November 30, 2001
From the desk of Mindles H. Dreck:Bush approval ratings; the "third rail"; career opportunities for bisexual Sicilian gigolos
A trial balloon on social security privatization appears in the news today. Reductions in benefits appear to be on the table:
"We're talking about as of 2009 beginning to hinge or index the growth of the initial benefit, the benefit that you start off with when you retire, to a price inflation index as opposed to a wage index," said Commission Co-chairman Richard Parsons of CNN's parent company, AOL-Time Warner. "So that means that as we go forward, under that particular option, the rate at which Social Security benefits would grow over time, once you initially retire, would slow."Prices generally rise much more slowly than wages.
Generally, but not always (1973-1981?). Should we assume inflation risk in the plan? Many have argued that inflation-linked Treasury Bonds were an entitlement. We should be careful about exchanging risks.
The reason it is only realistic now to examine changes in benefits is because of serious design flaws in the original Social Security Act. SSA never contemplated our impending demographics (workers to retirees). Perhaps that should serve as a warning about government's ability to design things that work flawlessly thirty years from now. Nonetheless, it is interesting to see some sparks flying from the third rail. More to come, I'm sure.
Incidentally, our projected worker-to-retiree ratio in the future is bad (2025 = 2.5:1, 2050 2.3:1 vs. 4:1 now), but Spain, Italy and Japan have it dramatically worse, with projected 2050 ratios of of LESS THAN 1:1 (ugh). More intriguing, and less known, is the comparison of pension promises to funded plans, which is a true reflection of each economy's ability to pay its retirees comfortably:
Spain promises 82% of final pay, on average, for retirement. Funded pension assets as a % of GDP are about 2% of GDP
Italy: 80% vs. 7%
U.K.: 42% vs. 94%
France: 70% vs. 5%
Canada: 34% vs. 52%
Japan: 60% vs. 35%
What you see above is no less than the potential implosion of the promises of the welfare state in France, Italy and Spain. They'll adapt, but it will be gutwrenching. The figures above come from SED inc. They have a nice chart, but its a proprietary pdf, so I can't give it to you. Woody Brock's comment on the above figures is:
The future politics of hope and despair. Better a future career as a Sicilian bisexual Gigolo than as a continental European Prime Minister trying to please the voters!Who says economists don't have a sense of humour.
Note: interesting to see CNN quote its parent company executive. Well, he is co-chairman of the commission.
Posted by Mindles H. Dreck at November 30, 2001 06:08 AM | Technorati inbound links