Friday, January 28, 2005

The Pinnocchio of Social Security Reform

David Limbaugh, originally uploaded by Wazdat!.

Your Nose Is Growing Dave!

David Limbaugh Tells Himself (And Us), Another Set Of Lies

In his latest article for Human Events, "Democrats Don't Believe Their Own Rhetoric About Social Security", Limbaugh that shows he’s got his marching orders from the White House, just like the rest of the neocons. Now he wishes to convince us that not only is Social Security in crisis, but the Democrats said so before Bush did! And then he wishes to expose some imagined double standard between the Democrat’s worries over the deficit, and the fallacy that in 2042 there will be an explosion of the national debt! He then concludes that its all politics for the Democrats and that’s why they don’t want to join the brave President in his sensible solution. (which would destroy Social Security)

He starts by saying that Clinton “pretended to be adamant about fixing the problem” And that Al Gore “lectured” George W. Bush “for not approaching the problem with sufficient urgency.” He then assumes that Bush Jr. And Clinton were talking about the same thing:

“Al Gore lectured his presidential opponent George W. Bush for not approaching the problem with sufficient urgency. Allusions to the ephemeral "lock box" were Al Gore's favorite sound bites.”

Limbaugh totally misses the point. Clinton did not want to create private accounts from Social Security allotments. He wanted to create private accounts on top of Social Security allotments. While he may have felt that people have the right to maximize their income and savings by investing in the stock market, he did not feel that the secure base for family wellbeing should be tampered with. In a CNBC interview with Al hunt done in 1998 Clinton had this to say:

“On the individual accounts, I think it's absolutely, an idea that deserves a lot of consideration. There is some debate, as you know, in Congress about trying to dedicate the surplus to individual accounts now just starting. The problem I have with that proposal is that it doesn't deal with the underlying Social Security program. What are you going to do -- I think we still need some baseline Social Security in the 21st century that's a baseline protection for people that may not have a lot of money in the market, or may lose some in the market, or don't have a chance to accumulate a lot of wealth, and we've got to know how we're going to fix that. And then, the people -- admittedly, that's what Senators Moynihan and Kerrey tried to do. They tried to guarantee a baseline Social Security benefit and, over and above that, have an individual account. And that's one of the things that I think ought to be fully explored here.”

There’s the truth Mr. Limbaugh no further than the tip of your fingers.
But no, Limbaugh in his article, not only wants to assume that Bush Jr. is only doing what Clinton would have wanted, but that any difference between the Democrats plan to tweak Social Security, and Junior’s plan to “save” it stems from some deep hatred of American business:

“One would think, then, that President Bush would be entitled to some credit for his willingness to tackle the notorious third rail of politics. He has little to gain politically from pursuing a solution.

Think again. In response to President Bush's plan to add a private accounts option, Democrats insist that two rights make a wrong. That is, even if the president's reform would enhance the average American's retirement security, it must not be permitted if it would also help big business, which Democrats openly despise. You see, it's not just the whack jobs on the Left, but the entire Democratic leadership apparatus that is saying the president is doing this as a sop to Wall Street.”

First of all, no Democrat hates any kind of business so long as it is done honestly, and with a thought for the wellbeing of the community they live in. After all, you’re a person, I’m a person, and so’s a corporation right? And persons living in community treat one another well. Only a person who does not play well with others must disciplined. And if that person was a corporation, he is like a big person, and a big bully if he misbehaves. That is what the Democrats don’t like, not big business.

And yet Limbaugh continues to assume some perfidy on the part of Democrats on the issue of “crisis”, or “major problem”. “Like little kids they are arguing over the semantics of whether we are currently facing a ‘crisis’ in Social Security or just a major ‘problem.’", he says,

“Well, folks, they (the Democrats) must not mean what they say, because this looming Social Security problem is purely and simply about an inevitable explosion of the national debt. It's only avoidable if we reduce benefits, reduce other federal spending and/or raise taxes -- which at some point will be counterproductive on the revenue side.”

All the while Limbaugh doesn’t see that a simple problem of distribution and quantity can be solved by adjusting the rate of loss, and yes a small raise in the payroll cap. The Trust Fund will be there to take up the slack until 2042.
But lets take all look at what really is happening with the deficit and Social Security. Let’s go to the Social Security THE 2004 ANNUAL REPORT OF THE BOARD OF TRUSTEES OF THE FEDERAL OLD-AGE AND

“Under the intermediate assumptions the combined OASI and DI Trust Funds are projected to become exhausted in 2042. For the 75-year projection period, the actuarial deficit is 1.89 percent of taxable payroll, 0.03 percentage point smaller than in last year’s report. The open group unfunded obligation for OASDI over the 75-year period is $3.7 trillion in present value, $0.2 trillion more than the obligation estimated a year ago.”

Now I always thought that a “crisis” was something looming, impending, even sudden. Seventy-five years is a rather long time for a crisis to unfold. A lot can and will happen in 75 years!

Here’s where the Bush Doctrine gets much of it’s fallacies:

“Even a 75-year period is not long enough to provide a complete picture of Social Security’s financial condition. Figures II.D4, II.D5, and II.D6 show that the program’s financial condition continues to worsen at the end of the period. Overemphasis on summary measures for a 75-year period can lead to incorrect perceptions and to policy prescriptions that do not move toward a sustainable system. Thus, careful consideration of the trends in annual deficits and unfunded obligations toward the end of the 75-year period is important.
In order to provide a more complete description of Social Security’s
very long-run financial condition, this report also includes summary measures for a time period that extends to the infinite horizon. These calculations show that extending the horizon beyond 75 years continues to increase the unfunded obligation, indicating that much larger changes would be required to achieve solvency over the infinite future as compared to changes needed to balance 75-year period summary measures.” *

And now a word from Dick Cheney’s Favorite Website Factcheck, DOT COM. that is:

“Social Security Deficit and Payroll Taxes

The percent of taxable payroll is the portion of an employee’s payroll tax that goes toward Social Security and is currently set at the rate of 12.4 percent, half of which is paid by the employer and the other half by employee. Over 75 years, the Trustees estimate the actuarial deficit is 1.8 percent of taxable payroll. This means that for the system to be completely solvent over the next 75 years, without adjusting benefits, payroll taxes would have to go up to 14.2 percent immediately. And to be solvent for the "infinite future," the $10.4 trillion shortfall equals 3.5 percent of taxable payroll, or a tax increase to 15.9 percent of wages.”

Ah, but not everybody is happy with “infinite horizons” let alone any projections over even 75 years due to the uncertainty factor. The whole history of the Soviet Union occurred within 75 years. Anything, world wars, famine, giant pandemics could occur. In its letter to the Social Security Advisory Board, the American Academy of Actuaries states that:

“The Social Insurance Committee disagrees with Recommendation M-6. Rather, the Committee believes that the new measures of OASDI’s unfunded obligations included in the 2003 report provide little if any useful information about the program’s long-range finances and indeed are likely to mislead anyone lacking technical expertise in the demographic, economic and actuarial aspects of the program’s finances into believing that the program is in far worse financial
condition than is actually indicated. Thus, we believe that including these values in the Trustees Report is unnecessary and is, on balance, a detriment to the Trustees’ charge to provide a meaningful and balanced presentation of the financial status of the program.

With regard to the infinite-time-period estimates, the Committee begins its analysis by noting that the results of the 75-year statutory valuation are themselves subject to extreme uncertainty. Consider the situation of actuaries or economists in the year 1928 attempting to project demographic and economic parameters 75 years into the future - to 2003. They likely would have missed the Great Depression, World War II, the baby boom, the influx of women into the labor force,
etc. Nobody, no matter how intelligent or educated, could have anticipated these very significant events.” **

Now, the letter states that:

“methods of demographic, economic and actuarial analysis have improved greatly over the years” **

But it observes that:

“sources of error in past valuations of OASDI have been unforeseen — and really unforeseeable — large-scale changes in the U.S. society and economy.” **

And according to the letter there’s no reason to believe that similar unforeseeable changes won’t happen in the future. And making projections over 75 years is risky, so are projections to the infinite future making the results of limited value, unless you are willing to reverse the “trend” of your immediate 75 year projection.

Well, I’ve gone egghead again. Sorry. Back to Mr. Limbaugh’s forked tongue. He accused us of semantics in our propaganda. Well then, let’s go back to see what happens when the man who tells him what to say, George W. changed his tune somewhat. Realizing that was on thinner ice, and he was getting such tough opposition on the term “crisis”, Bush sang a slightly modified tune changing his term to “problem”. Now Mr. Limbaugh’s article takes care to equivocate before it gets to his main thrust that the Democrats won’t get behind the wise President’s sincere efforts, because they just want to play politics:

“Whether you call it a problem or a crisis, it is getting worse, and it's nothing short of immoral to put off working on solutions. The only conceivable reasons Democrats are in denial about it is that they either don't want to allow reform under a Republican president or don't want to fix it at all because they might lose one of the main weapons in their fear-mongering arsenal.”

No Mr. Limbaugh that’s not the reason. Our “fear-mongering arsenal” is filled with facts, not neocon wishful thinking.

The up-front borrowing costs mean we won’t close the deficit until 2030, we’ll just dig a deeper hole. As for “personal accounts” Bush Jr. isn’t figuring in the resulting interest that would cut into the savings, or that the benefit of paying back the debt would be reduced by inflation. Cuts to benefits will be only partly made up for by personal accounts. Administrative costs will rise. Of course if the employer won’t have to come up with half the scratch anymore, corporations will benefit, but other “persons” will not.

And Wikipedia brought forth a few more interesting facts:

From “Social Security”:

“The other major sector of opinion is that privatization accomplishes nothing, that rational investors would neutralize any benefit of, effectively, selling Treasury Notes and buying equities (See Modigliani-Miller Theory) - that it places more risk on individual workers than it gives back in rewards, since they cannot effectively vote their shares, but have no more protection than any other owner of common stock - and that it does nothing to change the budget situation in the future, that if and when the trust fund runs out, there will still be the choice of raising taxes or cutting benefits, or both.

Believers in this position argue that "privatization" is a fraud, that there is no specific Social Security Crisis, but instead a general budget crisis: namely that the US General Fund is in persistent deficit, that revenues are far too low to cover expenditures, and that absent this problem being solved, it does not matter how social security is set up”

That led to the “Modigliani-Miller Theory”:

“The Modigliani-Miller theorem (of Franco Modigliani and Merton Miller) forms the basis for modern thinking on capital structure. The basic theorem states that, in the absence of taxes, bankruptcy costs, and asymmetric information, and with perfect markets, the value of a firm is unaffected by how that firm is financed. It does not matter if the firm's capital is raised by issuing stock or selling debt. It does not matter what the firm's dividend policy is.

This seemingly irrelevant result (after all, none of the conditions are met in the real world) is still taught and studied because it tells us something very important. That is, if capital structure matters, it is precisely because one or more of the assumptions is violated. It tells us where to look for determinants of optimal capital structure and how those things might affect optimal capital structure.”

Now someone should explain to Mr. Limbaugh what “information asymmetry” means. Basically, it means a market where, in a business transaction, one person usually the seller, has the advantage of more, or better information than the other person, usually the buyer,
This can be your car salesman, or your stockbroker. Usually in such a situation the value of the commodity sold goes down.

What does “Wikipedia” say on “Information Asymmetry”?:

“Because of information asymmetry, unscrupulous sellers can "spoof" items (like software or computer games) and defraud the buyer. As a result, many people not willing to risk getting ripped off will avoid certain types of purchases, or will not spend as much for a given item.”

So maybe the young dock worker circa 2010 will learn to be confused in his or her stock purchases. And many, many will take a bath! But the broker will fine!

That’s the reason Mr. Limbaugh that we don’t like your Social Security “reforms”. You’re reforming it alright, but you’re lying about whom it’s for.

February 2, 2005:

It just occurred to me how the whole scheme is dangerous now! I heard Bush's State of the Union Address. He said that seniors should not worry about their payments, that while the people younger than 55 will have the "voluntary personal accounts" the people over 55 will keep the same Social Security as before. But if money is diverted to "personal accounts", where will the money for seniors come from? We have to spend $80 billion more in Iraq. We have other hefty payments too. On top of which Bush just had to give the rich a tax cut, and he wants to spend like a drunken sailor on defence. Where will the money come from? We will have to borrow $3 trillion, and from whom? Our children! Find me one grandmother who would take away from her grandchild's future! I know that right now, my mother, as old as she is, would rather give all her savings to her two little grandchildren if it meant that they could go to college someday! And with the deficit we have, and jobs leaving this country we don't have a certain economy, and will not for a long time if things continue the way they are. In 15 or twenty years my nieces will be going (we hope) to college, but it may be harder for my brother to get them there!


** American Academy of Actuaries "Does Social Security Really Face an $11 Trillion Deficit?"


2003 Technical Panel on Assumptions and Methods (PDF)

American Academy of Actuaries Letter of December 19, 2003 to the Trustees of The Social Security System (PDF)

Wikipedia - Social Security Pros and Cons of Privatisation

Wikipedia - Modigliani-Miller Theorem

Wikipedia - Information asymmetry

Wednesday, January 26, 2005

This Year The Battle Begins

Senator Barbara Boxer, originally uploaded by Wazdat!.

One Hero Among Many

I find it fascinating to see how one side can so suddenly find its voice in the wake of defeat, when the side that claims victory sounds so hollow. Today champions arose, and the perfidy of the other side was laid bare.

They were stellar, like the 300 Spartans that stood against the myriads of Persians and their minions at Thermopylae! When the Republicans sought to make Condi's confirmation look like some bipartisan window-dressing, these 12 heroes cut them off at the pass, and held the chokepoint. The vote was almost completely down party lines.

She couldn't answer their questions. Our New Secretary Of State withered under their questions. At the hearings she hid behind legalisms and obfuscations, and feigned affront to her character. At best, she sidestepped the issues. At worst, she threw up smoke screens. Like some third rate magician she asked us not to pay attention to the man behind the curtain. Boxer, Kerry, even Biden pummeled her with cold logic and the love of mankind, all to get a simple statement of values. At every turn they laid bare the moral bankruptcy of this administration:

"BOXER: Mr. Chairman, I'm going to take 30 seconds, with your permission. First of all, Charles Duelfer said, and I quote -- here it is. I ask unanimous consent to place in the record Charlie Duelfer's report.

LUGAR: It will be placed in the record.

BOXER: Which he says, Although Saddam clearly assigned a high value to the nuclear progress and talent that had been developed up to '91, the program ended and the intellectual capital decayed in the succeeding years. Here's the point: You and I could sit here and go back and forth and present our arguments, and maybe somebody watching the debate would pick one or the other depending on their own views. But I'm not interested in that. I'm interested in the facts. So when I ask you these questions, I'm going to show you your words not my words. And, if I might say, again you said you're aware of the stakes in Iraq. We sent our beautiful people -- and thank you, thank you so much for your comments about them -- to defend freedom. You sent them in there because of weapons of mass destruction. Later, the mission changed when there were none. I have your quotes on it. I have the president's quotes on it. And everybody admits it but you that that was the reason for the war. And then once we're in there, now it moved to a different mission. Which is great, we all want to give democracy and freedom everywhere we can possibly do it, but let's not rewrite history. It's too soon to do that.

RICE: Senator Boxer, I would refer you to the president's speech before the American Enterprise Institute in February prior to the war, in which he talked about the fact that, yes, there was the threat of weapons of mass destruction but he also talked to the strategic threat that Saddam Hussein was to the region. Saddam Hussein was a threat, yes, because he was trying to acquire weapons of mass destruction. And, yes, we thought that he was -- that he had stockpiles, which he did not have. We had problems with the intelligence. We are all, as a collective polity of the United States, trying to deal with ways to get better intelligence. But it wasn't just weapons of mass destruction. He was also a place -- his territory was a place where terrorists were welcomed, where he paid suicide bombers to bomb Israel, where he had used Scuds against Israel in the past, and so we knew what his intentions were in the region, where he had attacked his neighbors before and, in fact, tried to annex Kuwait, where we'd gone to war against him twice in the past. It was the total picture, Senator, not just weapons of mass destruction, that caused us to decide that post-September 11th, it was finally time to deal with Saddam Hussein.

BOXER: Well, you should you read what we voted on when we voted to support the war, which I did not, but most of my colleagues did. It was WMD, period. That was the reason and the causation for that particular vote. But again, I just feel, you quote President Bush when it suits you, but you contradicted him when he said, Yes, Saddam could have a nuclear weapon in less than a year. You go on television, nine months later, and said, Nobody ever said it was going to be.

RICE: Senator, that was just a question of pointing out to people that there was an uncertainty, that no one was saying that he would have to have a weapon within a year for it to be worth it to go to war.

BOXER: Well, if you can't admit to this mistake, I hope that you will rethink it.
RICE: Senator, we can have this discussion in any way that you would like. But I really hope that you will reframe from impugning my integrity. Thank you very much.

BOXER: I'm not. I'm just quoting what you said. You contradicted the president and you contradicted yourself."

And on and on Condi would go:

"SENATOR CHRISTOPHER DODD, Democrat of Connecticut: Well, thank you very much, Mr. Chairman. And let me join you in commending our colleagues on the committee yesterday and our nominee as well. It was a long day. If nothing else, I was very impressed with your tenaciousness, to sit at that table and have 18of us up here raising questions that cover the entire globe and matters of deep concern to all of us. And we appreciate your willingness to go through that. It was a long day but, I think, a worthwhile one, Mr. Chairman, as you point out. Last year I introduced an amendment to the Defense authorization bill, part of which would have prevented the Department of Defense from transferring prisoners to third countries without keeping a record of the transfer and the reasons for it. I wonder if you might comment on this, if you're familiar enough with the practice, and whether or not we might be willing at least to - one, at least to preventing these renditions from occurring or, if not, at least keeping some record, so we have some way of determining how these people are being treated.

MS. RICE: Thank you -

SENATOR DODD: Are you familiar with the subject matter?

MS. RICE: Thank you, Senator. May I just take one moment before answering the question just to also thank the members of the committee for yesterday? I think it was an extensive - some would say even exhaustive -look at the questions that we face in American foreign policy, but I think it was an important day.

I appreciate very much the spirit in which the questions were asked, and I look forward - and I really meant what I said and want to underscore: I look forward to working with each and every member of the committee in a bipartisan fashion so that we can fashion an American foreign policy for the 21st century that takes advantage of the substantial opportunities before us, recognizing that these are also difficult times for the country. And I want to thank you especially, Mr. Chairman, for your leadership of yesterday and to tell you that I look forward to many other sessions of that kind.


MS. RICE: Senator, now let me turn to Senator Dodd's question.

The United States is not permitted to transfer anyone if we think that they're going to be tortured. And in fact, we make efforts to ascertain from any party that this will not happen. And you can be certain that we will continue to do so.

I want to be careful on commenting on intelligence matters, particularly in open session. But to say that wed - anything that is done is done within the limits of the law. It is done with recognition that the United States is special and has special responsibilities and that we will continue to do that. As to keeping a record, I would have to demur for now. I don't have enough information -"

And so we move to the floor debate. George W. Bush wanted a two-fer, inauguration and a Secratary of State in the same week. But the Democrats held out for a debate, and a debate they got.

Senator Boxer lead the charge. She made damn sure that the debate was on moral grounds. Were the people of the be manipulated and lied to? Was the administration going to grandfather the use of torture as a basis for interrogating prisoners? Or would the State Department deal squarely with the American people, and the Geneva Conventions, not to mention the Universal Military Code to be upheld and respected? Clearly the answer to either of these questions was no.
And so Senator Boxer stated emphatically er opposition;

"The reason I am going to be voting no is clear to anyone who has followed this debate. I asked Condoleezza Rice a series of questions in five different areas. I gave her every opportunity to correct the record. I asked her about her statements that the aluminum tubes Saddam was buying could only be used for nuclear weapons, and she talked about the mushroom cloud and frightened the American people at a time when we know she had the infor-mation that there was a very strong dispute going on in the intelligence community and that, in fact, she had known in 2001 about this issue. She re-fused to budge. I asked her about her continual statements that al-Qaida and Saddam were close. It was not true. At the time she made those comments, the State Department itself put out a very im-portant map—this was 1 month after 9/ 11—saying that in fact there was no al- Qaida whatsoever in Iraq. They were nowhere in Iraq. She refused to budge. I ask unanimous consent that I may have an additional 4 minutes. The PRESIDING OFFICER. Without objection, it is so ordered. Mrs. BOXER. I thank the Chair. I asked Dr. Rice about my concerns in five areas. I don’t fault the Presi-dent for picking someone who believes in this war, who helped him in her posi-tion. That is not the issue. The issue has to do with the lack of candor that continues to come from Dr. Rice. As recently as a few months ago she wrote a letter which resulted in a very important amendment in the Intel-ligence bill being stripped from that bill. This was a bill by Senators MCCAINand LIEBERMAN, and this provi-sion was written in part by Senator DURBIN. It was an antitorture provi-sion. She opposed it. She wrote that she opposed it. When I asked her about it, she denied that she opposed it, when she had opposed it in writing."

And she showed them the moral that Condi missed:

"Dr. King said—and I often repeat it— our lives begin to end the day we become silent about things that matter. This debate mattered. Responsibility matters. Accountability matters. It matters when you give someone a chance to correct the record that is replete with half-truths and misstatements, and they don’t take that opportunity." Rice Confirmation Committee Hearings Part 1 Rice Confirmation Committee Hearings Part 2 Rice Confirmation Committee Hearings Part 3

Congressional Record January 25 2005 Part 1

Congressional Record January 25 2005 Part 2

Friday, January 21, 2005

The Madness of King George

King George The Coof, originally uploaded by Wazdat!.


Ye see yon birkie ca'd 'a lord,'
Wha struts, an' stares, an' a' that?
Tho' hundreds worship at his word,
He's but a cuif for a' that.

Robert Burns

And so King George is crowned anew. With all the pomp and circumstance that he does so richly not deserve! And his speech, which he actually managed not to mangle, was as ringing as it was hollow. It was, “a tale told by an idiot, full of sound and fury signifying nothing.”

George W. Bush reminds me of what I saw earlier this about Louis XVI of France. All up in that about himself, but zero virtue or substance. Like the French monarchy, he is cocooned in his own sense of infallibility, so that he is insensitive to the noises of anyone outside of his little entourage of self-seeking sycophants, that he cannot hear the cries of those who really suffer from his blind and shameless self-aggrandizement. And once more he has found time, four years of time to use the people for his and his friend’s purposes. His inaugural speech was a comedy of hypocrisies.

“At this second gathering, our duties are defined not by the words I use, but by the history we have seen together. For a half century, America defended our own freedom by standing watch on distant borders. After the shipwreck of communism came years of relative quiet, years of repose, years of sabbatical - and then there came a day of fire.”

And on that day King George chose to become Inspector Clouseau, always going after the wrong suspect, while the culprit consistently gets away behind his back, and under his nose.

“We have seen our vulnerability - and we have seen its deepest source. For as long as whole regions of the world simmer in resentment and tyranny - prone to ideologies that feed hatred and excuse murder - violence will gather, and multiply in destructive power, and cross the most defended borders, and raise a mortal threat.”

When the world responded along with us in righteous wrath after 9/11, and we went after Osama, in Afghanistan, King George said he wanted him “dead or alive”. And did he go about in a serious manner? No! he chose to farm out the job! And he did so to those trusty Afghan warlords! You know I mean, that the ones that can be BARGAINED WITH? They have such a reputation for bargaining that Osama established a long-term RELATIONSHIP with them! And he used that loyalty to escape justice.

And when King George saw that it was haaard woooork to capture bin Laden, he decided, as is the prerogative of every king, that Osama was no longer worth it, despite the fact that he was the man who murdered 3000 innocent civilians, and that every American’s greatest wish is to kill bin Laden. What mattered was that we have
Afghanistan, the warlords have their unrestricted private enterprise, - in opium poppies that is, and that we have the Afghan oil.

And so King George of the House of Clouseau saw that we needed a new villain. And who would this evil beast be? Saudi Arabia, who funded terrorists? North Korea with it’s nuclear weapons? No! it was Iraq, a land with no threat to us whatsoever. He claimed that there were weapons of mass destruction where there was nothing. He went into Iraq with only enough troops to invade the country, but not enough to hold it, and secure it.

“So it is the policy of the United States to seek and support the growth of democratic movements and institutions in every nation and culture, with the ultimate goal of ending tyranny in our world.

This is not primarily the task of arms, though we will defend ourselves and our friends by force of arms when necessary. Freedom, by its nature, must be chosen, and defended by citizens, and sustained by the rule of law and the protection of minorities.”

Yet King George invaded a country unprovoked, did not wait to hear the word of our allies, and when he found that he could no longer hide his treachery behind WMDs, declared that he invaded simply because Saddam was an evil man, and we had the right to “free Iraq”. We freed Iraq alright, we freed it for the international corporations while we removed all safety and union regulations. And what happened to nation building? Out of 50,000,000 Iraqis he surely could’ve found a few to employ in rebuilding the hierarchy of the country. Saddam certainly found plenty of skilled hands to build his palaces, his missile bases, etc. And by the way, it is strange that there seem to be no more qualified Iraqis left to rebuild the country, how could Iraq have built any WMDs? Nuclear, or otherwise it would taken many armies just to produce weapons grade material, or even to smuggle it. And yet, King George felt once again as in Afghanistan, that he had to farm out the job of rebuilding Iraq to people he can trust, this time international corporations. And the people of Iraq are left to be poor, and directionless, and weak. Freedom? “Chosen, and defended by citizens, and sustained by the rule of law”? What was “chosen” by the Iraqi people? “Defended by citizens”? Name me one Iraqi who will stand with our troops these days other than the paid puppets of the neocons?

“America will not impose our own style of government on the unwilling.”

But that is exactly what King George is doing. He is trying to create the same kind of privatization here in America, as he is trying to create in Iraq. So both countries get the same kind of “freedom”!

“America will not pretend that jailed dissidents prefer their chains, or that women welcome humiliation and servitude, or that any human being aspires to live at the mercy of bullies.”

But Your Royal Majesty, you already have your Bastille, in Sarpooza, Bakubah, Abu Ghraib, and Camp Delta! There are hundreds of incidents reported emerging from the FOIA request of the A.C.L.U. Perhaps a quote from one of the reports should balance things out.

Excerpt from “Department of the Army 43rd Military Police Detachment (CID) (FWD) 10th Military Police Battalion United States Army Criminal Investigation Command Operation Iraqi Freedom APO AE 09323-2647” related Agent’s Investigation Report dated 20 Nov 03:

“BASIS FOR INVESTIGATION: This office was notified by the Staff Judge Advocate, 4ID, camp Iron Horse, Iraq, that Mr. XXXXXXXXXXXX detained Iraqi Local National, was shot and killed at Camp Packhorse, Iraq, SPC XXXXXXXXXXX

About 1900, 15 Sep 03, SAXXXXXXXXX obtained a Serious Incident Report (SIR), and a 15-6 investigation packet conducted by MAJ XXXXXXXXXXXXXXXX 720th Military Police Bn, Camp Iron Horse, Iraq, which disclosed SPC XXXXXXXXXXXXXX was in violation of the U.S. Army Use of Force policy and Task Force Iron Horse directives concerning the use of deadly force. (See SIR and 15-6 investigation packet for details)

About 23 of 03, SAXXXXXXXXXXXX advised SPC XXXXXXXXX of his rights, which he invoked and requested a lawyer.

About 20 Nov 03, SA XXXXXXXXXXXXX coordinated with CPT XXXXXXXXXXXX SJA, who opined there was probable cause to believe SPC XXXXXXXXXXXXXX committed the offense of Murder when he failed to obey SOP and fire his rifle at Mr. RADAD, killing him. CPT XXXXXXXXXX stated there was already an article 32 hearing where SPC XXXXXXXX was already being charged for offense of Voluntary Manslaughter. She stated the results of the hearing concluded that SPC XXXXXXXX would not be tried at a courts-martial. She stated that on 12 Nov 03, SPC XXXXXXXX was reduced to the grade of E-1 and received a Chapter 10 Discharge from the U.S. Army. ///LAST ENTRY///”*

“Some, I know, have questioned the global appeal of liberty….”

No one questions liberty truly won and truly given. But King George’s kind of liberty, the liberty of the type the Robber Baron gave to the labor serf is not true liberty, just a way of turning the people into a modern version of the old French Third Estate, with him as King and Haliburton for nobility.

“And all the allies of the United States can know: we honor your friendship, we rely on your counsel, and we depend on your help.”

King George is so far in the hole, what with China beating our ass in sales of electronics and so forth. Our dollar is weak against the Euro, and thanks to his asinine behavior in the Middle East we have no street cred left in the world.

“Our country has accepted obligations that are difficult to fulfill, and would be dishonorable to abandon. Yet because we have acted in the great liberating tradition of this nation, tens of millions have achieved their freedom.”

We accepted the obligation to hunt terrorists, not to spin forlorn dreams of world revolution as the neocons want. Yet King George persists in his delusion:

“By our efforts, we have lit a fire as well - a fire in the minds of men. It warms those who feel its power, it burns those who fight its progress, and one day this untamed fire of freedom will reach the darkest corners of our world.”

What you lit was a conflagration of revolution in the Middle East. Or maybe Peter Bergen can put it better:

“What we have done in Iraq is what bin Laden could not have hoped for in his wildest dreams: We invaded an oil-rich Muslim nation in the heart of the Middle East, the very type of imperial adventure that bin Laden has long predicted was the United States' long-term goal in the region. We deposed the secular socialist Saddam, whom bin Laden has long despised, ignited Sunni and Shia fundamentalist fervor in Iraq, and have now provoked a "defensive" jihad that has galvanized jihad-minded Muslims around the world. It's hard to imagine a set of policies better designed to sabotage the war on terrorism.” **

And to add to that, despite fair warning from wiser heads, we left our military so ill equipped as to allow the enemy to build up his forces and turn Iraq into the largest terrorist training camp in the world. It is now officially a quagmire we shall be there for years to come because we dare not leave it to bin Laden.

As for: “…the idealistic work of helping raise up free governments ...”: What “governments”? Those twelve company men we installed in that fiction we call the government of Iraq? We can’t even get together a decent police force. We have to hide the identities of the candidates for our so-called “election” because we know we can’t protect them. Not when our men have to scrounge for “hillbillie armor” to put in personnel carriers! King George could spend $43 million on his coronation, but forget spending a dime on keeping our troops safe! Still King George beats his chest when it comes to “our men and women in harm’s way…” :

“Some have shown their devotion to our country in deaths that honored their whole lives - and we will always honor their names and their sacrifice.”

King George did not honor them when they lived. They died for a lie. I’m sure King George still remembers that “funny” joke he made about looking for WMDs under the table. How many thousands of them are wounded, seriously, their lives altered all for the greater glory of the neocon dream? The Glory of Privatization? The Rich Man’s Playground? If just one of those floats used in the Inauguration parade had carried one wounded soldier to safety, I could’ve excused it. But you gave a gesture for the troops, threw them a ball, and so I’m sure you slept well. A Kingly gesture George.

But the Kingly largesse will also flow to the – PEOPLE!!! Listen:

“In America's ideal of freedom, citizens find the dignity and security of economic independence, instead of laboring on the edge of subsistence. This is the broader definition of liberty that motivated the Homestead Act, the Social Security Act, and the G.I. Bill of Rights. And now we will extend this vision by reforming great institutions to serve the needs of our time. To give every American a stake in the promise and future of our country, we will bring the highest standards to our schools, and build an ownership society. We will widen the ownership of homes and businesses, retirement savings and health insurance - preparing our people for the challenges of life in a free society. By making every citizen an agent of his or her own destiny, we will give our fellow Americans greater freedom from want and fear, and make our society more prosperous and just and equal.”

I think he speaks of Social Security. You know, that thing that ain’t broke so we shouldn’t be fixing it? What he doesn’t say is that even the most partisan of privatizers says that people should only be allowed to invest in a few government chosen stocks, bonds, and Treasury bonds are still the most secure thin in the world. Very few out 53 million Americans will know how to invest competently. But King George’s courtiers in Wall Street will see the prosperity!

“In America's ideal of freedom, the public interest depends on private character - on integrity, and tolerance toward others, and the rule of conscience in our own lives. Self-government relies, in the end, on the governing of the self.”

Could King George be saying “He that governs least, governs best?” Or could he be simply saying to his rich pals, “It’s OK for you to guard the henhouse. All the dogs are in Iraq now!”

And in the end King George mouths a few platitudes to sop the masses with, and irony of ironies lets out the one thing we can judge his reign by:

“From the viewpoint of centuries, the questions that come to us are narrowed and few. Did our generation advance the cause of freedom? And did our character bring credit to that cause?”

Well, did we? Your Majesty? What did we advance then?

A.C.L.U. FOIA documents
Mother Jones "The Wrong War by Peter Bergen

Thursday, January 20, 2005

Boxer vs. Rice

Senator Boxer, originally uploaded by Wazdat!.

Make 'em Pay Barbara!

Thursday, January 13, 2005

Lettres Du Cachet

bastille 2, originally uploaded by Wazdat!.

Seems Like Old Times

"In French history, lettres de cachet were letters signed by the king of France, countersigned by one of his ministers, and closed with the royal seal, or cachet. They contained orders directly from the king, often to enforce arbitrary actions and judgements that could not be appealed.

“In the case of organized bodies lettres de cachet were issued for the purpose of preventing assembly or to accomplish some other definite act. The provincial estates were convoked in this manner, and it was by a lettre de cachet (in this case, a lettre de jussipri) in which the king ordered a parliament to register a law in the teeth of its own refusal to pass it.

The best-known lettres de cachet, however, were penal, by which a subject was sentenced without trial and without an opportunity of defense to imprisonment in a state prison or an ordinary jail, confinement in a convent or a hospital, transportation to the colonies, or expulsion to another part of the realm. The wealthy sometimes bought such lettres to dispose of unwanted individuals.*”

“The Algerian experience confirms how a type-A secret police force is born. Torture in Algeria followed logically from the dictates of the Special Powers Law of March 16, 1956, which permitted the Prefect of Algiers to delegate to the military exceptional authority beyond ordinary police powers. As the historian John Talbott has put it: ‘These powers, as exercised in the circumstances prevailing in Algiers in early 1957, opened the door to the practice of torture. It is not hard to see how this happened. The Laws of the Fourth Republic required a suspect to be brought before an examining magistrate . . . within twenty-four hours of his arrest. Such a procedure was one of the safeguards against frivolous arrest and illegal detentions. But in Algiers, the paratroopers arrested and detained for questioning hundreds of men and women suspected of nothing more than possessing useful information. The key provision of the Special Powers Act, and in some respects, the key to much of the controversy over the Battle of Algiers, was the authority to intern suspects, the right of assignation a’ re’sidence.”**

Indefinite Detention scares me. It strikes at the core of human dignity and liberty. The principle of equality under the law rests partially on the idea that the right to freedom is based on the right to privacy. Each person has the right to his or her own private destiny, his or her own private ideas, and freedom of action. And what makes it worse is that the idea that the police state doesn’t need to “show cause” in order to detain someone, allows that state to take people at will, and to incarcerate them secretly. What if, in four years this country turns into a police state? With a sufficient amount of paranoia a people could knock out the very few safeguards that prevent a police state, and keep the national police from turning into a secret police. Secret police are not called “secret” because no one knows that they exist, but because their actions are entirely beyond the purview of any official, or legal body of the government. Secret police are – officially – unofficial. When an arrest or what I would term “abduction” takes place, no paper trail, no witnesses, no known whereabouts of the “abductee” are given, because secret police are not responsible to any court, or any review but their own. Secret police tend to become “states within the state”, shrouded in – secrecy. It is a country no one willingly visits, or travels into, but is rather “abducted” into. One just simply disappears into the mist, “the night and fog” and is never seen again.

You can’t have a secret police without a witch hunt every now and then, and you can’t have that without a dire outside, or internal threat. In a democracy, that threat would unify, but in a police state, it breeds paranoia.

According to the Bush and Blair governments in the U.S. and Britain respectively, terrorism is just that kind of threat.

It helps of course if that threat initially is thought to come from some group on the fringes of society. At one time it was Jews, Gypsies, (The Soviet Union had it in for Baptists.) and other groups outside of the norm. Now it is people with a foreign passport. But soon some other disaffected group may come under suspicion. Soon we could add minorities to the group. The poorer you are the more vulnerable you will be. And then for good effect let’s add other fringe groups that simply – don’t follow the main lifestyle. Persecute Goths for instance, or speed metal freaks, who’ll miss’em?

Well if you don’t raise a finger to stop it, and they get to arresting your son, or daughter, you’ll miss them. I seem to remember the words of Martin Niemöller, when they asked him how a democratic society like that of Weimar Germany could be allow itself to turn into the Third Reich:

"In Germany, they first came for the communists, and I didn't speak up because I wasn't a communist. Then they came for the Jews, and I didn't speak up because I wasn't a Jew. Then they came for the trade unionists, and I didn't speak up because I wasn't a trade unionist. Then they came for the Catholics and I didn't speak up because I wasn't a Catholic. Then they came for me -- and by that time there was nobody left to speak up."

*From Wikipedia
**“Secret Police” by Thomas Plate and Andrea Darvi Doubleday & Company, Inc. Garden City, New York 1981

Thursday, January 06, 2005

The Shot Heard 'Round the World

Representative Jones, originally uploaded by Wazdat!.

The Fight At It's Beginnning

I consider Representative Jones's bold move as the first shot in resisting the oncoming onslaught of neocon destruction. Every person who stood up and protested the certification of the falsified votes of Ohio deserves praise. Each and every one of them was able to quote chapter and verse on what went wrong, how it went wrong and what must be done about it. They did not go quietly into the night, but protested loudly and sharply. They spoke of crowds waiting and shortchanged beaten down and cheated. The Republicans could only reply with platitudes and homilies, and not one piece of evidence for their defense. I have some news for so-called "Patriots", my patriotism is manifested by my ability to protest as well as my right to praise. For the contumely hypocrisy of Tom DeLay, (of whom I have more to say later), a man thrice rebuked by the House for his lack of ethics, a man tied to a questionable, disturbing cabal and dirty political tricks of machine politics, I have nothing but contempt. Just as I have no sympathy for those who say one thing and do another, and abuse your trust while they are at it. Namely Senators Clinton and Schumer, who turned tail and voted "Nay" on sustaining the objection. Every person, be they old or young who stood there, in the cold only to cheated later, was doubly shafted today. Therefore, be on notice that we know how you voted, and will remember it next year when you are up for an accounting. From this time on the fight begins, and it won't end until we take back this country from modern day feudalists who would bring us to serfdom!

Saturday, January 01, 2005

The Dangers of Partial Privatization

Old Woman On Thin Ice, originally uploaded by Wazdat!.

Gambling With Our Old Age.

“Social Security” The Cato Way, or The Century Foundation To The Rescue.

So, let me get this straight. Social Security is the tax that we pay to ourselves and our children right? We pay the tax when a part of our salaries is withheld so our employer can send that to the Treasury as part of the Social Security Trust Fund. That fund goes to present day people who are retired, right? Part of how much money goes into the fund depends on how many people are working at the time correct? I’m assuming of course, that when I’m taxed it is in a proportion commensurate with my pay. 12% is taken for Social Security. Sometimes the government needs to borrow money from the Trust to keep the machinery going. Well and good so long as it doesn’t take too much. That money goes into government bonds, which are always stable. After all, we are the government. We “pay ourselves first” through taxation, not handouts. Now once, there were 16 people working to every one that was retired right? So, that was 16 benefactors to one recipient huh? And now there are only 2 or 3 to one, is that straight? In about 20 years there will be more people retired than are working? And old people will live longer right? On the face of it, it looks like cash flow problem.

But now I hear that 20 years ago Greenspan figured this was coming and asked for a rate hike to create a surplus. And I hear he was persuasive. We raised the Social Security Tax, (though I hear that folks in my income bracket paid more than their fair share thanks to Reagan) and now have that surplus. And some people say it ought to last us until 2042 give or take ten years. So, what’s the hullabaloo? There was a time when we knew that the money was safe, that there was enough money to last.

Then George Bush gave people who don’t need it, a tax cut, spent like a sailor on a war we didn’t need, among other useless things. Now we have a deficit. Now George Bush says the Social Security sky is falling. That we will run out of Social Security money around 2018. Or, from the preface of the “2004 Economic Report of the President”:

“Even after the baby-boom generation’s effect is no longer felt, Social Security is projected to incur annual deficits greater than 50 percent of payroll tax revenues. These deficits are so large that they require a meaningful change to Social Security in future years. Reform should include moderation of the growth of benefits that are unfunded and would otherwise require higher taxes in the future. However, the benefits promised to those in or near retirement should be maintained in full. A new system of personal retirement accounts should be established to help pay future benefits. The economic rationale for under-taking this reform in an era of budget deficits is as compelling as it was in an era of budget surpluses.”

And he concludes with:

“The Nation must act to avert a long-foreseen future crisis in the financing of its old-age entitlement programs. The crisis results mainly from the fundamental demographic shifts to lower birthrates and longer lives rather than the impending retirement of the baby-boom generation. However, the scope for enacting meaningful reform will disappear as the baby-boom generation begins to retire and an ever greater share of the population sees its current income arrive in the form of a government check. The design of the Social Security program has failed to keep pace with emerging demo-graphic realities. The benefits promised to those currently in or near retirement must be honored, but a new course must be set to ensure that Social Security is viable and available to Americans in the future. To do nothing at this point to restrain the growth of entitlement programs would bequeath to future generations an increasing tax on their income to support Social Security. The only way to avoid such an outcome without reducing the living standards of future retirees is to save more today. Greater saving will increase the capital stock and increase the productive capacity of the economy so that it can support those higher payments. The combination of reducing the projected cost of taxpayer-financed benefits and shifting the revenues into personal retirement accounts provides the best mechanism for achieving that result.”

He means “everything will be gone”, even the surplus George? What then, poverty? Yeah George, then that deficit will be real!

Well, serious problems require drastic solutions, and – I must say, this one’s a doozy! Now, we are supposed to have a portion of our Social Security allotment put into a private account to invest it into stocks and bonds! And there, the good and honest stockbrokers and middlemen will invest our money into the good and honest corporations that will take care of themselves good and honestly, and keep our money good and honestly snug an’ cozy!

That’s assuming that your 65-year-old grandmother knows her way around things like stocks and bonds! Now maybe she does. That would make one of the lucky few that could do it. There is an element of roulette in playing the stock market. As long as a company does well, then so will you, but if it doesn’t you won’t do so hot. And stocks could shoot up, and dive down! Will anyone, at 75 have the instinct to maneuver in a timely fashion? The level of uncertainty will be staggering. And you know who loves old people with uncertainties? Scam artists! Stock scams are as old as the Rockies, and wiser people than your grandmother got taken!

But maybe the biggest scam of them all is this whole idea of Social Security being at all in danger. Don’t get me wrong. At around 2042, even the surplus will run out. Then we will have a real deficit! We’d better start birthin’ babies! But…

Maybe the solution need not be as drastic as the Bushies want it to be! That four-plus-one word, the one that Bush would rather wash his mouth out with battery acid than say - taxes, would not be so bad if introduced and gradually raised only slightly, we could overcome the shortfall. And we need more jobs people, a little less “outsourcing,” and more “insourcing.” Get rid of the tax incentives to take our jobs abroad! Businesses should start front-loading business ventures with things like safety and healthcare. Ethical behavior is the best lawsuit repellant.

Why then, are the neocons so insistent?

It has to be that they simply need to find another way to make money. Let’s look again at the problem and then at the solution they propose.

It’s a given that under the present circumstances, the money taken out of Social Security in 20 years will be more than that which is put in. I agree. Yet the neocons seem to think that the only alternative to their solution of privatization is either massive cuts in benefits, or massive taxation. But that is disingenuous, because 20 years will give us time to make more gradual changes in all these areas so that neither would be painful. Also, if those of the higher income brackets were to once again pay their fair share, and if (under a Democratic administration), we were to conclude our costly occupation of Iraq in a just manner, we would be slightly more ahead of the game than we are now!

Nothing made sense to me about the “Chicken Little Hawk’s” “problem” and their “solution”. I wanted to get at the root of their thinking, and who better to show me where the genesis of these crazy ideas came from than that bastion of neocon thinking, The Cato Institute.

Now let’s look at their “solution” to the “problem”: Partial privatization of Social Security means that the government would transfer a portion of our money into private accounts that could then be invested by the holder into stocks. This is supposedly beneficial to pensions. The reasons given are:

1. The American people seem to “know” instinctively that returns from a privately invested account would be better for them rather than the “alleged investment of pay as you go” in Social Security we have today. They say that the Trust Fund of Social Security is not real. To quote address given by the Cato Institute’s President Edward H. Crane before the S.O.S. Retraite Sante on December 10, 1997:

“To repeat, in the United States the payroll tax is not invested, just as it's not invested in most Social Security systems around the world. It goes directly into payouts to current retirees, with whatever excess there may be going to help finance the federal government's deficit spending. The government leaves "Special Treasury Notes" in a so-called Trust Fund when it purloins these excess funds, but to see that the trust fund is a fraud, one need only consider the options facing the government whether these "bonds" are in the trust fund or not. In the year 2010 or sooner, by our estimates, the cash flow from payroll taxes will be insufficient to meet the benefits due current retirees. Assuming the government will live up to its obligations (there is good reason to believe it will not, but for the sake of argument we will give it the benefit of the doubt), once the system's cash flow turns negative and the Social Security Administration turns to the national government for help, the government can come up with the necessary funds by: 1.) increasing taxes; 2.) increasing borrowing; 3.) reducing benefits; or 4.) reducing other government spending. Now suppose the Special Treasury Notes are presented to the national government by the Social Security Administration for redemption to make up for the shortfall. The government, in order to raise the funds to redeem the bonds is faced with precisely the same four options as if there were no trust fund at all.

Thus, when the American government officials smugly point to the approximately $2 trillion in accumulated Special Treasury Bonds that are expected to be in the trust fund by 2010 and tell us that this will help finance the system until 2029 and that therefore there is no crisis, they are being disingenuous, to put it kindly. There is no trust fund in the United States and the crisis is at hand, particularly for younger workers who face the prospect of negative rates of return on their payroll taxes over their entire working lives.

Which brings us back to the intuitive notion that a private account will, in fact, do much better than what Social Security promises, not to mention what it will be able to deliver. One of the best ways to see what an incredibly bad investment Social Security is compared to various alternative investment portfolios is to look at the Cato Institute's Social Security Web site at That site has an interactive calculator prepared for us by KPMG Peat Marwick which allows the user to assume whatever rates of return on stocks or bonds he projects, what percentage of each asset he'll have in his portfolio, and what the expected inflation rate will be. The opportunities to accumulate significant retirement assets and income, using very conservative assumptions, are clear from the calculator. While the comparison to Social Security won't be meaningful to a French user, the exercise with respect to what it takes to accumulate desired retirement assets is quite enlightening and I would invite you to visit our Social Security Web site.” *

2. The private account would’ve supposedly given a better return on the investment had we already been on partially privatized Social Security:

“To cite just one analysis in the study for workers born in 1950, using prospective rates of return on stocks and bonds that are lower than the actual returns thus far during their working lives, a low income worker can expect $631 per month from Social Security. Had he instead invested his payroll tax in a 50-50 mix of government and corporate bonds, his monthly income would have been $1,069. Had he invested in a stock portfolio of 75 percent large capitalization companies and 25 percent small capitalization companies he would have received a monthly income of $2,419.” *

Supposedly for higher income workers life would be even better:

“For high income workers the results are even more dramatic. Social Security would provide $1,562 a month, a bond portfolio $4,585 a month, and a stock portfolio $9,972 a month -- that is about $120,000 a year. Plus, the investor in the private accounts owns the corpus of the money paid in, which is not the case with Social Security. In other words, the private option is clearly the preferable option.” *

All well and good. One problem: Just as one is not allowed to drive a car without proper training due to safety concerns, one cannot invest in the stock market without proper training for reasons of economic safety. Someone said that we now have a population of near 53 million. What are the odds that in about 20 years, enough of them will be properly checked out on operating a privately invested Social Security account? And what about people who through some misfortune either start working later in life, or must leave their employment earlier, and cannot find a job? I’m not optimistic.

Given the fact that the market does fluctuate, privatization means you are betting your retirement on whether or not you judge the proper time you sell your shares. One day, or two, can make the difference for your whole future. According to the Century Foundation’s Idea Brief: “Twelve Reasons Why Privatizing Social Security Is a Bad Idea” by Greg Anrig and Bernard Wasow:

“Privatization advocates like to stress the appeal of “individual choice” and “personal control,” while assuming in their forecasts that everyone’s accounts will match the overall performance of the stock market. But studies by Yale economist Robert J. Shiller and others have demonstrated that individual investors are far more likely to do worse than the market generally, even excluding the cost of commissions and administrative expenses. Indeed, research by Princeton University economist Burton Malkiel found that even professional money managers over time significantly underperformed indexes of the entire market.

Moreover, a number of surveys show that most people lack the knowledge to make even basic decisions about investing. For example, a Securities and Exchange Commission report synthesizing surveys of investors found that only 14 percent knew the difference between a growth stock and an income stock, and just 38 percent understood that when interest rates rise, bond prices go down. Almost half of all investors believed incorrectly that diversification guarantees that their portfolio won’t suffer if the market drops and 40 percent thought that a mutual fund’s operating costs have no impact on the returns they receive. “ **

In his address, Mr. Crane seems to gloss over that reality:

“Critics, of course, speak of the market risk of a fluctuating stock market. It's worth noting, therefore, that for all 30 year periods in the United States dating back from 1802 until the present, stocks have outperformed bonds 99.5 percent of the time. And overlooked in the discussion of market risk is what seems to me to be the much greater political risk of increased taxes, delayed retirement, and reduced benefits. With a private system, the citizen controls the assets. With a public system, the politicians are in control, and I know of no country where that is not a risk.” *

Once more Mr. Crane, in small doses, we can take all these things!

Now we go to the economic “benefits” of privatization:

“We asked the noted Harvard economist Martin Feldstein to undertake a study for us that would estimate the economic impact of privatization in the United States. Feldstein, who was formerly Chairman of the Council of Economic Advisors under President Reagan, concluded that the present value to the U.S. economy of investing the future cash flow of payroll taxes in real assets would be on the order of $10 to $20 trillion. That would mean a permanent, significant boost to economic growth.

I would add that in the world economy of the Twenty-First Century, those nations that choose to adopt a fully funded private retirement scheme are going to be in a much more competitive situation than those that choose to stay with the government-run pay-as-you-go system. It is particularly significant both from the standpoint of geopolitics and the international economy that China is giving serious consideration to adopting a Chilean-like private Social Security system as we meet here today.” *

And what if it reduced national saving? People are not businesses. Family members will not conduct themselves as businesses. Will they feel themselves to be as stable as government does, or in fact – businesses?

Lets go back to the Mssrs. Anrig and Wasow:

“But privatization is actually more likely to reduce than increase national savings. Diamond and Orszag point out that evaluating the overall effect on national savings requires taking into account the likely responses of government, employers, and households. Historically, neither the government nor businesses have changed their spending levels consistently in response to large changes in deficit levels. But households that consider the new accounts to constitute meaningful increases in their retirement wealth might well reduce their other saving. Diamond and Orszag argue, “If anything, our impression is that diverting a portion of the current Social Security surplus into individual accounts could reduce national saving.” That, in turn, would further weaken economic growth and our capacity to pay for the retirement of the baby boomers.”

Maybe these people know your grandmother better than the neocons do.

How will they do the transition? By dealing once again in fallacies:

“In any event, Greenspan made clear that in his view there is no net cost in a transition to a fully funded system. The reason for that being the fact that an unfunded liability is a liability, just as direct national debt is a liability of the government. Whether that liability is implicit or explicit should really not make a difference.”*

What “unfunded liabilities”? Every penny is accounted for. What surplus is left goes immediately to utilities and administration.

“The notion of ‘unfunded liabilities’ in certain programs is based on the arbitrary assumption that certain designated revenue sources should pay for certain classes of government expenditures. The story that Social Security and Medicare should be paid for out of payroll taxes and their trust funds is not a recent creation of critics of those systems. It has been around for decades. But why? Revenues and expenditures are ‘fungible,’ meaning that a dollar is a dollar is a dollar. In fact, today’s Social Security surplus flows right into the pot with other revenues, while a significant portion of Medicare costs already are paid for out of general revenue. The real question is not “will the designated revenues be enough to pay for the designated programs” but ‘will we have enough income to afford to keep the promises we have made?’

There is no question that the nation’s gross domestic product will be sufficient to meet all of our Social Security promises forever, leaving lots of income for increasing the prosperity of the young. In general, the outlook for economic growth is good. Our average income per person in 100 years is likely to be much, much higher than it is today (more than four times as high). Social Security benefits are predicted to rise from about 4.5 percent of our GDP to about 6.6 percent over the next century. Even though such long predictions are very uncertain, this one should leave us sanguine: if incomes in 100 years are only twice their present level, and incomes of the old rise from 4.5 to 6.6 percent of income, that still leaves us with $1.96 for every dollar we have today, after Social Security obligations are taken care of. We can continue to keep our modest Social Security promises, and young families still will be much better off than families are today.” ***

As for the method of transition itself, it is true that it would be more palatable if corporate welfare were cut out, but people most people would have few questions about what else is proposed by Cato:

“From my standpoint, by far the best way of funding the transition to a private system is by cutting government spending. In the U.S. we spend, as an example, more than $70 billion a year on what we call corporate welfare, subsidizing giant corporations at taxpayer expense. Then, too, there are many departments of the national government, ranging from education to commerce to energy, that are simply not a national responsibility in America's federal system of government. Eliminating just one-quarter of the activities the national government should not be engaged in would finance the transition.”*

Now, I have a problem with few of these items in the area of cuts. Energy, education, commerce are not national responsibilities in our federal government? Energy, for one, is a question of geopolitical importance. Education is something that requires guidelines and funded mandates. Commerce requires at the least federal regulation and enforcement, especially in the internet age. Anyway, to continue:

“Second, the national government has many other assets that should be privatized, as was done in Chile to help finance their transition. AMTRAK, the money-losing national rail system should be sold to private investors. The government owns 50 percent of the land west of the Mississippi River and much of that should be sold to private investors who would likely manage it in both a more productive and ecologically sounder manner than do the bureaucrats in Washington, D.C.

Another means of smoothing the transition would be to invest privately only ten percentage points, leaving the remaining 2.4 percent to help fund current retirees. Extending the retirement age by six months a year up to age 70 for those who stay in the system would also provide substantial revenue relief while reflecting the increased longevity of the population.”*

But that 10% could turn out to be very costly to the next generation that goes to work in about 15 years according to the Congressional Budget Office’s “How Pension Financing Affects Returns to Different Generations”:

“To move to a funded system in one generation, either workers have to pay double, some generation must receive no benefits, or some balance of increased payments and reduced benefits must occur. In a simple ex-ample (shown in Table 3), workers could pay both $10 to current retirees and $10 into their own account as the system moves to a funded basis. A more gradual transition could spread the burden over more generations, but the total burden would be the same. In other words, to raise the rate of return for future generations by moving to a funded system, some generations must receive rates of return even lower than they would have gotten under the pay-as-you-go system.” (1)

So there it is. Nothing that the neocons put up makes any sense. Nothing but one thing, someone stands to make money! And that somebody would be entrepreneurs in the investment field. With an entire generation as a market the investment firms will find ways to fleece the elderly again. (That’s you and me in 20 years, for those of you in my generation.)
So finally a one-two punch from The Century Foundation:

“Among the one hundred best stock mutual funds, management fees range from 0.2 percent per year to 1.4 percent of the asset value of an account. The average is near the high end of that range, however, and many mutual funds charge substantially more. Smaller accounts require proportionately larger management fees because many costs such as gathering and mailing out information do not depend on account size. Indeed, most mutual funds actively discourage small accounts by setting a minimum opening deposit of $1,000 to $3,000.

Experience in the United Kingdom offers a warning about what the future could bring regarding management costs. Workers there have been allowed to open private accounts starting in 1988, since which time management fees and marketing costs among financial intermediaries have eaten up an average of 43 percent of the return on investment.”

So there. The small investor is really not worth considering unless he already has a firm foundation that the roulette wheel of funded pension cannot guarantee. But it would be a great market to get into. Any IPO’s for brokerage firms?

* Edward H. Crane “The Case for Privatizing America’s Social Security System” for The Cato Institute.

** Greg Anrig and Bernard Wasow “Twelve Reasons Why Privatizing Social Security Is a Bad Idea” For The Century Foundation

*** Bernard Wasow, “THE ‘Unfunded Liabilities’ Ruse” for The Century Foundation

(1) CBO LONG RANGE FISCAL POLICY BRIEF “How Pension Financing Affects Returns to Different Generations”

The Cato Institute "The Case For Privatizing America's Social Security

The Century Foundation "Twelve Reasons Why Privatizing Social Security Is a Bad Idea"

Social Security Privatization: Eleven Myths

Pension Financing Affect Returns to Different Generations - PDF

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