John Ross: Editorial far from facts
Paul Krugman’s editorial in the Jan. 22 Steamboat Today about Social Security privatization is so far from the facts that I’m surprised you printed it.
He starts by saying that one puts his or her money in a mutual fund run by President Bush’s friends “with management fees to be determined later.” He totally ignores that the Securities and Exchange Commission requires that management fees for mutual funds be determined and made public before any are sold to the public.
He continues straying from the facts when he says the federal government must borrow money to replace the lost revenues from payroll taxes that would result from some payroll taxes being put into private investment accounts. The facts are that under the present Social Security system, payroll taxes first go to pay benefits to present retirees and the surplus is spent by the feds on things other than Social Security. The solution to this is for the Feds to just stop spending this Social Security money and keep it in the Social Security Trust Fund where it’s supposed to stay to build up funds for future retirees. Instead, the Feds put IOUs in the Trust Fund in the form of government bonds. And guess who has to pay for these IOUs when they come due? The very same taxpayers who paid the already spent payroll taxes in the first place. This scam has been going on for years under Democrat and Republican administrations.
His mythical comments go on to say that the private investment accounts will go into stock mutual funds and the people who sell these mutual funds will then be “buying lots of government bonds.” This is so bizarre that I must comment on it. Anyone with even the remotest knowledge of proposed privatization plans, and there are a number of them, knows that there will be a very limited number of very conservative stock and bond mutual funds available for private investment accounts. They will not be limited only to stock mutual funds under the various proposals.
Krugman’s investment ignorance peaks when he says the success of privatization of part of Social Security depends on the higher returns of stocks over bonds. Privatized accounts could invest in stock or bond mutual funds or a combination of them. The average annual return of the stock market has been about 8 percent over the 20th century. Bonds haven’t returned as much but are more stable when the stock market is down. But both have returned significantly more than Social Security does.
Two things Krugman fails to say is that when a Social Security retiree dies, any remaining unused benefits stay with Social Security and do not go to the retiree’s heirs. However, any assets left in a deceased retiree’s privatized account go to the retiree’s heirs. As disturbing as Krugman’s outlandish comments about Social Security privatization is that he offers no suggestions about how to fix Social Security. I doubt he knows enough about the subject to do anything but snipe at those who are trying to fix it.
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Editor’s note: The story was updated at 8:33 p.m.