Selling Snakeoil, Part 2

Hyman continues to slightly repackage his “facts” from last week’s series on Social Security in the guise of proposing solutions to the alleged crisis facing the system. Hyman’s “benefits” are described in only the vaguest of terms, and for good reason: they’re based on premises that are demonstrably false.

Hyman:

Benefit #3 - A sound investment fund managed by the government just as it
manages the Thrift Savings Plan for federal employees would allow workers to
actually accumulate retirement funds. Social Security's rate of return for
today's young workers is so bad that the typical next generation worker will
actually receive less money in inflation-adjusted benefits than he will ever pay
in.

Hyman, like President Bush, is suggesting that the Thrift Savings Plan that members of Congress contribute to is what privatizing Social Security will create for all workers. But the TSP is a retirement plan that is in addition to Social Security benefits, not an alternative to it.

More importantly, Hyman is completely wrong when he states the return on Social Security investment will be worse for future generations of retirees. In fact, the Congressional Budget Office calculates that because Social Security benefits are indexed to inflation and based on wages (which tend to go up faster than inflation), retirees in the future will receive greater benefits in terms of real buying power than today’s retirees receive. And as the Washington Post noted, this is true even if nothing is done to eliminate the projected shortfall in benefits 50 years from now. In short, if we do nothing with Social Security, the grandchild of someone who retires today will receive significantly more in benefits than her grandparent.

Hyman:

Benefit #4 - Because an investment fund with actual monies would exist, the
system would guarantee benefits to retirees. Today's Social Security is not
guaranteed. Congress has the power to change Social Security as it sees fit.
Raising the retirement age from 65 to 67 is one way Congress has already cut
benefits, meaning workers will earn less over a retired lifetime.

This is simply a rehash (in fact, a near verbatim repetition) of one of Hyman’s alleged “facts” from a previous commentary on the state of Social Security. As we noted, Social Security benefits are tied to U.S. bonds, and the government has never defaulted on a bond payment. Benefits are guaranteed.

Moreover, the raising of the retirement age only applies to the youngest of today’s workers, a group whose life expectancy is far above that of retirees when the Social Security system was put in place. Even after the retirement age has been raised two years, today’s young worker can expect over a decade of benefits, while his counterpart in 1935 (when Social Security was created) could only expect to collect three years of benefits, based on average life expectancies. Raising the retirement age by a mere two years is nothing but an acknowledgment of the reality of much longer, healthier lives.

And those who want to retire earlier certainly can. Retirees can start collecting benefits at age 62 if they wish. Although their monthly benefits will be slightly less because of this, the additional time they will be collecting Social Security makes up for this.

And those are the Counterpoints.

Hyman Index: 3.21