Vince Avedon – 2/24/05

This page was last updated on February 26, 2005.

It’s what they don’t tell us; Vince Avedon; Beaver County Times; February 24, 2005.

Mr. Avedon has written at least nine letters since September 2004 bashing President Bush and Republicans. This is at least his second opposing personal accounts in Socialist Security.

Mr. Avedon’s letter is full of falsehoods, but I don’t know if they’re intentional or not. Falsehoods appear to be a trait common in his letters. I document Mr. Avedon’s “errors” below.

Below is a detailed critique of the subject letter.

“Here we go again with another Hart-Santorum puppet show from the cognitive cripples touting the Bush echo chamber on Social Security privatization.”

[RWC] When a writer leads off with name-calling, you can usually assume the facts are not on his side.

Unless allowing individuals some control over their retirement funds is “privatization,” there are no plans to privatize Socialist Security. Providing personal accounts within Socialist Security is not the same as “privatizing” Socialist Security.

“They fail to tell us why it costs billions to convert to private accounts. We can always check their Wall Street contributors to find out who would profit from the windfall management fees.”

[RWC] The first of the errors. It’s no secret that money designated for personal accounts won’t be there to fund the benefits for current Socialist Security recipients. Remember, Socialist Security is a “pay as you go” system. Your SS taxes go to today’s SS recipients. Taxes designated for personal accounts are invested in tangible assets and so they can’t be used to pay today’s SS recipients. The cost of conversion is to make up the difference between what goes into SS “classic” and the SS benefits promised.

Mr. Avedon wants us to believe there will be no cost if we don’t have personal accounts. That’s not true. Whether or not there are personal accounts, we’ll need to incur more debt to maintain SS benefits. Of course we could avoid more taxes by cutting SS benefits, but I can almost guarantee that will never happen.

Here’s another example of resurrecting a word from the past with special meaning. During the “oil crisis” of the late 1970s and early 1980s, liberals felt it was unfair for producers of relatively inexpensive domestic crude oil to benefit from high prices. As a result, we had the “Windfall Profit Tax.” The implication of using the term “windfall” is to imply the benefits weren’t earned.

“They fail to tell us about the strict limits on taking a lump sum or passing it onto our heirs.”

[RWC] Mr. Avedon wants us to believe there is a complete proposal on the table right now. There is not. Anything Mr. Avedon mentions is speculation and I don’t like to comment on speculation.

As you will read below, the White House does mention this topic in the very same document from which Mr. Avedon got his information “according to the White House.”

“They also fail to tell us about how they’re going to tax us.”

[RWC] As noted above, Mr. Avedon wants us to believe there will be no cost if we don’t have personal accounts.

“MIT professor Peter Diamond says, ‘It’s good economics for the trust fund to invest in stocks. This would reduce individual volatility and sharply reduce transition costs.’

[RWC] Mr. Avedon quotes a person who says it makes sense for the SSA to invest in stocks. Does this mean Mr. Avedon has changed his position? Mr. Avedon stated in his letter of February 6^th, “Why doesn’t the Social Security Administration invest in the market? Because there’s a risk of making bad choices …”

“But hey, that would cut into their cronies’ fees now, wouldn’t it?”

[RWC] First, there is no “trust fund” and there never was. Anyway, I don’t want any government investing in private securities it chooses because the investment “strategies” would inevitably be driven by politics. “Good” companies – as defined by politicians or political appointees – would receive investments while “bad” companies would not.

As you will learn below, the government, not “Wall Street cronies,” will incur the vast majority of the personal account administration expense.

“Management fees would be considerably less without millions of individual accounts. The cost under the Bush plan would be about 30 basis points, or about $425 billion, according to the White House.”

[RWC] What is the goal here? To minimize administration costs or to allow taxpayers some control over their income and retirement finances? Hey, we could reduce all administration costs with respect to taxes by simply signing all of our income over to the government and then depending on it for “free” housing, healthcare, food, et cetera. In this scenario, we wouldn’t even need Socialist Security because everything would be “free.”

Mr. Avedon wants us to believe each SS personal account will have a corresponding account with an investment firm. That’s not correct and would be extremely inefficient.

As noted above, there is no Bush “plan,” though the Bush administration has published a list of principles and ideas.

As a reminder, a “basis point” in this context is 0.01%. Therefore, 30 basis points are 0.3%.

Mr. Avedon wants us to believe 0.3% in administrative costs is high when it is not. Let’s continue to use the White House as an info source as Mr. Avedon did above.

“The Social Security Administration’s actuaries project that the ongoing administrative costs for a TSP-style¹ personal account structure would be roughly 30 basis points or 0.3 percentage points, compared to an average of 125 basis points for investments in stock mutual funds and 88 basis points in bond mutual funds in 2003.

“The low costs are made possible by the economies of scale of a centralized administrative structure, as well as limiting investment options to a small number of prudent, broadly diversified funds.”

Mr. Avedon wants us to believe most of the management fees would go to private sector investment firms, but that’s not true according the quote below.

“Most of these administrative costs are for recordkeeping which would be done by the government, not investment management done by Wall Street. (Report of the 1994-1996 Advisory Council on Social Security, p. 171 & January 31, 2002 Memorandum from the Social Security Actuary in the Final Report of the President’s Commission on Social Security, p. 19).”

You can find this information at http://www.whitehouse.gov/infocus/social-security/200501/strengthening-socialsecurity.html.

“Austan Goolsbee from the University of Chicago reports that the trust fund investment would cost one basis point, or $15 billion.”

[RWC] Again, I don’t want any government investing in private securities it chooses because the investment “strategies” would inevitably be driven by politics. Regardless of the party in power, politics-driven “investing” is not something I want to see no matter how “cheap” it appears.

“That’s a difference of $410 billion - a nice windfall for someone at our expense, huh?”

[RWC] As noted above, the vast majority of the expense will go to the government, not “Wall Street cronies” as Mr. Avedon and his comrades would like us to believe. Besides, if someone helps you increase your wealth, shouldn’t he get paid?

“They fail to mention the mandatory automatic shift of funds into ‘life cycle portfolio’ at age 47.”

[RWC] Mr. Avedon and I have different definitions of “mandatory.” Here is what the above referenced document says.

“To protect near-retirees from sudden market swings on the eve of retirement, personal retirement accounts would be automatically invested in the “life cycle portfolio” when a worker reaches age 47, unless the worker and his or her spouse specifically opted out by signing a waiver form stating they are aware of the risks involved. The waiver form would explain in clear, easily understandable terms the benefits of the life cycle portfolio and the risks of opting out. By shifting investment allocations from high growth funds to secure bonds as the individual nears retirement, the life cycle portfolio would provide greater protections from sudden market swings.”

“They also fail to tell us about the mandatory annuity, which would leave us with no lump sum.”

[RWC] Once again Mr. Avedon errs presenting the White House position. Here is what the above referenced document says about this topic.

“Under a system of personal retirement accounts, procedures would be established to govern how account balances would be withdrawn at retirement. This would involve some combination of annuities to ensure a stream of monthly income over the worker’s life expectancy, phased withdrawals indexed to life expectancy, and lump sum withdrawals. Individuals would not be permitted to withdraw funds from their personal retirement accounts as lump sums, if doing so would result in their moving below the poverty line. Account balances in excess of the poverty-protection threshold requirement could be withdrawn as a lump sum for any purpose or left in the account to accumulate interest. Any unused portion of the account could be passed on to loved ones.”

“It would be prudent and cheaper to spread the risk by letting Social Security invest in the market, not through individual accounts.”

[RWC] This would be the socialist approach. Whatever we do we can’t allow workers to exercise some control over how some of their hard-earned wages paid in taxes are invested for their own retirement, can we Mr. Avedon?

Can someone explain why some people are so dead set against individuals having some control over their income and retirement finances?

“The Bush puppets should look at all the jobs they permitted to be outsourced overseas as part of the shortfall in Social Security revenue.”

[RWC] Now we have both name-calling and subject changing in the same sentence. As noted at the beginning, these are signs of a person not confident he can make a credible case with the facts.

If Mr. Avedon really believes outsourcing has anything to do with his “shortfall in Social Security” taxes, he should consider the following. Today’s 12.4% Socialist Security tax is 6.2 times its original 2% in 1935. Today’s $90,000 maximum taxed earnings cap is 30 times the original $3,000 of 1935 and now increases every year by law. It more than doubled in the last 18 years alone and increased nearly $14,000 since 2000! The relatively trivial amount of outsourcing that’s gone on forever has nothing to do with Socialist Security’s unworkable funding model. Socialist Security was “born” screwed up in 1935; it’s a classic Ponzi scheme.

“Oh, and by the way, where’s Osama? Where are the WMDs?”

[RWC] Huh? This letter just went completely off the tracks.

1. “TSP-style” refers to the federal Thrift Savings Plan (TSP), a voluntary retirement savings plan offered to Federal employees, including members of Congress. Background info is available at http://www.whitehouse.gov/infocus/social-security/200501/strengthening-socialsecurity.html.