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.
|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”?
|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.
|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. . . .
|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#