Tuesday, January 06, 2009

Not so fast, Bush haters

As Democrats (and a few Republicans) take their final jabs at Dubya for allegedly being the worst US President in history, a few of them are thanking their one or more gods or fewer that Bush didn't "privatize" Social Security.

Slow down there, cowboys (and cowgirls).

The first person to attempt to mix Social Security with the stock market was -get this- Bill Clinton in his 1999 State of the Union address. But Clinton didn't want private accounts, he wanted to put part of the trust fund directly into the market. Yikes.

Bush's partial privatization plan (a.k.a. "personal accounts") would have allowed younger workers the option to divert a few percent of their total withholding to one of several "Chinese menu" items designed to roughly reflect a spectrum of risk and volatility, to be adjusted over time as a worker approached retirement. Nobody within ten years of retirement would have had any of their Social Security "privatized", and nobody would have been forced to do anything.

Let us recall that Al Gore's plan was "Social Security Plus", and Dubya's 2000 platform was "minus". Though ideologically very different, the long term implications of both plans were probably indistinguishable since benefits are expected to be cut in the future.

Let us also recall that Social Security private accounts were really a second-term agenda item. Projecting out ten years, nobody retiring before the year 2015 would have been affected, and even then it would only have been with a small fraction of their total expected benefit. At the end of January 2005 the S&P 500 was at 1181. Get back to me in 2015 and see where the S&P is then.

To summarize:
  • Optional
  • No older workers
  • Risk tolerance menu
  • Fractional investment
  • Jury is still out on the hypothetical outcome

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