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I believe that rational discourse is the best guarantee for the continuance of American democracy. email comments: to Steve

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(Previous Columns)

June 7, 2005


Social In__Security

Too Important to Ignore

by: Steve Davis

The runaway bride has returned, our American Idol has been selected; the Michael Jackson trial (circus) is about to end: all events whose importance to our nation's future, so deserves wall-of-talk to wall-of-talk coverage. Now, out of nowhere Social Security reform will be back, a matter not worthy of serious news coverage, not as worthy as Paris Hilton.   Maybe, news people just can't follow issues about real money. I fail to understand, why is the future value of real money so boring.

What was it, with those eyes?

You may remember the social security proposal that was to be the centerpiece of a second Bush presidency; this was before revelations about Paula Abdul and a special Idol contestant. Even if you have not been paying much attention and thought the social security debate was over, there are many very committed people ready to pop it onto the congressional calendar.  

Actually President Bush didn't have a plan. The President explained at a news conference he didn't have a plan; he just wanted to open the debate. He did keep repeating social security was bankrupt; Asian investors who are regularly buying millions of dollars of our national debt must have had a real feeling of confidence as the President went to Parkersburg, West Virginia to show file cabinets of treasury documents called bonds, or in his words not "...growing assets that you can control that you call your own." Maybe the President should have been holding up stock certificates from Enron, WorldCom, or Pets.com those are all growing assets that you can control, that you you can call your own.

We all loved the sock puppet

All financial documents are just pieces of paper. Claims that financial documents are meaningless pieces of paper because of some arcane clause, treaty, or false interpretation of law come and go. You remember those wacky groups called patriots or Posse Comitatus who claimed government documents were meaningless. I believe the emperor of the "Republic of Texas" is in jail.

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So before Republicans start blaming the Democrats for obstructing reform and Democrats point out the Republicans have fallen under the influence of the Sith Lord, a look at what would be a reform is in order.

I must approach social security reforms with my less than sophisticated math skills. An important concept to remember is that a trend over time can have a dramatic effect. A thousand dollars must earn 3 percent a year to stay with inflation (3 percent is a standard rate estimate).   Over a thirty-year period this means a $1000 must grow to $2500 to match the 3 percent rate.   Doubling your investment over thirty years will lose you money.   It also means a series of small changes in benefits can have a large impact.   The President has proposed a change in how the rate of increase in social security benefits is calculated. This introduces the debate over wage indexing vs. price indexing. Price indexing means benefits match the cost of living; wage indexing does not keep up with costs.   Relying on wage indexing will lower benefits; the real debate is an ideological one. Many of the proposals are attempts to undermine social security as a plan for all income levels and make it more like a welfare program. The progressive indexing proposal is less about solvency and more about trying to undermine the middle-income earners investment in and support for the social security system, a political strategy not a solvency strategy.

Ideology drives many of the private account proposals, as well. First any plan that borrows more money is bad. I've seen no proposed plan for private accounts that doesn't borrow money. At the beginning of President Bush's first term we were in surplus paying down the national debt then over five trillion dollars.   We are now on course to have doubled that amount of debt by the end of his second term.  

Two trillion dollars additional in debt to fund private accounts would make the burden much worse.   During this period with a run away trade deficit, increasing consumer indebtedness, ballooning budget deficits, increasing the national debt would be unsound. Any private account proposal put forward has shown no improvement in making the system more solvent. If you want a private account start a Roth IRA, it is a very good investment in your future.

Unless the majority of Americans are more informed. This debate will be constrained to emotional appeals that ignore the real numbers. Numbers are so boring. Of course, I like numbers, numbers such as I have $2700 in my checking and a bill for $2550 to pay. Of course, that is a good day sometimes the amounts are reversed. Information can cut through the logical fallacies that will be put forward by well-funded PR campaigns.

We need a series of minor changes everyone gives a little, such as, reducing the amount of benefits for those born after 1950, (my age group), and raise income levels that are subject to FICA tax. Of course, detractors on one side

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will call these drastic cuts and detractors on the other side will call them massive tax increases. Still if we take a series of multiple adjustments none too drastic, but compounded over time, the solvency issue would be over.

(Inform Yourself for the Debate)

Former CBS reporter and NPR commentator, Daniel Schorr once said about those obsessed with restructuring social security; they ought to learn what it was like in America before social security existed. My grandfather was the Ellison Township supervisor from 1932 to 1968. In the thirties the township relief fund was the main welfare program. One day he was in the grocery store and the owner spoke to him in a quiet voice about a delicate matter. He didn't want to cause embarrassment for an elderly lady who lived in town, but he was sure Mrs. Smith was starving. Mrs. Smith is her real name, but all her friends and relatives are long gone. Mrs. Smith and her brothers had been the largest land owners in the area. She lived in the nicest house in town. Bad investments, unscruplous bankers and lawyers, and a depression, had left her destitute. The grocer told my grandfather what she had bought over the last few months; he was sure she traded only at his store. My grandfather went down and talked with her; it was true she was starving. He gave her a grocery order. In today's America with social security, income from the thousands of acres would have resulted in self employment tax (grumbled about self employment tax) that would have been paid into social security. She may have lost all her assets except for her house, but her social security check would have kept Mrs. Smith from quietly starving alone in her house. I know you feel it could never be like that again, but it seems never is a very long time. I remember farm land could never be cheaper (God wasn't making anymore of it), but five years later it was. I thought pensions were sure things, but I've heard that is not always true. I once saw a book proclaiming the Dow would be at 45,000, the author is still considered an expert economist on CNBC. Americans love cars so surely, GM and Ford are can't lose stocks.

We can't always see the future clearly. A rational, prudent, conservative approach is the one that usually pays off. Don't believe the talkers, learn the facts, use your own judgment. You have your own best interests in mind, the pressure groups have a whole other agenda.

(Inform Yourself for the Debate)

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Questions or comments please email "The Steve"


I may write controversial things, but I'm not petty.

I never intend to be controversial; so I am always amazed when I write something that raises people's ire.

In these columns I will try to stay thoughtful and seek to evaluate life as it unfolds not through any lens.

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by: Steve Davis

We are ill served by those who seek to create smoke to cover their tracks instead of discussing the issues.

Most partisan debate is not intended to lead towards a workable compromise, but is put forth to defend a pre-determined policy.

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Our society has the technology to hand we the people the tools to truly interact with our government, but most political activity is designed to put our government in the control of, as few hands, as possible.

We should speak up and claim our rights as American citizens.

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So if I arouse your ire or just your thoughts, you can interact with me just --- email me.

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