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Servile Security
As the debate heats up about Social Security "privatization" - if only! - you can bet your whiskers that your friendly commentator here will have something to say. For now, I'll call on Zarathustra to prefigure my testimony:
"O my brothers, am I cruel? But I say: what is falling, we should still push it. Everything today falls and decays: who would check it? But I - I even want to push it ... And he whom you cannot teach to fly, teach to fall faster!" (Thus Spoke Zarathustra, "On Old and New Tablets," 20).
December 16, 2004 | Permalink
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Comments
A bit less poetic, perhaps, but dare I ask, how is Social Security failing? (Of course I'm posing that as a practical question, and my guess is that many of your objections are philosophical. What was the name of this blog again? Oh yeah....)
Posted by: Aaron at Dec 17, 2004 6:54:04 AM
The problem is -- what if you think you are Zarathustra, but you are actually sysiphus? Which would definitely be the case if you are rolling a semi-privatized pension plan up that hill we call the risk horizon. Oh my brothers, you might then cry, I should have paid attention to IBM, to GE, to GM, to Ford, to United, to all that consortium of private pension plans that are, at this very moment, asking Uncle Sam to allow them not to have to obey the rules on keeping their balances straight! But no, I Sisyphus, lured by a market that had crushed other, and I thought, despicable parties, tried to make that money myself.
Cue music for the Gottendaemmerung.
Posted by: roger at Dec 17, 2004 3:10:18 PM
Aaron,
A perfectly fair question - I'll have to issue a rain-check on the answer ... I'll try to address it, eventually, in a post or three. I hate to seem cryptic and pseudo-profound, but a "hint" of where I'm coming from lies in the title of the post - in the classical distinction between a "servile" and a "liberal" modus vivendi. So, you're right to intuit "philosophical" reasons, though my understanding of economics informs my views, too.
Roger, another promissory note is warranted in response to you, too - no one of whom I'm aware is suggesting that SS be quasi-"privatized" by advocating non-diversified (sc., mono-maniacal) investment of the funds that previously the Leviathan would've snatched away. Au contraire.
I think what you're driving at is that the big, bad market is, evidently, subject to vicissitudes, whereas - somehow - the state can suspend economic law and infallibly "guarantee" things. To which I say "bah!" - but the account of why I do will have to wait. In the meantime, shall I send you a copy of von Mises' tract, Omnipotent Government?!
Posted by: Paul Craddick at Dec 17, 2004 11:29:02 PM
We'll exchange -- I'll send you Galbraith's The New Industrial State. LIfe will be good!
But -- in the meantime -- I do find the words "infallibly "guarantee" things" a little ironic, considering the Greenspan doctrine of Too Big to fail. While the market is pretty sure that the gov shouldn't guarantee the individual, they also think the Fed just might arrange the helping out of the stray hedge fund (Long Term Capital, anyone) or the large bank (re Fed policy, 1992, during the bank loan crisis) or even the system of Savings and Loans (90) if push comes to shove. The same free marketeering mutual funds dealers that are citing their Milton Friedman in their sleep also expect that the gov is certainly going to come to the resue of Fannie Mae once the mortgage market responds rationally to the lunatic debt load out there. Same, of course, as I pointed out in my little post on Chile, with the IMF and World Bank when it comes to 3rd world privatizations. Governments, it turns out, are the best rounders up of money a bank can rely on -- they can round it up legally at the point of a gun -- and are relied on as such.
However, your larger point -- about the market and risk -- is precisely the reason you don't agglomerate all pension plans under the government. There are plenty of private funds out there -- operating, often, as you point out, as "mono-maniacal) invest"ers. I'm not sure how, if Bush went ahead with his plan, you would prevent the privatized accounts from ending up monomaniacally invested -- would the government oversee the investment? If so, watch out -- the Pension board that gave United a rubber stamp while it pissed away its eight billion in investment is pretty much what we can expect. Risk, by its nature, entails loss. There is no guarantee of zero loss with any reserve of funds, but there are certainly less risky and more risky plans.
As for public pension plan versus private pension plan systems, the Economist, which loves to publish articles urging the privatization of pension plans worldwide, admitted itself, last year, that the private option pretty much sucks:
The Economist (US), Sept 27, 2003
"European governments hoping that corporations will solve the pensions crisis for them will be disappointed. The problems experienced by American and British companies' pension funds in recent years are a stark warning to countries trying to make the switch from public- to private-sector pension provision.
Most American and British companies' employee pension funds were set up as defined-benefit schemes, schemes that promise to pay a given pension at a given age. This left the companies to assume the risk if the funds' returns proved insufficient to meet those defined obligations. And sure enough, after the prolonged bear market, huge holes have been appearing in companies' pension funds. Not surprisingly, companies have been scrambling to convert their existing pension plans into so-called defined-contribution schemes, where the full pension cost is predictable.
Even so, some 44m Americans are still covered by defined-benefit plans, and American companies' pension funds now have a combined deficit (the amount by which the value of the scheme's assets falls short of the current value of the pensions they are pledged to pay in future) of about $400 billion. Many firms have started to make large contributions to bridge some of the gap and to satisfy statutory requirements. Last year, for example, they pumped $31.6 billion into their pension funds. This year they would have had to pay an estimated $125 billion in top-ups if the rules on pension-fund solvency had not been relaxed."
But who, in the end, pitched in on those private plans? The Pension Benefit Guaranty Corporation, which is a state run corporation.
Posted by: roger at Dec 18, 2004 1:55:02 PM
Rogerius,
An admirably encyclopaedic response. Alas, I can't be drawn at the moment ... I'll endeavor to take your ideas into account, as I lay my own notions out, after the New Year.
Roger - over and out.
Posted by: Paul Craddick at Dec 19, 2004 10:31:38 PM
Have to laugh -- encyclopedic. So polite! Garrulous, blabbing on and on, get on with it will you -- all of those phrases scanned through, no doubt.
Have a good Christmas in England. I'm going to Mexico.
Posted by: roger at Dec 20, 2004 10:35:42 PM