Risk
Jeff Alworth
A great charade kicked off this morning in DC, as a host of economic "experts" (read: toadies) gathered to "advise" (read: suck up to) the President on economic policy. Chief among the recommendations will be the creation of private Social Security accounts, an unnecessary plan designed to fatten the coffers of mutual fund managers. It's part of the conservatives' ongoing vision to deliver unto America an "ownership" society. But while you may get more control over your finances, it comes at a huge cost--because you also inherit great risk.
The Los Angeles Times this week published a revealing two-part series that shows that while the health of the economy as a whole has improved, families and individuals' lives have become a whole lot wilder.
Starting in the late 1970s, the nation's leaders sought to break a corrosive cycle of rising inflation and stagnating output by remaking the U.S. economy in the image of its frontier predecessor — deregulating industries, shrinking social programs and promoting a free-market ideal in which everyone must forge his or her own path, free to rise or fall on merit or luck. On the whole, their effort to transform the economy has succeeded. . . .
A broad array of protections that families once depended on to shield them from economic turmoil — stable jobs, widely available health coverage, guaranteed pensions, short unemployment spells, long-lasting unemployment benefits and well-funded job training programs — have been scaled back or have vanished altogether.
It's a trend that not only destabilizes families, but state economies, as well.
The Times study found that while on the whole families are better off now than they were thirty years ago, they are subject to far greater volatility in personal incomes. The central cause for this volatility is the increased risk the government has subjected families to as it has slowly dismembered the social safety net.
Of course, as a cost to society, those risks aren't transferred anywhere. Whether it's a company picking up health benefits or the local hospital, compelled to treat uninsured workers in crisis, the risk must be born by someone. Individuals bear part of that cost, but so do states and local governments. Go back to Social Security. If Congress passes a private accounts law, some people will do better. But a lot will do worse. The seniors falling into poverty line won't vanish, but their care will no longer picked up by the feds. It's picked up by family members or the state, as a generation of seniors end up destitute. The risk doesn't vanish--it's just transferred.
Oregon, responsibly, tried to manage the risk of medical costs with its innovative Oregon Health Plan. But thanks to a failure to adequately manage risk elsewhere (by having revenue sources not so susceptible to fluctuations in employment or by having a rainy-day fund, for example), most of the Plan's benefits have vanished.
On all levels of government, politicians must wrestle with how to manage risk. Conservatives are going to continue to argue that deregulation and the promise of an "ownership" society will solve these ills when the recovery lifts all boats (how's that workin' for you, fellas?). But the argument is disingenuous--the don't care about all boats. They're looking out for the yachts. The little Oregon dory floating ever closer to those rocks? Hey, he's on his own.
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12:25 p.m.
Dec 15, '04
Nice article, Jeff.
I'd add one other thing:
Employing entities who can (including the state and federal governments) change the conditions and terms of employment in their shops by using ever-increasing levels of outsourcing and contract/temp work, so that even employment is more transitory in nature, which of course makes personal income even more volatile. You pay for your own health benefits, and if your job lasts six months, why bother, right?
Trust me, I could write a whole column on the insidiousness of this, and maybe I should.
Dec 15, '04
I can see this as a good idea. Im 36, and although I have been paying into the system for about 12 years, I seriously doubt that I will see anything when it comes time to retire. I would rather have that money to control myself. As for the risk part, you dont HAVE to switch if you are already in the system, and if you decide to opt-out, it is your decision after all.
Its not the gubmints job to make sure we have money in the bank to retire on, it is yours, and yours alone.
I think most of the complaining about this is from the types that think the government SHOULD control all aspects of our lives, and Im not ready to give it to them.
Dec 15, '04
Jon,
It seems like this argument was made before...as in before 1932. It comes down to something like this: Is it your children's (or grandchildrens/parents/grandparents) job to take care of you if (deity forbid) either find yourself in a state (such as medical emergency or joblessness) that all that money that you put away for yours and yours alone is no longer there for the using. Is that a fair or unfair burden?
And if you don't have any family to take care of you, or if that family is unable to take care of you, you are going to become a burden on the state.
If so, should you just do the right thing and eliminate yourself so that you are no longer an unfair burden on them (or us?)
Or hey, instead of handing you the rat poison and telling you to stop dragging us down, maybe we can all get together as a society, and come up with a plan for all those that "but for the grace of god go [we]" and agree that if we all pitch in a little we can all be assured of some independence and security later on.
Of course, you know that. What you're saying is really every poor shmuck screws the pooch alone. If they wanted to, they could rise up on their old/infirmed/disabled legs and get right back to work until the day they drop dead...
Other than that, the plan that they've laid out ($1000 a year? why not just stuff it under the mattress) sucks.
But hey, if you believe in that sort of thing, you can make out the check to....
Dec 15, '04
Jeff - good article.
fred - good retort.
me - good bye.
2:21 p.m.
Dec 15, '04
Jon's view is the prevailing view in much of America. If you spend a generation telling people that taking on risk is a good thing, some percentage of those for whom it is clearly a very bad thing will agree. I have no idea whether Jon is a person for whom risk makes sense or not, but the view is common.
That doesn't mean it's a good way to run the country, of course. When you reduce risk for those most able to handle it and place it on those least able, there are consequences. Jon may be willing to gamble his own life on such a proposition, but sensible leaders shouldn't make America's poor sign up for the deal, too. Ask any elderly person on a small, fixed incomewhether or not she'd prefer to have government "control" her life with Social Security. You'll find a lot of people with little stomach for risk.
Dec 15, '04
There's an old saying (or maybe there should be) that "risk is for the young..."
Once you get to be old enough to understand the full consequences of risk-taking, you're usually unwilling to take as many.
Then again, I suppose your adversity to risk is directly proportional to your perceived wieght of responsibility.
Dec 15, '04
What I find most illuminating about Jon's comment is the breakdown of faith in established systems.
"although I have been paying into the system for about 12 years, I seriously doubt that I will see anything when it comes time to retire. "
We have spent so much time undermining confidence in the government, and have allowed people to get screwed so often, with no consequences to those responsible, more and more people prefer anarchy.
They believe in self-determinism, in spite of the historical evidence, because the only history they're really familiar with is the 1990s.
If they would look at life in the 1890s, they would see why America spent the following four decades getting government INTO people's lives. It's not because people woke up one day and said they wanted to be controlled. It's because laissez-faire only works for the rich, powerful and/or ruthless.
Tom
Dec 15, '04
there's a lot of use of the word "control" in these comments. is it really that controlling when the government asks you to hand over some of your money each month to pay for social services? that doesn't seem particularly controlling to me, but maybe it's because i'm used to it.
i'd rather give a little money to Uncle Sam each month to help pay some old ladies rent than have the gov spying in on my phone conversations -- on the off-chance i might be middle eastern -- or performing shady search and seizures in regards to my person.
i guess that's another argument though.
Dec 15, '04
Jon:
"I think most of the complaining about this is from the types that think the government SHOULD control all aspects of our lives, and Im not ready to give it to them."
"all aspects"? The issue is ONE aspect.
some things I am willing to give over to government. Some things I am not.
On the topic of social welfare (or safety net, what ever you like), I am willing to trust government more than those who brought us Enron, WorldCom, etc. etc.
11:13 a.m.
Dec 16, '04
One thing not mentioned here is how to finance Bush's plan. The cost estimates range from $2 trillion to $4 trillion. He's promised no payroll tax increases or benefits changes for those about to retire.
This at a time when the dollar is being punished in foreign exchange markets, owing to our growing budget and trade deficits.
The current CBO estimate is that in 2018, social security will start paying out more than it takes in. Of course, there is no money in the trust fund, just a bunch of T-bills. That means that covering the gap, without a reduction in benefits or an increase is taxes, will require either the reduction of spending on other items or even more debt.
Bush is using debt exclusively as the instrument for financing his envisioned shift away from government-based security toward individual responsibility for retirement and possibly health care (he's mentioned eliminating the corporate tax deduction for employer-provided health care). Obviously, he's betting that the dollar can survive the transition. It's like Ahab betting that he can hold his breath long enough to survive the great white whale's 10,000 foot dive. Faith is a powerful thing.
Given that international political forces provide motive for shifts in oil prices from dollars to euros, and that China's growing economy might not have to rely upon hoarding dollars for much longer, you have to at least be aware of the possibility that the dollar won't survive the move without producing a catastrophic event.
Of course, a revival in the rhetoric of rugged invididualism might steel the will against any rout. Maybe we can once again find our romance in our resilliancy. Sound like a Plan B?
Dec 16, '04
You know the scheme they are cooking up is really much worse than just eliminating Social Security altogether.
What they are really doing is a vast expansion of "government" by coopting the entire brokerage industry into being an arm of government, a vested private industry whose grip on government power will be so lock tight once it is created that only one word can describe that kind of corporate domination of government: fascism.
Once all those brokers have an interest in managing retirement funds they will be another arm of the government....
I totally oppose eliminating the social security system...... but I'd rather eliminate it altogether than set up this unholy alliance between private industry and the government.
The Bush plan is an absolute disaster for democracy and for retirees.
And of course those who it will affect the most, the 20s and 30s folks are still asleep at the wheel politically.
I'm 45... not sure how badly screwed I will be by this, but I hate it.
Dec 16, '04
Hear hear, Miles!
Speaking of "control," the recent article on Soc. Sec. in the Oregonian (a good one, I thought) pointed out that people wouldn't have control over where, specifically, their money is invested in their private accounts. There will likely be at most a few mutual funds to choose from. Massive windfall in assets and transaction fees for Wall Street, of course.
The right wing noise machine (the folks who want to drown govt in the bathtub) has been pounding it into us that Soc. Sec. is in crisis. No it's not. At least if we keep the neocons' hands off it.
What is a crisis is Bush putting us trillions in debt to foreign countries. What happens if the Saudis, Chinese, etc. decide to cash in their billions in T notes? Now that's a "control" I don't even want to think about.
12:58 p.m.
Dec 17, '04
http://www.washingtonpost.com/wp-dyn/articles/A5829-2004Dec16.html?sub=AR
With respect to Ruth's comments on a manufactured crisis, today's Washington Post highlights some of the assumptions that paint the current picture.
The estimate that the system fails to meet its obligations in 2042 is based on an assumption that economic growth slows to 1.2% from 2012 on. This is a pretty conservative estimate. Obviously, if growth is higher than 1.2%, the fund will be in better shape.
9:10 a.m.
Dec 18, '04
Does everybody remember when Ronald Regan "reformed" company pension plans back in the 80's.
Large firms like General Motors, US Steel were allowed to raid their employee retirement funds and renege on legal obligations to their emloyees.
Billions were looted and wage earners were herded into the exciting new world of 401k plans, which were administered by managers of large mutual funds.
Fifteen years later, around the turn of the millenium, the stock market tanked and we saw our 401k totals reduced to less than the amount of money taht we'd actuall invested. Widespread fraud and insider dealing was uncovered among the brokerage houses and the fund managers.
<h2>Yeah, I really want to inject a few hundred billion more into this crap shoot, what with the scrupulous regulation and the reputation for integrity enjoyed by Wall Street.</h2>