If you're roasting a goose, start at 425° for half an hour, then turn the temperature down to about 350° until the goose is done. This information may be useful, because when the Bush administration finishes with the bird that has been laying golden eggs all these years, there's not much that can be done with it that doesn't include orange sauce.
Any number of economists have analyzed the effects of privatization of Social Security, and all the responsible analyses have come to the same conclusion, that privatizing Social Security is based on the same notions as perpetual motion and time travel.
For years, Social Security has done a good job for everybody. It has served its function of providing some money, a bare minimum but some, for the poor, and as usual has been a cash cow for the rich. Basically, the Social Security Trust Fund is invested in United States Treasury Bonds -- money borrowed by the United States government.
Why, you may well ask, does the United States have to borrow so much money? It has to borrow the money, in large part, because it has given huge tax cuts to rich people. So, the poor and middle class have their money invested in Treasury Bonds that pay about 3%, while the wealthy take that same cash and invest at about 8%. The premise of privatization is that we, the rest of us, can get a share of that 8%.
We can't. Partly because we can't afford to take risks, and the lower the risk, the lower the rate of return; and partly because the brokers are entitled to their cut, which is why they like privatization so much. It's like catalogue buying, where the price is low, but they get you on the shipping and handling fees.
But it's not just the brokers who benefit from this plan -- not even George W. Bush would attack such a popular program to benefit such a small group. Even the promise of benefiting this group while undercutting an important New Deal program would be risky. But keep in mind that the privatization of Social Security has some paternalistic provisions.
People would be allowed to own their own investments, as long as they're invested in a small number of controlled funds. It doesn't matter if you have a hot tip on the next Microsoft; you don't have control of your finances. The government would administer the plans, and private fund managers under contract to the government would handle the investments. Translation: The government decides how your money is invested, but the risks are all yours. You have no control. You might do well and make your 8%, or you might wind up with something like the Thurlow Growth Fund, which, in 2004, lost over 33% of its value.
But this select group of funds will have tremendous control over the market. Think Adam Smith. Great heaping gobs of money will be available that must be invested in the stock market, and not just the stock market but in a specified type of "conservative" stock. Since the number of shares of stock available for sale is limited, the injection of all this new money will inflate the price of existing shares, and the wealth of existing shareholders.
But, this will be essentially a one-time thing. A price rise based on market demand is not the same as a rise because the underlying value of the stock has increased. This isn't growth, it's just inflation.
Consider this in terms of the wealth inequality that's already a problem in the United States. While, technically, 52% of the population owns stock in some company, that number includes anybody who bought a stake in Vermont Teddy Bear through oneshare.com. In the last survey year, 1998, the richest 1% of households owned 38% of all wealth, while the top 5% represented over 50% of the wealth. Now the president is going around the country convincing the bottom 95% of the population that we should insist that the top 5% take our money.
By driving up the price at the very start, the Bush plan effectively guarantees that these privatized accounts won't be able to get the kind of growth rate that would make them a good investment. The plan not only sabotages the financial security of the people who need it most, it further extends the inequality of wealth between the Bush campaign contributors and the Bush voters.
For the richest people, it means turning a steady income stream from traditional Social Security into a one-time windfall. The odds are they've found a way to make money even faster than they already do, and to convince their claques that it's for their own good.
Sam Uretsky is a writer and pharmacist living on Long Island, N.Y.