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Politics : Politics for Pros- moderated -- Ignore unavailable to you. Want to Upgrade?

To: LindyBill who wrote (98561)	2/3/2005 11:08:25 PM
From: LindyBill	Respond to of 793717

Washington Canard - ECONOMIC ILLITERACY AT THE POST As someone who generally supports the proposal to create private investment accounts out of Social Security — even though nobody really knows exactly what the president is going to propose yet — this Jonathan Weisman article in today's Post alarmed me greatly: Under the White House Social Security plan, workers who opt to divert some of their payroll taxes into individual accounts would ultimately get to keep only the investment returns that exceed the rate of return that the money would have accrued in the traditional system. The mechanism, detailed by a senior administration official before President Bush's State of the Union address, would hold down the cost of Bush's plan to introduce personal accounts to the Social Security system. But it could come as a surprise to lawmakers and voters who have thought of these accounts as akin to an individual retirement account or a 401(k) that they could use fully upon retirement. It even quoted well-known Social Security reform advocate Stephen Moore, saying "the mechanism would undermine the president's notion of an 'ownership society.'" And Moore has probably been the president's main cheerleader on this issue. So I went back looking for the article this afternoon to send to a former colleague who knows his government programs better than I do, to get a second opinion. What I found was that early this afternoon Weisman had corrected and rewritten the whole thing. Here's what runs in place of those initial two paragraphs: Under the White House Social Security plan, workers who opt to divert some of their payroll taxes into individual accounts would ultimately earn benefits more than those under the traditional system only if the return on their investments exceed the amount their money would have accrued under the traditional system. The mechanism initially detailed by the Washington Post in today's editions and posted earlier on the Post's Web site was incorrect. The original story ... should have made clear that, under the proposal, workers who opt to invest in the new private accounts would lose a proportionate share of their guaranteed payment from Social Security plus interest. They should be able to recoup those lost benefits through their private accounts, as long as their investments realize a return greater than the 3 percent that the money would have made if it had stayed in the traditional plan. That 3 percent level is the interest rate earned by Treasury bonds currently held by the Social Security system. The Post mistakenly reported that the balance of a worker's personal account would be reduced by the worker's total annual contributions, plus 3 percent interest. In fact, the balance in the account would belong to the worker upon retirement, according to White House officials. The original version had Brookings economist Peter Orszag "retort[ing]" to Bush's promise of creating a nest egg for young workers: "It's not a nest egg. It's a loan." It's gone from the updated story. Tellingly, the Moore quote has been excised as well. So the new version is at least accurate and less alarmist, if still confusingly written. It is also substantially shorter. Anyway, what does this all mean? Well, I still had to have it translated by someone with an actual econ degree. The original account seemed to imply that Social Security would deduct all of your contributions and only pay you interest that you (might not) accrue. Your chances of losing money would be very good, but your chances of making more than Social Security pays back under the current system are very low. That isn't the case at all. The new article drops that bit, but still misses the point. The old headline — "Participants Would Forfeit Part of Accounts' Profits" — has been mostly preserved as "Participants Would Lose Some Profits From Accounts." How would that happen? Weisman doesn't explain, although he does note: What Bush did not detail is how contributions in the account would reduce workers' monthly Social Security checks. Under the system, described by an administration official, every dollar contributed to an account would be taken from the guaranteed Social Security benefit, with interest. What Weisman did not detail — and the headline writer didn't get at all — is that one doesn't "lose" anything (unless of course the whole market crashes in a Greater Depression). One is left with the impression that if the system works as planned, you still lose money. That isn't the case, either. Frankly, I'm still not sure that I understand this entirely — and I took eight credits of university-level economics and at least try to keep up with this stuff. That doesn't really matter, because I don't write about economics for a living. What does matter is that Weisman doesn't seem to understand it either, but he does cover this regularly. I've always contended that accredited j-schools should require more economics credits of their graduates than they do currently. As implied above, for me it was eight credits at the University of Oregon: one term of micro, one of macro; elsewhere, it could be less. And that's just for general economic literacy. Any reporter writing for the business section or about the economic impact of government programs should probably be required to hold a business or economics minor. Because right now this country's leading newspaper reporters don't have a clue. washingtoncanard.blogspot.com