WHY LIBERALS SHOULD SUPPORT SOCIAL SECURITY PERSONAL ACCOUNTS

http://www.bepress.com/cgi/viewcontent.cgi?article=1252&context=ev

http://www.ncpa.org/sub/dpd/index.php?Article_ID=15677

Liberals have been suspicious of Social Security personal accounts (aka “privatization”) in part because conservatives proposed the reforms. This is misguided. I invite them to step back and consider the political economy and the financial economics afresh. If they do, they will likely become enthusiastic supporters of properly-structured Social Security personal accounts.

Private Social Security accounts invested in long-run diversified equity portfolios promise substantial increases in the lifetime wealth of middle- and working-class Americans, at low risk, says Konstantin Magin, lecturer at the University of California, Berkeley.

For example, consider investing in an index fund tracking the S&P Composite (a diversified fund):

• The historical return on this portfolio since 1870 is roughly 6.6 percent per year, with a long-run variance that increases by 0.01 every year.
• Given this history, the likelihood that the initial investment will double over twenty years is 86 percent, and there is only a 0.4 percent chance that it will lose value in real terms over that period.
• Over a 30-year holding period, the probability that the initial investment will more than double climbs to 98 percent, and the chance that the portfolio falls in value is a mere 0.06 percent.

These high average returns and low long-run risks of diversified investments in stocks are historical facts, says Magin.  To be sure, past performance is no guarantee of future results.  But history remains our best guide.

Thoughtful economists on both the left and the right should support — indeed be enthusiastic about — Social Security privatization, says Magin. On the right, economists should be enthusiastic because Social Security privatization limits government power and enhances individual choice. On the left, economists should be enthusiastic because private accounts invested in diversified portfolios of equities promise extremely high returns at extremely low risk. The poorer half of Americans deserve to enjoy the benefits of these investments that make the wealthier half wealthier still.

Source: Konstantin Magin, “Why Liberals Should Enthusiastically Support Social Security Personal Accounts,” The Economists’ Voice, December 2007.

Social Security is Racist

Social Security is racist because it effectively takes from younger blacks their hard-earned money and gives it to older whites. Blacks die earlier on average and thus get screwed. The Democratic Party supports this racism.

http://www.nationalreview.com/lowry/lowry200501040926.asp 

January 04, 2005, 9:26 a.m.
Not Moving on Up
What Social Security reform would mean for blacks.
 

Would liberals support Social Security reform if they thought of it as reparations for blacks?

The current Social Security system disadvantages blacks for reasons related to their historic mistreatment. Private accounts would go some way toward addressing this legacy of discrimination – as Democrats typically put it – but the supposed fiercest advocates of black interests are precisely the ones who will stand in the way.

There is a direct correlation between economic status and average life span. This means that blacks, who are disproportionately poor, partly for historic reasons, tend to have shorter life spans, especially black males. The average life expectancy of a black male is roughly 68.6. The retirement age of Social Security is set under current law to eventually rise to 67. You do the math – this cannot be a good deal.

According to Social Security expert David John of the Heritage Foundation, one-fifth of white males die between the ages of 50 and 70. But one-third of black males die between those ages. If you die before you reach the age of 62, you have no chance of collecting benefits, and if you die shortly thereafter, you will not recoup the payroll taxes you paid into the system.

John ran the numbers for persons roughly age 20 to 25 living in the ZIP code for liberal New York Rep. Charlie Rangel’s district office. The average rate of return from Social Security for these young people will be negative 8 percent. If young blacks were being fleeced in this way by, say, “predatory lenders,” the likes of Rangel would scream racism and demand change. But if they are financially abused by a liberal sacred cow, the implicit message is: Don’t get uppity.

The current system has features that provide some protections for blacks. They disproportionately benefit from disability insurance, but that program won’t be touched by reform. Also, when a worker dies, his children and/or spouse collect some benefits. The child gets benefits as long as he is under age 18 or not yet graduated from high school, although the closer to retirement age someone gets, the less likely he is to have a child under 18. A spouse gets benefits if she is married to the deceased at the time of his death or was married to the deceased for 10 years or more.

Under most reform plans, a private account will fund the same spousal benefit as in the current system, but the remaining balance will go directly to the deceased’s family. In the current system, if someone dies and has no wife or children, the money he has paid in simply disappears. Under reform, the beneficiary would be able to designate who receives the assets in his account, whether it is a niece or a church. The money stays in the community.

This is so important because even as blacks have made up ground in terms of income – their household income has increased roughly 47 percent since 1967 – they lag badly when it comes to net worth. The median net worth for black families is only $19,000, a mere 15 percent of the same figure for white families. Blighted opportunities in the past have kept blacks from passing wealth from generation to generation.

Private Social Security accounts would help address this deficit – if Democrats don’t stop them. The dirty secret is that the political appeal of the welfare state is not primarily in helping the needy, but in larding benefits on middle-class voters. This dynamic is starkly evident in a system that docks the wages of low-income minorities to subsidize the retirement of wealthy, healthy, long-lived baby boomers.

Opinion polls have shown that roughly 60 percent of blacks support the idea of private Social Security accounts. If only their political advocates could see the light. They should think of the accounts as financial affirmative action, or any other government initiative meant to benefit blacks. According to the ideology of black victimhood, blacks are apparently owed everything – except a better opportunity to save and own their own retirement assets.

– Rich Lowry is author of Legacy: Paying the Price for the Clinton Years.

(c) 2004 King Features Syndicate