Reply #6: Help please! [View All]

I am 100% against privatizing Social Security but I run a political discussion board and I am active in local politics and I am trying to understand this issue better in order to argue it better. I am such a dolt when it comes to understanding economics that I am having some difficulty arguing Krugman's side.

For instance he says this, "Privatization would begin by diverting payroll taxes, which pay for current Social Security benefits, into personal investment accounts. The government, already deep in deficit, would have to borrow to make up the shortfall. "

I don't understand what shortfall Krugman (and others) are talking about. Does it mean the shortfall that would occur when paying out to those who choose to remain in the system?

Then this: "This would sharply increase the government's debt. Never mind, privatization advocates say: in the long run, they claim, people would make so much on personal accounts that the government could save money by cutting retirees' benefits."

What benefits would they be cutting? Those who have private accounts? If they have private accounts, where does the government come in? Aren't private accounts just that, accounts where the government cannot control the benefits good or bad?

And this: "By assuming that workers would invest most of their accounts in stocks, that these investments would make a lot of money and that, in effect, the government, not the workers, would reap most of those gains, because as personal accounts grew, the government could cut benefits. "

How can the government cut benefits on "personal accounts"? How is there any government control at all on these "personal accounts"?

And finally this: "Once you realize that privatization really means government borrowing to speculate on stocks, it doesn't sound too responsible, does it? But the details make it considerably worse."

If the government allows me to control 6.2% of my payroll tax to invest in a private account, wouldn't it be me (not the government) who is speculating on stocks? And, I need to ask again, why would the government need to borrow to fund this scheme. Wouldn't simply diverting the 6.2% to the private sector be the beginning and end all to privatization.