might as well learn something while you're here. And I'm just the pretentious prick to think I can teach you something. So read on!

Essentially, the effort to privatize Social Security is a scheme to drive the stock markets up and make the people who already have a lot of money quite a bit more money. This will happen in a few different ways. This is the way I understand it. I'm not an economics major, so this will obviously be a simplification.
The money that goes into Social Security now would be diverted in part into a private account. The way the money gets invested and who does the investing will have a large effect on how much you get in the end. Fund managers will charge fees, and those fees could add up to as much as 1/3 of your contribution. What stocks are you going to invest in? What's going to affect the values of those stocks?

Let's take a small example. Let's say you work for a large company, and you're in a union. Your union is negotiating on a new contract, and part of the contract promises wage increases and increases in benefits. You know that if the contract is eventually accepted, the price of that company's stock will decrease, since the benefits for the workers will mean lower profits for the company. Are you, as a worker, in favor of higher stock prices that will benefit you in retirement - or are you in favor of the increased benefits (say they're in the form of a family dental plan and your kid is going to need braces next year)?

One of the more obvious objectives of the Bush plan is the undercutting of the labor movement in this way. But say you're not in a union and you don't care about anyone who is.

Instead, you're a mid-level executive at a marketing firm. Part of your private account is invested in x Corporation. The company is considering moving its customer service center to India to increase profits. Obviously, this would be good for the stock, but you know that your sister-in-law works at the customer service center and she has three children. She's going to lose her job, and you're going to profit from it.

I'm sure there are countless other examples, and the ones I've offered are kind of weak. I'm typing this on a break between classes. Anyway, hopefully you get the point. Any column Paul Krugman writes for the Times over the next couple months will likely be on this topic, and he can obviously explain it a lot better than I can.

A similar system of privatization to the one that Bush is proposing is already in place in Chile, and has been for the last twenty years or so. There was an article in the NYT about this just last week, and if I can find it again, I'll probably post it.

Just be aware that Bush is going to be trying to sell his program to the American public over the next few weeks, just as two years ago, he was trying to sell the danger in Iraq and the need to go to war. You'll hear him talk about the crisis in Social Security and how the program will be "flat bust" in 25 years. Never mind that we need anywhere from $3-4.5 trillion to implement his plan, which is roughly 1/3-1/2 of our ever-increasing national debt. But hey - let's give the highest income bracket another tax cut. I'm sure that will help.