Serenity Now!

Both Attaturk and I have been putting some content up on the Social Security debacle lately. We have Krugman publishing two, count 'em two columns on the issue last week, while he is on sebbatical writing a textbook.

Yesterday Attaturk posted something from Joe Scarborough (I admit that I read only what was posted here on our blog and didn't link directly to what old Joe posted wherever as I can't stand the guy and think he is completely full of shit) which basically said this whole Soscurdy (why can't they, anyone, pronounce "social security" when talking about it?) thing is going to cost us a lot of money. Well I suppose he gets some credit for stating the obvious.

On Sunday I stumbled across another well written article on the issue that I will excerpt here liberally for our readers that are not registered with the Times and don't want to fuss with the whole getting on the database thing. In short, Edmund L. Andrews wrote about the problems with the bill of goods being sold to people by Soscurdy's chief actuary.

Under the current system, investment returns from Social Security are "abysmal," Mr. Bush said in one recent speech, because the trust fund is allowed to hold only low-yielding Treasury bonds.

Letting working people invest some of their Social Security money in the stock market would allow them to earn higher returns, giving them more money at retirement than they would have if they let the government do everything for them, the logic goes.

It sounds like a no-lose proposition. According to the Social Security Administration, Treasury bonds can be expected to yield a real annual rate of return of about 3 percent. Equities, by contrast, can be expected to earn 6.5 percent.

That assumption is crucial to arguments that personal accounts can reduce Social Security's long-term shortfall - which the government estimates to be at least $3.5 trillion. Most of the proposals to overhaul Social Security call for steep reductions in future benefits that would be offset by the higher returns people would presumably earn on their investments.

Stephen Goss, the Social Security Administration's chief actuary, has endorsed the assumption of higher returns. In evaluating the major proposals for putting some payroll taxes into personal investment accounts, Mr. Goss estimated that even people who hedged their risk by mixing stocks and bonds could expect an average return of 4.45 percent.

But that logic is as flawed as a perpetual motion machine. If it were true, the government could erase Social Security's entire projected deficit by selling bonds at 3 percent and buying stocks that yield 7 percent.

Why doesn't the government do just that? Because higher returns are inseparable from higher risk. No risk, no reward. And if the goal is to enhance security, if people are to have a solid reason to expect a particular level of wealth at retirement, the risks have to be relatively low.

What's the problem with this logic? Lets just say it apparently comes from the minds of people taking a little too much ecstasy. I thought there were warning labels with that stuff. Great for all night raves, bad for cerebrating actuaries. That doesn't stop Stephen Goss.

But many analysts contend that it is even more misleading to suggest that people should have complete confidence in their ability to earn above-average returns with no risk whatsoever.

Surprisingly, the Social Security Administration actually goes further than that. In addition to relying on the premise that equities will yield higher returns than Treasury bonds, Mr. Goss of the Social Security Administration suggested that returns in the future might be even higher than those of the past.

"A consensus is forming among economists that equity pricing as indicated by price-earnings ratios may be somewhat higher in the long-term future than in the long-term past," wrote Mr. Goss.

"This is consistent with broader access to equity markets and the belief that equities may be viewed as somewhat less 'risky' in the future than in the past," he added.

If investment funds or stockbrokers made that kind of claim, they would probably be breaking the law.

Making promises you can't keep has never stopped the crooks in this administration. Just when I thought it couldn't get any worse, it gets worse. This week there is a two-day economic conference to discuss this issue and it will be interesting to see how the issue is handled. Let me go out on a limb and suggest we'll get dishonest demagoguery.