I don't know the specifics of the Bush II era plan. However, the operational idea of moving the government pension plan from a defined benefit model to a defined contribution model makes sense to me. Where to stash the contributions will always be a problem. The current imaginary Social Security lock-box seems to me as dishonest as the Bernard Madoff fund management approach.

I acknowledge that there are some other concepts involved. For example, Social Security has limited transferability--one's spouse and children may see some benefit but they can't inherit the face value of your contributions from you. This is a bug and a feature. If enough people die early enough, the unused and un-transferred amount can be used to pay for people who live longer and so withdraw more than their contributions. Without means-testing, there seems to be little social-justice in that.

The whole concept of "stashed contributions" is wrong. Money is a fiction. It's really about resource allocation. In capitalism, whoever has money gets a say in how resources should be allocated, but that does not change the amount of resources available (if there is only 1 productive worker for every 2 retirees, it does not matter how much money those have "stashed"), nor does it make much sense to construct complex rule systems solely to reconcile the allocation of resources to retirees with the money fiction.

Sure, maybe "stashed contributions" is simplistic to the point of being wrong. It isn't that I'd like a better mattress to stuff paper under.

In my mind, money is an acceptable enough fiction that I can convince someone to allocate me a hamburger for lunch today. The fictional aspect of it is very handy in performing the time-travel of paying my future self part of my wages of today.

Times change and in the future a hamburger may require more or less money as it did today. My bet is that in the long run, that hamburger will be mostly the same or a functional equivalent will cost less because human ingenuity is an unlimited resource.

Actually it was Clinton's idea to have the government invest SS funds in the stock market directly: http://people-press.org/report/70/support-for-clinton-but-no... . That would have been a terrible idea for many reasons. Bush's plan to allow younger workers the option to invest a small portion of their SS taxes would would not have been significantly affected by a fall in the market over the course of a few years.

I was referring more to the boom in 2000 when we thought the stock market could do no wrong, and we were all stupid for putting our savings into things like money market accounts when the Dow was outperforming everything in sight.

Both the Dow and the S&P 500 posted negative returns in 2000. (And, FWIW, Bush didn't take office until 2001.)

The specific savings mechanism isn't the problem - stocks, bonds, govt pyramid schemes, whatever. All this article says is that stocks aren't a magic solution like some people thought they were - the premium they had over bonds has decreased (though they are still better than SS [1]).

The fundamental problem is that any mechanism of retirement savings is a claim on the productive output of workers. When the retiree/worker ratio gets too high (which will happen), pain ensues.

[1] If SS were eliminated, stock/bond performance would become worse as SS money chases returns on stocks/bonds. It would still be better than SS today, but would be worse than stock/bond performance today.

It was a terrible idea, but not because the stock market crashed. It was a bad idea because private retirement savings plans have been a disaster. Those people who didn't lose their money playing markets they don't understand in a fit of irrational exuberance get to watch the mutual fund industry nibble away at their capital year-by-year as they charge ridiculous fees for lousy management. The existence of the multi-billion (trillion?) dollar mutual fund industry should be a scandal, when almost no knowledgeable expert would recommend putting your money into one. It's extremely difficult to invest your money wisely when the country's largest industry is constantly trying to persuade you to do unwise things with it.

What worries me the most about privatization is the likelihood that the dumb money moving into the markets would induce a Wall Street feeding frenzy, followed by another bubble and subsequent crash. Tens of millions of destitute seniors would demand that the gov't make good on their losses, which would be shouldered by the rest of us.

Institutional buyers have always bought stocks though, it's just that they used to have a much more conservative risk profile. Typically they'd be anti-cyclic, in this case they bought right along with the herd.

Yes. I feel much better right now knowing that Social Security is bankrupt and its obligations will only ever be met through the federal government's printing presses. Aren't we all having fun now?

Social Security is not bankrupt. It has massive assets, and is fiscally sound until sometime in the 2040s. The problem is that the government has borrowed that money and used it for other stuff. It now needs to start paying it back, but that's no different than any other loan you make.

The government has massive liabilities precisely equal to it's massive assets. I could loan myself $100 billion dollars, and then claim I own $100 billion in assets. But if I earn $25,000 and my expenses are $35,000, I'm still broke.

> [SS] has massive assets

Those "massive assets" are T-bills.

If push comes to shove, who do you think will get shafted - SS or China?

More to the point - how much are you personally willing to pay to maintain the SS benefits for folks 10-20 years older than you? How much do you think that folks who are 10-20 years younger than you are willing to pay to maintain your SS benefits?

What happens if we put it all into the stock market and the baby boomers retire?

I really don't want to see a stock market that has 3x the money coming out as is coming in.

The stock market is ownership of various kinds of assets. The demand for those assets will change. However, it is world-wide. And, there are income producing assets. Folks are saying "I'd rather have an iPad than $400 even though I know that that ipad costs only $35 to make".

T bills are a claim on future US tax revenue. That's very different.

You didn't even begin to address my question, you just threw out a bunch of hand-wavey silliness about how "ownership" and "assets" makes everything ok.

What happens to the prices of those assets when the baby boomers retire and are pulling out more money than there are young workers putting in? You have the same problems as SS. What if we had all of that SS money in the market? It'd be a disaster.

The whole world didn't have a baby boom at the same time.

WRT companies that produce stuff, the critical time is not when boomers retire, it's when they stop spending money. Fortunately, many will stop when they die, which reduces demand and the "load" on both the stock market and SS. Again, the whole world thing is relevant.

And, since boomer spending is income for later generations....

Do you really think that money invested in the stock market is like SS obligations? (Here's another difference - Congress can repeal SS whenever it feels like it.)

That's not at all true. Social Security's issues are massively exaggerated by certain groups. The real problems with regards to our "entitlements" is in Medicare. Unless the price of healthcare can be kept under wraps its going to be a nightmare. But there's too many people out there with a lot of money that don't want to see that problem dealt with.

Suggest you google "Is Social Security Bankrupt" and review the governments own projections. SS receipts are at parity or below obligations. It is, therefore, bankrupt and only maintained by the federal governments ability to run infinite* deficits.

(*) Infinite, that is, until the Chinese and other foreign nations stop purchasing our debt.

The Social Security trust fund has begun selling off it's very large supply of government bonds. This is exactly why the trust fund accumulated these assets. If a person or private pension fund accumulated a large supply of bonds in order to meet their obligations, it would be very odd to describe them as "bankrupt". Indeed, if I had enough bonds and income to meet my obligations for decades to come, I might well describe myself as being in possession of "fuck you money"

Going forward, in general, the Federal Government will not be able to rely on the Social Security Trust fund purchasing the bonds it issues. It can cut spending, raise taxes, or find other buyers who want to purchase bonds.

There is no particular reason to be concerned about the ability of the Social Security system, for years to come, to support it's obligations to the workers who have paid into the system. Unless, of course, you fear that wealthy elites will manufacture a bogus social security "crisis" to dispossess the savings of workers and continue to enjoy (federal spending/tax cuts) that can not otherwise be sustained.

You're living in a fantasy world: http://money.cnn.com/2010/02/02/news/economy/social_security...

I'm amused how the snarky, content-free comment critical of Bush gets upvoted, while this snarky yet entirely correct response is downvoted.

I think some people here don't grasp the seriousness of the US government's financial situation, and how much it worsens the longer the recent status quo is maintained.

The Bush comment wasn't to criticize the president, just distinguish it from the Clinton-era proposal that said the same thing but didn't capture the public debate like the proposal in 2001-2002 did.