USAGE: December 2008

Profile of Principal Author

Brent Green
Who am I to challenge billion-dollar foundations and economic experts committed to deconstructing the nation's social insurance programs? I'm not an economist, an accountant or a bureaucrat. I'm not a numbers guy. I am wise enough to understand that the nation's "unfunded liabilities" pose a challenge, but I'm also pugnacious enough to believe in the creative powers of a generation approaching the age of entitlement eligibility. I believe there are alternative narratives to be told about this future story of financial disaster, other than those being foisted by "generational accountants." This blog isn't dedicated to proving entitlement critics wrong, and therefore you should not believe them. I am suggesting they may be wrong, so think critically about their prognostications. Further, I'd like you to grow wary of their pronouncements that are ageist or oppositional to a generation. Inter-generational divisiveness will get us nowhere. I am someone who has had nearly 30 years of experience in the business world and as a community leader. I am a marketing practitioner who has successfully targeted and motivated members of my generation since the beginning of my career. I believe in the mature mind and the creativity that history’s masters have shown us is possible late in life. I believe in wisdom and sharing its lessons. I believe the western world is aging and, as noted author Theodore Roszak observed, has evolved beyond the values that created it. I believe titanic, mean-spirited forces are lining up to further diminish the nation’s growing population of elders in our wisdom and spiritual wealth, and I believe there is only one worthy Boomer reply: “Hell no, we won’t go.” This blog has only a few suggestions about what we might do to keep the nation's social insurance programs on solid footing. The issues are complex and demand interdisciplinary analysis. This blog does, however, raise important questions for responsible citizens to pose. It asks us to become more deliberate in our thinking and not just take the opinions of opinion leaders without serious thought, in-depth questioning and thorough investigation of their views.

December 15, 2008

Arguments Against Entitlement Critics - Part 3

Promise to a Generation

In 1983, Alan Greenspan led a commission to address potential trust fund shortfall, leading to a significant increases in entitlement program taxes, assessments that Boomers have been paying. The Commission’s goal was to create surpluses so that when Boomers retired there would be enough money. This was an intergenerational promise: if Boomers pay more throughout the most productive parts of their careers, these programs will be solid and stable when Boomers retire. Three older generations made these promises to better protect and expand their own entitlement benefits, and Boomers responded by accepting without protest the higher taxation levels.

As we analyze the social and economic benefits of Social Security and Medicare, it’s also noteworthy to mention that 4 million U.S. citizens under the age of 18 receive Social Security benefits. These are survivors of parents who died prematurely due to diseases and accidents. So the program also provides a safety net for the youngest of society.

Social Security is the one social program in the United States that is the closest thing possible to a guarantee. It serves a role similar to defined benefits retirement programs; yet participation in these programs by employers has been shrinking since the 1980s, from over 70% of all employers to less than 35% today.

A guarantee eliminates one of the greatest fears of aging: impoverishment in old age. And although Social Security is not a program offering sufficient individual benefits to support a middle-class lifestyle in retirement, around 40% of all beneficiaries rely entirely on Social Security for their post-retirement income. Even though social insurance cannot make up for inadequate savings or resources, it can and does serve as the foundation of a balanced retirement plan for many Americans. They can sleep better at night knowing that if all else fails Social Security checks will arrive on time; Medicare will pay medical bills.

Market Risks

One consistent solution offered by most critics of governmental entitlement programs is the recommendation to privatize retirement accounts, “to give individuals more control of their retirement savings.” Personal empowerment over personal income rings sweetly to most Americans, but history has demonstrated that, given a choice, many workers choose to cash out retirement savings upon exiting a job rather than roll them over. Self-empowered citizens often don’t save but squander savings on things they need now, or they pay down current debts.

Right now the typical recommendation is for an allocation to private savings accounts in the neighborhood of 2% of income. These accounts will be invested in stocks and bonds, and while certainly they may be well-managed funds, the risk falls on the individual. If the market plunges when an individual would normally retire and his or her personal savings account becomes decimated by a collapse in the equity and/or bond markets, the individual will suffer the consequences.

Even though purveyors of entitlement privatization myths offer assurance with the illusion of potential government backing (wherein shortfalls below investments trigger bailouts by the government), these assurances depend on government promises, and taxpayers ultimately holds the bag to make up deficiencies. Investment managers over private accounts will get their fees and commissions nevertheless.

Posted at 10:59 PM in Entitlement Solutions | Permalink | Comments (0) | TrackBack (0)

The Challenges

CHALLENGE OF GUARANTEED RETURNS
Social Security is the only social insurance retirement program that the U.S. government guarantees as an investment. Since inception of the program, every qualified recipient has received every check promised. Now entitlement critics want to set up private accounts and make them mandatory by law. However these mandatory payroll deductions will be managed by private investment companies with no guarantees of return on investments. If the market loses, then you lose. It's going to be your risk, as are all your other investments. To those financial advisors who eagerly look forward to guaranteed fees for their investment services to manage private accounts, I say also make a guarantee. For all private accounts you manage, guarantee baseline performance such that investors will receive back, at a minimum, the principal actually invested plus cumulative inflationary increases of the investment principal for the total term of the investment. If you don't deliver on this promise, then agree to pay these shortfalls to investors for your failure to meet fiduciary responsibilities. Failure to make up investment shortfalls means you permanently give up your professional licenses.
CHALLENGE OF NO PERSONAL GAINS
Many serious critics are asking Americans to get serious about mounting national debts, principally due to future entitlement spending. One solution keeps cropping up in their writing and public comments: privatization. The typical proposal being floated is for 2% of your payroll check to be invested by private, for-profit fund managers, probably folks who are now tied to established retirement investment companies. If the serious critics are to be taken seriously, I challenge them to pledge in writing and through public communications NEVER to profit personally from privatization, not the critics themselves nor their families. Otherwise, we can assume their primary motivation is a drive for economic gain, not fiscal responsibility. Let's see who is willing to accept this challenge and go on the record.