The Instigator
SnoopyDaniels
Pro (for)
Winning
33 Points
The Contender
Doclotus
Con (against)
Losing
25 Points

Social security should be privatized.

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Voting Style: Open Point System: 7 Point
Started: 12/19/2007 Category: Politics
Updated: 9 years ago Status: Voting Period
Viewed: 2,630 times Debate No: 676
Debate Rounds (3)
Comments (5)
Votes (18)

 

SnoopyDaniels

Pro

Social security is a complete joke. Although it was originally designed so that people contribute funds which will eventually be paid back to them to support them in their old age, it has become a means through which the young are forced to subsidize the old, a facet of socialism.

Retirement funds would be much better off in the hands of private companies. As is stands now, the government is not accountable for how our retirement funds are used, and therefore have no incentive to administrate them effectively. Private companies WOULD be accountable to the public. If a fund did not perform, we could transfer our money to a more profitable fund. In addition, the government would not have access to our money and would not be able to spend it indescriminately.

Why shouldn't we privatize social security?
Doclotus

Con

Social Security has serious issues, but I wouldn't characterize it as a complete joke as the proponent has. Moreover, I am ill convinced that turning our system over to private firms is the answer.

First, privatization has a shaky track record. A 2004 report from the World Bank (http://wbln1018.worldbank.org...) indicates that, the case of Chile, 41% of the accounts created have funds so small that the retirees are forced to continue work. Relying on individual savings rates pushes us into a further risk bracket that many will make poor choices and then wind up being on the welfare dole. That's hardly a solution.

Second, the cost for transition to private accounts could be astronomical. Even conservative estimates put this cost at $4.9 Trillion. The estimates to recoup these losses have been estimated at 45-70 years! (1)

(1)http://www.epinet.org...

Third, replacing one bureaucratically bloated system with another (to manage all these private accounts) really doesn't substantively resolve the issue. Throwing the baby out with the bathwater doesn't resolve issues that our society faces regarding a largely aging population and poor savings rates. Lets try and address the actual issues and fix the system instead of trying to replace it with another, possibly more complex one.

Finally, most folks today have been told, correctly, that social security should only be one part of your investment portfolio when it comes to retirement. Its not designed to be a pension system like the ones that exist in Latin America & Europe. There is no reason we can't have both by fixing what ails social security and help folks focus on retirement savings accounts as well.

I agree with my opponent that we should hold the government more accountable as to how it invests and spends our tax dollars. I believe we can do that without destroying social security under the guise of a private, government managed system that only shifts money to the private sector in the form of transaction and administrative fees. The patient known as Social Security isn't terminal, the problems can and should be addressed. Privatizing isn't the solution to those problems.
Debate Round No. 1
SnoopyDaniels

Pro

I'm glad we at least agree that social security has serious issues. It's always good to have common ground upon which to debate.

I disagree that privatization has a shaky track record. It is government programs such as social security that have a shaky track record. Our entire economy is based on the merits of private enterprise, and it has worked for us thus far. Despite the relative youth of this country, we have managed to surpass all other nations in terms of economic productivity and wide-spread prosperity. I think it is rather inconsistent to say that, whereas privatization has proven successful in virtually every other area of our economy, that it would not be successful in providing retirement benefits for seniors.

"[In] Chile, 41% of the accounts created have funds so small that the retirees are forced to continue work."

I have no doubt that this is the case. However, I don't see that our system is much better. According to one website (which I have cited below due to the length of the URL) one third of U.S. retirees are forced to go back to work shortly after "retiring," despite the 500 billion dollars collected in payrol taxes every year. At least Chile is getting its money's worth.

"Relying on individual savings rates pushes us into a further risk bracket that many will make poor choices and then wind up being on the welfare dole. That's hardly a solution."

I don't see how savings rates puts us into a higher risk bracket. Savings accounts are the second lowest risk investment type, preceeded only by cash itself. There would be virtually no risk involved.

The cost of privatization is irrelevant. That cost will only grow the longer we wait to fix this problem. Our choice is not between privatization and non-privatization, it is between privatization now, which MAY cost 4.9 trillion (depending on how you go about it), or privatization later, after the system has collapsed and elderly people are left without an income.

You wouldn't be replacing one bloated bureaucracy with another, you'd be eliminating a bloated bureaucracy and replacing it with a private system whose very survival depends on its ability to be efficient! It doesn't cost any more for a mutual fund manager to handle two billion dollars than it does to manage two million dollars. The additional administrative costs would arise with distribution of benefits. Since businesses, unlike the government, are trying to make money, they are forced to do things in the most efficient way possible. Because of this, the cost of distribution would be significantly less than under a government run system.

Moreover, we would be introducing a powerful factor into retirement benefits: compound interest. If we were allowed to invest our own money for our own retirment, instead of pay for someone else's retirement by sending that money to the government, more people would retire in a much better financial situation than currently. If I were allowed to put 2,000 dollars per year into decent mutual fund (one that earns 10% interest after adjusting for administrative costs and inflation, which is not unrealistic) beginning at age 24 until I retire at sixty-five, I would end up with one million dollars, only $80,000 of which I had actually put in to the account! That constitutes a %1250 return on my investment. Contrast that with our current system in which you recieve an estimated 1.23% rate of return for two income households.

If social security is nothing more than the crappy end of a larger investment portfolio, why have it at all? Yes, there would still be administrative costs for a private system, but at least we'd be getting something in return. Why send $200 dollars to the government every paycheck where it will acrue no interest when you could invest it and get at as much as 10% interest? In light of this, social security is indeed a joke. Or at least it would be if it wasn't so completely wasteful.

http://64.233.169.104/search?q=cache:HGSGDdY0zq0J:www.ci.walla-walla.wa.us/vertical/Sites/%257B5C31B82F-5E63-4200-9CF4-237E5245E279%257D/uploads/%257B528FE4F0-356F-4DB6-A60E-6258691ACD6B%257D.DOC

http://www.heritage.org...
Doclotus

Con

As Daniel Webster once said, "A strong conviction that something must be done is the parent of many bad measures." This fits the concept of Social Security privatization quite well.

You seemed to have missed the point on the Chile example. Our current system performs 8% better (according to your statistics) than Chile's private system, likely at a higher cost. So in doing nothing (not a position I advocate, of course), we still have our citizenry better off than under a private system.

One thing I should clear up is whether this is still a government program. Most advocates of privatization do assume that the government will still have oversight over the program. That means the bureaucratic overhead will still exist. If you're advocating getting the government out of it altogether, you'd be pressed to provide some details, especially regarding transition issues and costs.

You have me sold on the benefits of a retirement account outside of social security. I have one and recommend everyone do the same. Only one problem, if we crash, like we did in 1939, our retirement accounts likely go with it. That's what happened to millions of retirees in the 40's (and for a contemporary example, take a look at Enron). That was why FDR created Social Security to begin with. It was designed to provide a bit of a safety net independent of our economic performance.

This ties in neatly with the risk argument I was making that I think was misunderstood. I was referring to the risk of these retirees becoming welfare recipients due to economic downturns or poor savings rates on their part. Social Security buttresses that risk at least in small part. As I've said, I don't believe social security is the only answer for retirement, but the problems it has can be fixed and I think we can encourage folks to diversify their retirement portfolio to include some of the measures you've mentioned.

The 4-12 trillion dollar cost of the transition to a private system can't be justified unless there were a remarkable difference in the results. Thus far we haven't seen a good example to support such a costly move. The fixes available would resolve much of Social Security's ills, and still allow folks to retain private investment accounts today as part of a complete retirement portfolio.
Debate Round No. 2
SnoopyDaniels

Pro

So, any time we think something must be done about a particular problem necessarily means that we will make bad decisions? How else is change accomplished if not through the conviction that something must be done to fix the problem? This is a fallacious appeal to authority on your part.

You're right, I didn't address your point about Chile very well, so I will do so now. First, Chile's system came out of the failure of their government social security program, so Chile probably isn't the best example to use. I suspect that if the data were available (I've looked but can't find it) you would discover that their new system is working much better than their previous, government-run system. Second, Chile is not the United States. That is to say, the United States has twice the per-capita GDP that Chile does. In a poor economy it is impossible for the vast majority of people to retire. In a more productive economy, more people can afford to retire. It stands to reason, then, that Chile would have a lower retirement rate regardless of what system they use. The fact that theirs is only 8 percentage points lower than ours is actually surprising, considering the relative level of prosperity in our two countries.

The only role the government would have in a private system is to essentially force citizens to invest part of their wages into their private retirement account. This might require some auditing, but nothing more, hardly what you'd call a bureaucracy. The cost is irrelevant, as the costs of transitioning will only grow as the problem itself grows. There is no way to "fix" social security because it was a stupid, and wasteful plan to begin with. I would be interested to hear how you think we can fix it, other than to scrap it. The only solutions I have heard are either to raise payroll taxes or decrease benefits, neither of which is truly a solution.

The federal government isn't independent of economic performance! The governments income, like all of our incomes, depends on the health of the economy. If the economy crashes as it did in the great depression, the government won't be any better equipped to support the elderly than the elderly themselves. I understand that concern, though. However, I know of no other way, short of investing in gold, to insulate oneself against something like the great depression. If such a thing ever does happen, I suspect providing for retirees will be the least of our concerns.

Once again, I don't see any additional risk with private retirement accounts. As a person ages, their investments are gradually shifted to progressively less risky areas. By the time they retire, their life savings are in things like savings accounts, government bonds (which are at least as secure as social security), cash, and gold. At this point, they would be relatively insulated from risk. Those of us still in the workforce would be more likely to go on the welfare dole than retirees at that point!

If social security didn't demand so much of our paychecks then I would be okay with having social security as something of a hedge. Unfortunately, it is a huge expense and provides very little benefit. If people had the extra cash to make social security just an overall part of their retirement plan it would be fine, but they don't. It is not as if everyone has a choice between in relying on social security or investing in private accounts on the side. Social security demands the funds that could otherwise be put into private accounts which actually earn interest! Those that CAN afford private investment are often fooled into thinking they don't need to invest for retirement because "social security will take care of me."

Once again, you keep saying that welfare can be fixed, but I haven't heard you suggest how. There are only two sides of the social security system, income, and expense. Expenses are gradually beginning to exceed income, and it's only a matter of time before the social security budget is in the red. There are only two possible solutions: decrease benefits or increase taxes. That is the sign of a program doomed to failure. The only solution is to totally change the way we prepare for retirement. Personally, I'm tired of sending my money to the government when it could be earning 10 percent interest somewhere!
Doclotus

Con

"So, any time we think something must be done about a particular problem necessarily means that we will make bad decisions? How else is change accomplished if not through the conviction that something must be done to fix the problem? This is a fallacious appeal to authority on your part."

Nice try Snoopy, but you missed the point of the quote altogether. Webster's point was action in response to conviction or passion doesn't always yield the desired result (Iraq is a good example of this). Your conviction to destroy social security without much of a real understanding of the impact and cost of such a transition proves Daniel Webster's point.

One such example is the concept of disability, one area that social security provides for. In your zeal to abandon this government program, millions of disabled citizens would lose their disability benefits. Now, I'm sure if given the choice to contemplate that fate, you would likely argue for some revision to our efforts to abandon social security to at least make sure these folks didn't lose what is likely a lifeline of income for them.

The cost element still hasn't been resolved, though I do realize that you probably care little about this vs. obtaining the result you desire. I do care, as we are already saddling future generations with mountains of debt under this current administration, adding 4-11 trillion more would exacerbate the situation far greater.

As for Chile, some of your analysis is correct, but it proves my point when it comes to risk for our citizens. While I agree that the Federal government isn't independent of market performance, it is far more so than the average private account. Most of social security is invested in government bonds, which even today are probably the safest investment that can be made (less so if we continue our debt patterns, which feeds my argument above).

I know you've asked for my "fixes" to social security, but I don't think that is germane to the topic, nor do we have time to address it given that this is the last round. However, for the sake of clarification, two of my fixes would lie in raising the cap on current tax levels as well as raising the cap on investment levels so that the trust fund could perform better in periods of economic growth.

What you haven't answered that is germane to this topic is how we achieve such a transition. I've highlighted the costs, to which your only answer is they will get worse. That doesn't improve the case for this drastic of a move. The transition to the private system you advocate would be violent, and economically difficult to achieve.

I completely agree that people need to change their approach to retirement. Social security should become a much smaller portion of their retirement portfolio, as FDR has originally designed (it was only supposed to be a supplement for poor retirees). Throwing the baby out with the bathwater, as you propose, is far too risky in todays economic climate, especially with the escalating costs of health care for retirees.

Privatization may be an option at some point, but today we need to stabilize the patient before we're willing to get rid of it altogether. Too many people would suffer otherwise.
Debate Round No. 3
5 comments have been posted on this debate. Showing 1 through 5 records.
Posted by Miliano-Rockstar1 5 years ago
Miliano-Rockstar1
i believe eliminating the tax cap for 75 years is better
Posted by Doclotus 9 years ago
Doclotus
McAlvey187, my apologies but I made the mistake of starting this debate prior to my trip cross country. As a result, some of the arguments were made in more haste than I would prefer.

Snoopy, thanks for a good debate.
Posted by SnoopyDaniels 9 years ago
SnoopyDaniels
I can't believe he got more votes than I did, but oh well. It was a good debate I suppose...
Posted by mcalvey187 9 years ago
mcalvey187
The market did not crash in 1939, it crashed in 1929, so the savings of retirees were not wiped out during the 40's, it was during the 30's. These things are not that hard to look up!
Posted by adamh 9 years ago
adamh
"I disagree that privatization has a shaky track record. It is government programs such as social security that have a shaky track record."

exactly, Snoopy
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