Yesterday we
looked at how Academician Walter Russell Mead managed to equate capital
ownership with home ownership, and then with having a guaranteed job . . . and
then wonder why the system wasn’t working at all the way he thought it
should. Today we’re going to looked at
Dr. Mead’s proposed solution to the problem of today’s disappearing guaranteed
jobs and its effect on retirement savings.
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| Collect $2.00, pay out $1.00. What could go wrong? |
First, however, we
need to look at why (in his opinion) the retirement system is in trouble: “To
put it simply: Our three-legged retirement system — public savings (i.e., Social Security),
employer-provided retirement plans (e.g.,
pensions), and private savings and investments — is failing Americans.”
Failing?
It has already failed. We’ll get
over this ground fast:
·
There are no savings in Social Security. It’s “funded” with bales of government debt
with which the government replaced the money (backed by other government debt) it
collected and then spent. The Social
Security System is a colossal double liability of the federal government, not
an asset in the form of a savings or investment account. How many people
realize, for example, that for every dollar paid out of the trust fund, the
government has to collect more than two dollars in taxes? That’s right: it collected the dollar that it
borrowed, and the dollar it used to redeem the debt, and incurred
administration costs. That’s $2 plus
costs, however you add it up.
·
Private sector retirement plans. They’re underfunded. They’ve been going bankrupt at a tremendous
rate.
·
Private savings and investments. What
“private savings and investments”?
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| Just talking about Social Security works as well as just reading a Charles Atlas ad. |
Dr. Mead’s
general solution?
·
Strengthening Social Security; [you can’t
strengthen a corpse . . . and how? Raise taxes again so the government can
borrow more money from the trust fund?]
Regulating, strengthening, and insuring state
and local public employer plans; [meaning stick the taxpayer for the promises
politicians made . . . again?]
·
Creating a retirement system that works better
for younger workers; [instead of one that works better for everyone?] and,
·
Addressing the problems of the ‘gap generations’
who will be facing retirement in the gap between the old system and the new. [See snarky comment above.]
To his credit . .
. sort of . . . Dr. Mead only thinks he addresses the latter two problems
specifically.
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| And you still need a job...and jobs are disappearing. |
Given this background, I believe that we need to depart from the
status quo and propose a bold, fundamental reform; namely, to begin shifting
the tax collection onus and the retirement savings apparatus from employers to
private-sector financial institutions. At the same time, we need to blend
retirement savings with other forms of savings, so that Americans have
multiple, clear-cut avenues toward wealth accumulation in the information era.
The creation of a flexible and multifaceted retirement savings system that
better aligns with our current and near-term economic conditions and can adapt
to the unknown economic conditions of the future will be critical to the 21st
century success of the United States.
Specifically, we should adopt a system in which every American
citizen and green card holder has the ability to open an account known as an
“American Mobility Account” (AMA). These ‘one-stop-shop’ accounts would be
managed and administered with a financial institution, in which employers or
independent workers would deposit gross, pre-tax income. Financial institutions
would collect and withhold the variety of different taxes that businesses and
contractors are currently required to withhold, thereby shifting the tax
collection onus from employers and the self-employed to third-party financial
institutions. In addition to managing tax collection and withholding, financial
institutions would be able to provide a variety of government-regulated and
tax-advantaged financial options within AMAs that promote retirement savings
and human capital formation.
Translation:
Employers, instead of paying workers, would deposit money in a financial
institution that would then pay the workers after deducting taxes, retirement,
and anything else . . . thereby creating a pool of money in the form of
retirement savings (as opposed to investment to generate income for retirement)
that — like Social Security — would simply be too tempting for the government
to avoid seizing. And someone still has to have a job to be in the system. . . .
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| Who is the real employer in Mead's scheme? |
Oh, the government wouldn't seize the money directly,
of course, any more than they directly seized what was deposited in the Social
Security trust fund. Government
regulators would simply point out that government bonds represent the very best
possible “investment” for retirement savings that could possibly exist . . .
and then mandate that all retirement savings be “invested” in government bonds.
. . .
Voila. The government has an entirely new pot of
money to play with. And because, unlike
private sector growth investment, government bonds are not inflation-proof, the
government will always be able to meet its obligations simply by printing more
money, inflating the currency even more, and paying its debts at a fraction of
their real value.
There is also the
problem of who the real employer is. The
plan appears to make financial institutions the real employers, and all
employees “leased employees” or temps.
If the government grabs control — as it most certainly would — everyone
would thereby become a government employee, leased out to the private sector.
We’ve heard
something like this before — Hilaire Belloc wrote a book back in 1912 about
this kind of arrangement, The Servile
State. It’s a way to implement the
Fabian socialist/Keynesian demand for “full employment.”
Of course, if Dr.
Mead wants a real solution, he might want to check out tomorrow’s blog.
#30#