The following is a reply to the response that Mr. MacKenzie posted on his blog on July 26th. In that response, Mr. MacKenzie states:
The libraries journal data base is back online, so I can check some figures wihout driving in
I found this, among other articles
Social Security Outcomes by Racial and Education Groups Liqun Liu; Andrew J. Rettenmaier
Southern Economic Journal, Vol. 69, No. 4. (Apr., 2003), pp. 842-864.
some snippets-
"Single women do better than single men, and net present values decline for each birth year"
"Single black women have a lower rate of return than single white women"
"Single black men receive 0.47$ for every dollar of taxes, and single white men receive 0.59$. Married men in both racial groups receive 1.10$ for each dollar paid in taxes" (figures for those born in 1935)
"Married black men receive 0.77$ for every dollar in taxes. Married white men receive 0.84$" (born in 1980)
This confirms what I said, women do better than men, blacks do worse than whites, and white women are being screwed the least, while black men are being screwed the worst.
What you said in your response of July 24th was "SS transfers to rich white women from poor black men". None of your snippets even mention "rich" or "poor". I cannot actually check your source for these or any other quotes since the online reference that I found to it states that the material is "included in JSTOR, an online journal archive made available to researchers through participating libraries and institutions". Others must purchase it for $10. In fact, all of your other sources (except for the one to the Cybercast News Service) appear to be in JSTR here, here, here, here, and here and must be bought by the general public. They may be useful for discussions with other members of JSTR but are of little use to me or most other readers of this blog.
Mr. MacKenzie continues:
2. As for those who pay transition costs- people who will live long and not pay in too much lose the low rate of return they get on SS- even white women get returns in the low single digits. Private investments offer higher returns, so nearly everyone benefits. Also overall transition costs do not exist- See http://www.cnsnews.com/ViewSpecialReports.asp?Page=/SpecialReports/archive/200502/SPE20050221a.html
The contention that transition costs do not exist is largely a word game based on the idea that these costs are simply a bringing forward of future liabilities. In fact, page 25 of a paper by the same authors as Mr. MacKenzie's first source which appears to be closely related to that source (their introductions are nearly identical) states the following:
One implication of the sizable difference between Social Security returns and the capital market return, of course, is that those groups who receive a lower return from Social Security than from private investments would be better off if the Social Security system were never instituted. However, this does not necessarily mean a privatization of Social Security — creation of individual accounts invested in private capital markets — will automatically produce better returns than will Social Security. At a fundamental level the accrued benefits in the old pay-as-you-go system remain a real burden after privatization. In fact, the difference between the lower return paid by the pay-as-you-go system and the higher return from the private capital market does not matter per se. If, upon privatization, the government honors its promise to old generations and issues them recognition bonds for their accrued benefits in the old system, the debtservicing taxes have to be raised on the younger generations. When these new debt-servicing taxes are taken into account, the higher return on workers’ private retirement accounts is exactly compensated for by the taxes required to service the liabilities-turned debts, resulting in the same low return as in the old system.
Hence, even the authors of Mr. MacKenzie's first source seem to understand that this conversion of future liabilities into current debt is a cost that counters the apparently higher returns of a privatized system. In any event, Mr. MacKenzie continues:
3. You mention Clinton as a source. My recollection is that when CLinton received his first SS trustees report, he their results polled, and then had the trustees redo their math- because their first report did not poll well. Clinton has zero credibility, less than AARP or the SSA. I do not respect your sources, I only respect peer reviewed academic publications. your sources are not independant or scientific, but are instead politicized and biased.
Of course, I did not give Clinton as a source. I quoted a Heritage Foundation source which stated that "the 2007 numbers are substantially similar to those in the Trustees Reports issued during the Clinton Administration". They gave this as evidence that the 2007 Trustees Report was not not influenced by politics. If Mr. MacKenzie has a problem with even this sort of reference to Clinton, he needs to take it up with the Heritage Foundation.
Just to be clear, I do think that Social Security faces future funding problems and needs to be reformed. One approach would be to modify the current formulas by which benefits are calculated as in the proposals made by Pete Peterson on page 200 of his book "Running on Empty". For example, he suggests indexing new benefits to prices instead of wages. Most people are not even aware that current law mandates that new benefits grow faster than inflation (assuming that wages continue to outpace inflation over the long run). Hence, it may be possible to reach a consensus on such a reform.
Another approach would be to make the system as transparent as possible. On that count, I've long thought that it would be useful to split Social Security up into its component parts, at least in its accounting. Those component parts are insurance, retirement, and safety-net. The insurance and retirement portions could be funded by each individual but the safety-net should likely be funded by progressive taxes. Implementing such transparency may cause some difficulties. But it would likely be much better than the current situation in which one group treats Social Security chiefly as a retirement system, one treats it chiefly as insurance, and one treats it chiefly as a safety-net. This current situation reminds me of the old fable of The Blind Men and the Elephant.
This latter approach might be less politically achievable and have a less immediate effect than the first proposal but it might help facilitate future reforms. It would likely be easier to deal with Social Security's component parts, even possibly ending the retirement portion (at least beyond some minimal plan). However, scrapping the entire program without any plan of how to deal with the insurance or safety-net portions or the benefits of those at or close to retirement is simply not workable.