Though most students probably would be bored listening to a
lecture about Social Security reform, professors and students at
the UCLA Anderson School of Management were intrigued by the
findings of a Yale professor on the subject.
Yale economics Professor Robert Shiller spoke April 8 at the
Anderson School, sharing his views on President Bush’s plan
to reform Social Security.
Since winning re-election and declaring a mandate, President
Bush has called for reforming Social Security, the
government’s largest entitlement program.
Bush has advocated the creation of personal retirement accounts.
Under his plan, workers born after 1950 would have the option of
investing a share of their payroll taxes in stocks, bonds and
mutual funds.
In a meeting with South Carolina congressmen, Bush bolstered his
plan for privatization.
“˜”˜In order to make sure our children and
grandchildren have got a retirement system that works when they
need it, we ought to allow younger workers to set aside some of
their own payroll taxes in a personal savings account they call
their own,” Bush said.
Critics like Shiller believe these private accounts are not
going to fix the problems facing social security.
Shiller said the president’s proposal is “not a
Social Security plan, but a portfolio management plan.”
In 2002, President Bush coined the term “ownership
society,” referring to a system in which individuals would
have more control over their financial lives, from owning a home to
having more choices in health care.
“The objective is largely psychological … to make people
feel like capitalists,” Shiller said.
Shiller said he agrees with the concept of the “ownership
society,” but said he does not believe that the accounts will
perform to the degree the Bush administration anticipates.
The president’s plan will include “life cycle”
mutual funds ““ funds actively managed based on what year the
investor plans to retire. As workers first put money into the
private accounts, most of the portfolio will consist of stocks. As
years pass and the individual is closer to retirement, the
portfolio will shift to bonds, a more conservative investment.
Based on Shiller’s analysis, workers will see their
portfolio shift from stocks to bonds as they become middle-aged.
But this is the point at which individuals will start to make
larger contributions to their accounts due to increases in income.
A second criticism of the Bush plan that Shiller presented is the
offset rate. When investors divert their payroll taxes into private
accounts, their accounts will have an offset rate of 3 percent.
Because the money in private accounts would have gone to fund
Social Security, the worker must pay the 3 percent on the
accounts.
Some congressmen believe credibility is also an issue, and that
the administration underestimated the cost of the war in Iraq and
overestimated the benefits of Medicare.
“˜”˜And now, all (of a) sudden, they wonder why people
are a bit skeptical of their … plan on Social
Security,” said Rep. Gil Gutknecht, R-Minn, during an
editorial board meeting with the (Rochester) Post-Bulletin.
With reports from Bruin wire services.