Josh Marshall

Josh Marshall is editor and publisher of TalkingPointsMemo.com.

Articles by Josh

The Center for American Progress has just released a new study detailing one of the more technical but also very real problems with the president's plan.

Regardless of what rate of return one estimates for private accounts over the longterm, in the real world, the rate of return is not a straight line. There are long bull markets, long bear markets, as well as sudden shifts in the stock market in one direction or another.

"While the real rate of return of the stock market has averaged 6.6 percent over the past 100 years," the study notes, "its average rate of return over 35-year periods has fluctuated between 3 percent and 10 percent." That of course does not take into account that you specifically have to cash out at a specific time, i.e., when you retire, and that could come in a trough.

(I say you're forced to do so because under the president's plan you have to use your account to purchase an annuity when you retire.)

What all of this boils down to, of course, is that whatever the average rates of return over time, some folks will do a lot better than others. Some will end up doing poorly enough that they simply won't have enough to support themselves in retirement. And there will be immense -- probably irresistible -- political pressure to at least bring those folks up to the survival level, if not up to a generous benefit. Needless to say, the government isn't going to be able to take the high earnings of the lucky folks to make up for the shortfall of the unlucky folks. So where does the money come from? It's another cost of the whole plan -- though not one it's proponents will make any mention of. Those costs are treated in this study. And the author of the study says they'll amount to another "$600 billion and $900 billion in present value terms to the costs of privatization over the next 75 years."

One other point: Above I used the terms 'lucky' and 'unlucky'. In normal private investing we recognize a substantial element of chance and unknowables. But we don't consider the whole matter an issue of luck or no luck since people make decisions about how much risk they're willing to shoulder, where they want to invest, which companies they think are winners and which aren't, and when they choose to cash out. But as the president's plans have emerged, it's become clear that the range of options you will have is quite limited, as is what you can do with it when you retire. And that means that whether you end up in one of the lucky 'cohorts' or the unlucky ones depends overwhelmingly on what year you were born in.

So using the language of 'luck' applies even more than usual.

Of course, this whole discussion of how you even out the peaks and troughs in market cycles for individual persons and separate generational cohorts only gets us back to why it makes sense to have the element of risk borne not by the individual or groups of people born in the same year, but by society as a whole. And that's what we have now with Social Security.

"Statement of Jo Anne <$NoAd$> Barnhart"
Commissioner of Social Security
January 28, 2005

“There has been a lot of misinformation lately and I am glad to have this opportunity to set the record straight.

“I have never, nor will I ever, ask or direct Social Security employees to promote or advance any specific proposal for Social Security reform. Our job at Social Security is to provide services and benefits and to educate the American public about the programs and finances of Social Security.

“The role the Social Security Administration plays in educating the public, as well as the messages we are using, have not changed in the past decade.”

"Background Information on Conversation Participants"
White House Fact-Sheet Released for Presidential Social Security Event in Raleigh, North Carolina
February 10th, 2005

"Andrew Biggs, Associate Commissioner for Retirement Policy, Social Security Administration (Washington, D.C.)"

"Andrew was appointed to the Social Security Administration (SSA) in 2003. Before joining SSA, he served as a staff member for the House Committee on Banking and Financial Services, a Social Security analyst at the Cato Institute, and a staff member on the Commission to Strengthen Social Security. He holds a Bachelor’s degree from The Queen’s University of Belfast, Northern Ireland, a Master’s from Cambridge University, and a Ph.D. from the London School of Economics and Political Science."

Senate Dems: "A Privatized Account that Earns the CBO-Projected Rate of Return Would Have its Entire Value Eliminated By the Privatization Tax." See the rest.

The White House fact-sheet on the "participants" in the North Carolina Bamboozlepalooza event <$NoAd$>...


Andrew Biggs, Associate Commissioner for Retirement Policy, Social Security Administration (Washington, D.C.)

Andrew was appointed to the Social Security Administration (SSA) in 2003. Before joining SSA, he served as a staff member for the House Committee on Banking and Financial Services, a Social Security analyst at the Cato Institute, and a staff member on the Commission to Strengthen Social Security. He holds a Bachelor’s degree from The Queen’s University of Belfast, Northern Ireland, a Master’s from Cambridge University, and a Ph.D. from the London School of Economics and Political Science.

Dawn Baldwin, Teacher, Lenoir Community College (Merritt, North Carolina)

Dawn teaches English at Lenoir Community College in Kinston, North Carolina. She recently purchased her first home in October 2004 and will move into her new home in the next four to six weeks when construction is complete. Dawn has a 401(k) plan through Lenoir Community College and is looking to open an IRA, but Social Security will play an important role in her retirement. Dawn is concerned about the future of Social Security for herself and her son. She says that personal retirement accounts would make her feel as if she had an important role in her own retirement. She wants Social Security reform to happen sooner rather than later so that her son can rely on Social Security.

Noel Council, Retired Senior (Raleigh, North Carolina)

Noel worked as a senior designer for IBM in Raleigh for over 31 years. His wife, Ruth, is a retired nurse. Noel’s retirement income is comprised of his pension from IBM – a tax-deferred savings plan that he started at IBM and now is managed by Merrill Lynch – and Social Security. He says that Social Security is an important part of his retirement income. Noel would like to see his children and grandchildren receive the benefits of Social Security that he and Ruth have seen. He likes the idea of personal retirement accounts because they give the individual more control and ownership.

Cyndi Godfrey, Corporate Communications Manager, Godfrey Lumber Company, Inc.

(Statesville, North Carolina)

Cyndi’s husband, William, and his three brothers own and operate a third-generation lumber company, Godfrey Lumber Company, Inc., which was started by the brothers’ father. Godfrey Lumber has approximately 80 employees. Cyndi works in Corporate Communications at Godfrey Lumber. Cyndi and William are planning for their retirement through their Roth IRAs and a profit-sharing plan. They would like to do more personal investing in preparation for their retirement because they are uncertain of the future of Social Security. Cyndi likes the idea of personal retirement accounts because she feels that they would put her in the driver’s seat when planning her own retirement. She also believes that personal retirement accounts would be beneficial to her employees because they would be part of a system that is updated for this generation.

Matthew “Skip” Long, President and CEO, National Jobs Partnership (Raleigh, North Carolina)

Skip is the President and CEO of National Jobs Partnership, a company that equips churches and faith-based organizations to provide job training and support enabling individuals to secure meaningful employment. He is a former associate pastor at Raleigh Mennonite Church. He is on the leadership team of Christ Our King Community Church in Raleigh. Skip says that ownership is very important to minority communities, and personal retirement accounts would put the individual in control of his or her own retirement. He says that this empowerment regains hope in people’s lives. He also likes that a personal retirement account could be left for future generations because when both of his parents passed away, the money that had been put into Social Security through all their years of work just disappeared. He says that it is important to him to be able to leave a legacy for his children.

Participant #1 is interesting ...

You won't want to miss the Al Franken Show today. There'll be a special announcement. Why not him, indeed.

For those questions to Chairman Greenspan we talked about Wednesday evening, some helpful documentation ...

First the president's view: "The money -- payroll taxes going into the Social Security are spent. They're spent on benefits and they're spent on government programs. There is no trust."

Second, the Greenspan Commission's view: "The National Commission believes that the investment procedures followed by the trust funds in the past generally have been proper and appropriate. The monies available have generally been invested appropriately in Government obligations at interest rates which are equitable to both the trust funds and the General Fund of the Treasury and have not -- as is sometimes alleged -- been spent for other purposes outside of the Social Security program."

And another interesting passage: "The National Commission believes that changes in the Social Security program should be made only for programmatic reasons, and not for purposes of balancing the budget."

(ed.note: Special thanks to reader DS.)

A quick look at some polling data gives a clear idea of why the Fainthearted Faction keeps shrinking and the Conscience Caucus keeps getting bigger.

Start with the most recent Gallup poll just out on Wednesday and go to the most basic question: Private accounts good idea or bad idea?

55% say bad idea; 40% say good idea. They asked the same question a month ago and the numbers were identical. 17% of the public believes that there is a Social Security 'crisis'. (55% say 'major problems' and 23% 'minor problems'.)

When asked about other steps that might be taken to shore up the system, benefit cuts for people under 55 -- which is part of the Bush plan -- are 29% for, 67% against. Raising, or actually doing away with the cap on payroll taxes, gets 67% for, 30% against, something the White House appears to have ruled out.

(Note: The White House has categorically ruled out 'raising payroll taxes'. But there has been at least a bit of ambiguity about whether they would consider raising the cap 'raising taxes' or if that only applies to rates.)

Down the line the numbers are not good for the president or the supporters of phasing out Social Security. Not terrible, mind you, but in the negative on almost every count.

What makes those numbers more telling is that, as near as I can tell, the Gallup questionnaire did not include the one follow-up question that consistently sends support for privatization plummeting -- namely, transition costs and trillions of dollars of borrowing.

For example, in the Washington Post/ABC poll from December 22nd, the initial query on private accounts yielded a respectable 53% level of support. But when they followed up and asked people whether they would support it if the transition costs might reach as high as $2 trillion, support dropped to about 25%, with 69% against.

To say that the bottom dropped out of support for private accounts would, I think, be a fair characterization of that shift.

This dynamic is underscored by a new article of poll analysis out Thursday from the Post. It's an important article painting a complex picture of public attitudes, with potential avenues of advantage for both sides. But one point that comes through clearly is that supporters of the president's plan tend to drop their support in the face of objections much more readily than the president's opponents are swayed by his arguments.

The key passage from the article reads ...

That [transition] cost estimate proved to be the most effective of four arguments against Bush's proposal tested in the polls. While 56 percent said they support a plan for individual investment accounts, more than half of those said they would be less likely to do so after hearing the estimate. More than four in 10 supporters wavered when they heard that personal accounts would not, by themselves, reduce the financial problems facing Social Security.

Those opposed to Bush's plan were consistently more resistant to changing their view -- about one in four did -- when confronted with four arguments supporting his proposal.

In other words, support drops dramatically when supporters are pressed with even the most elemntary and indisputable problems with the president's approach. I say 'indisputable' because White House itself has conceded that private accounts won't assure the solvency of Social Security. One might have made that question far sharper by noting that private accounts will actually accelerate the onset of the programs financial problems. On the other hand, people who are opposed tend to remain opposed or, in the not altogether flattering wording of the article, show themselves "consistently more resistant to changing their view."

One might say this is a pretty fair characterization of the disunity and wavering today among congressional Republicans and the unity of the Democrats.