Washington Post business columnist Steven Pearlstein was online to discuss his latest column, which looks at the Bush administration's plans for Social Security and health care.
He writes: "When President Bush touts his tax cuts, health spending accounts and Social Security reform, he frames it in terms of giving you control over your own money and destiny, which resonates with the notions of individualism and self-reliance that Americans so admire. But I suspect Americans would be a good deal less comfortable with the flip side of this approach, which is a determination to undo well-established mechanisms that spread some of life's risks, narrow the gap between rich and poor and promote the sense that we are all in the same boat."
A transcript follows.
Steven Pearlstein writes about business and the economy for The Washington Post. His columns on the economy appear every Wednesday and Friday.
Editor's Note: Washingtonpost.com moderators retain editorial control over Live Online discussions and choose the most relevant questions for guests and hosts; guests and hosts can decline to answer questions.
"Equality of Opportunity":
Wonderful idea, too bad it doesn't exist.
Look at two families. Both have one kid. Family X is middle class. The kid goes to a good public school, then to a State Uni. He scrambles to get an internship, while balancing a PT job. Even so, he gets a 3.8 GPA along the way. He gets out of Uni., and lands an entry level gig in his field.
Family Y is the CEO's family. Kid goes to an expensive private school, where he meets other kids who will eventually be CEOs, major figures in world politics, etc... He then goes to Harvard (more contacts), even though his grades were mediocre, thanks to some phone calls. Having pulled "Gentleman's Cs" there, more phone calls land him great internships (even more contacts), and since he doesn't have to work, he has time for tons of them.
Upon graduation, his contacts and experience get him the position two levels above the 3.8 GPA middle class kid, whom he decides he doesn't like much and fires.
Yes, exaggerated to make the point, but still accurate. There is no such thing as "equality of opportunity" when results are skewed. Just look at our President, a drunk until 40, and some of his old employers have said was incompetent. He failed at every business enterprise he touched, often bailed out by rich family and friends. He's still President.
Steven Pearlstein: Wow! You're smokin' this morning. Maybe you should be consider becoming a columnist. I'll take a pass on the president as a drunk part, but agree with you that equality of opportunity remains something of a goal. But it is fair to say that, as industrialized countries go, we have as much class mobility as any. And, in fact, there is some evidence that to get to the very top of things, coming from an upper middle class background can be a hindrance because it doesn't provide the toughness needed to get to the very top (Bill Gates excepted). Anyway, it is a debate--equality of opportunity versus equality of outcomes--that you won't be hearing from Washington any time soon, which is too bad.
Amen brother. I think one of the saddest things about this administration is the whole "me, me, me" attitude. It basically says to everyone that you are on your own. What happened to our sense of community and shared purpose? Now it's all about selfishness and accumulating as much as you can. I've read a lot lately about how the "red states" are basically subsidized by the taxes paid in the "blue states". That whole dynamic seems rather ironic to me.
Steven Pearlstein: You got that right about the states that preach self-reliance and practice all manner of corporate welfare. But I think we need to be careful to equate the individualist, take care of yourself, that they admire in many of the red states with selfishness. That's where I think the Dems and the liberals go off the rails. Its really a choice between self-reliance versus collective action, each of which has its benefits and downsides. But there are lots of people who prefer the self-reliant approach who are very generous and caring toward other people. They just chose to do that themselves, rather than through some collective effort, particularly one forced on them by the government.
Terrific story today. The US used to be a club where we looked out for each other. One could take a risk and know that if you failed you had your neighbors behind you to try again. Now, you're on your own, community of one.
I'm trying to understand the intellectual dishonesty of the advocates for inequality initiatives like privatizing Social Security. They claim that we can no longer afford it. Yet, every generation goes through a period where it essentially owns all the assets of the country, and when it dies, the children then own everything. To think therefore that one generation can bankrupt the next is on its face absurd. However, if you specify that 10% of the people in a generation shall own nearly all the wealth, then of course funding the retirement of all others would require redistribution. That's the rub, isn't it? The big winners are trying to win bigger and keep it all?
Steven Pearlstein: Nicely put. I particularly like the phrase, community of one. Could be a good book title. By the way, I'm a former resident and town moderator of West Newbury, Ma., not far from where you are. Nice part of the country, the North Shore.
Silver Spring, Md.:
Re: Bush's vision OK, now this is nuts. I have an individual account with the government? I make my own choices and the benefits are for me - why not just let people keep their money. I don't get it.
The cynic in me sees Bush's plan as simply a way for the well-off to opt out of the government's wealth redistribution programs, which they may see as too generous.
Steven Pearlstein: The cynic in you certainly has a point.
Virginia Beach, Va.:
Reportedly, there's about $150 billion poured into a corporate welfare fund each year.
How can we encourage a tiny wave of compassion from those folks in having a $1 billion or two directed to sick and ailing people of this country who are unable to fend for themselves?
Steven Pearlstein: Actually, your problem is not with the billionaires, who as a group tend to be quite generous and even liberal. Its with the newly minted millionaires, who having made their wad themselves tend to think that they earned it and if other people want it they can damn well work as hard and as smart as they did. What I find common among this crowd is that they don't realize how much luck plays in determining the winners from the people who do just okay. They think it has to do with their skills and their pluck, when in fact there is often a good bit of randomness to it.
Your comments about risk are good ones. About 20% of the population is downwardly mobile at any given time. The Social Security situation is particularly galling. If the budget surpluses of 4 years ago had been devoted to shoring up Social Security instead of tax cuts the problem would have been greatly reduced.
Steven Pearlstein: If the surpluses had indeed been put in a lockbox, as both candidates in 2000 promised, the Social Security problem would be less bad but not solved, I think it is fair to say. But putting things right isn't really all that difficult. Allow the retirement age to rise at half the rate at which the average life expectancy does, change the annual adjustments to reflect the cost of living for the elderly rather than the pace at which incomes grow, and increase the cap on income subject to payroll taxes to $200,000 and you could go a long way toward putting the program in good financial shape. This isn't rocket science. But it will require liberals and Democrats refraining from hysterics every time some modest reduction in longterm benefits is talked about. Because the alternative, I've got to tell you, is that the Republicans will succeed in dismantling the system, which would be a worse outcome for the people they claim to represent.
I totally agree with you on social security. I am mostly a libertarian, thinking take govt. out of things, everyone needs to suck it up - get a better job if you think you can, earn more money, do whatever you want, but don't expect the government to do everything for you.
However, with soc. sec, I do believe in the current system (up to a point). Those who work hard, but didn't have much in the first place, still deserve to retire with dignity.
BUT - the whole system is horribly broken and the politicians are unwilling to do what needs to be done. Back when Soc. Sec was founded, most people only lived until they were 65 - and they certainly couldn't work at that point. Soc Sec was supposed to be a safety net (and no one was supposed to live off those proceeds). The age at which benefits begin (not retirement age - you should retire whenever you can afford it, without the govt doing anything), should be closer to 80. People can work much later than they ever could before, so why shouldn't they?
Why should I, as a young worker, subsidize their cruises, etc. If you didn't save enough to retire earlier, not my problem. But I'm a little uncomfortable with these individual retirement accounts - what happens if you lose all that money? Who comes in to take care of you then? That is where the govt will spend tons of money (in addition to converting the system). I mean, really - do we want to be a society wherein the elderly are treated so poorly that they live on the streets?
Steven Pearlstein: Well, you said it better than I could. We really do have to get back to the original purpose of Social Security, which was never intended to be a complete pension plan, but merely a social insurance program meant to guarantee that even if all other pensions and savings were depleted, the elderly would be able to live above the poverty line. It should provide the base of a retirement income, but not be thought of as something most Americans should expect to live on.
Steven, while I don't inherently disagree with Bush's proposal (I think we should be re-structuring the retirement system so that people finance their own retirements until about age 80, when Social Security would kick in the for lucky ones) it is another example of how, in my view, Republican economics doesn't match the rest of their platform, and they don't seem to see the contradiction.
The flattened wages scales to which you referred were a systematic part of the American workforce during roughly the 20 years after WWII (when society felt we had all fought the war together, and everyone deserved to benefit from that). That same generation, not coincidentally, produced a baby boom. When a sensible person is deciding whether to start a family, one element that goes into that decision is whether they have a reasonable expectation of a 20+-year income stream.
The modern free agent workforce of low job security and loyalty may be economically efficient, but it isn't conducive to family formation when people have to worry about whether they're a 60k worker this year and might have to compete against foreigners the next or move to a new city.
The Republican party platform is dominated by two beliefs -- pro-investment economics and "family values." It's amazing how they fail to see the inherent conflicts between the two.
Steven Pearlstein: A very interesting way of looking at things -- and right, besides.
Apropos joke going around our office:
Q: What is the Bush Administration's solution to Social Security's problems?
Steven Pearlstein: Funny.... and not.
Silver Spring, MD:
Re: Social Security
Boy, this is a tough one. My father is retired after almost 40 years at one company and my mother is retiring after almost 30 years at another. They have pensions, health benefits, social security and savings. They will be fine but they understand that the world has changed and my retirement will be different.
The Social Security system distributes a LOT of money. As a liberal in my early 40s I'm ready for an honest discussion of what SS should be. Is it a retirement plan or just a safety net for the poor? How well should people expect to live on it? How are benefits determined? Why should SS be separated from other government moneys (the trust fund, a separate tax)? What do we say to people that invest poorly under an "ownership" program or use their 401k debit card- is there another safety net or are they out of luck?
I don't think the government should be involved at all in individual retirement plans - it will be lousy at it. Lift the income ceiling on the tax and keep in funded to provide a similar benefit to all over 70 OR just let people keep their money and make Social Security a backstop for the poor.
I feel like the SS a muddle that is too big and too important to be left as a muddle (unlike, say, the Small Business Administration). I did not vote for Bush but I am glad that he has been able to get this issue on the table. The Democrats have not been "brave" on this matter.
Steven Pearlstein: I agree with almost everything you say, particularly the part about the Dems, who would rather demagogue on this issue than actually solve it. The one argument against having Social Security be merely a backstop, means tested to income, is that once it becomes that, it will lose political support because too many middle class Americans will view it as just another give-away program for slackers. That's always been the liberal line on it, and while I think it needs some reexamining, its not wholely without merit.
How do you view economic incentives or, alternatively, the lack of negative reinforcement? There is neither fairness nor equity in an overly progressive tax policy that applies to income and not wealth. Policies should do much more to encourage those with "high" incomes but little wealth to amass wealth (to pay for their own retirement, prescription drugs, charity work, or kids' educations). For example, a Roth IRA cap of $3,500 per year that is phased out with a "high" income (regardless of wealth) is myopic and inane. This essentially condemns many folks to work longer, struggle more, and rely more upon the government in the not-so-golden years.
Steven Pearlstein: That's a fair point. I'm one of those who actually believe we need to move toward a consumption based income tax, where money you set aside for saving and investment isn't taxed until you decide to spend some of it, or pass it on in inheritance. Such as system can be constructed to be just as progressive as our current system, with other benefits as well. And this would solve your income/wealth problem.
I understand that Bush plans to have people invest 16.67% of their Social Security payments.
How much commission will be charged for the investing services?
Could there possibly be anyone 'drooling' in anticipation?
Steven Pearlstein: There is lots of drooling on Wall Street, believe you me.
"...because contributions to Social Security are largely proportionate to income but benefits are much less so, Social Security transfers money from the rich to the poor."
Isn't it more appropriate to compare wealth rather than income to being rich or poor? Your premise that those with higher incomes are rich is not exactly right. On a related note, how much did Bill Gates contribute to FICA this year?
Steven Pearlstein: I stand corrected. I should have said SS transfers money from those with historically high incomes to those with historically low incomes.
The discussion about SS has been way over-simplified. The real subject is: saving for retirement (with a hedge against the premature loss of the main wage earners for dependents). Aside, the Medicaid/ Medicare system should always be held separately.
Under saving for retirement most financial advisers will tell you that your personal savings should be your main retirement asset while your total portfolio should include company pensions and social security. They will also tell you that part of your retirement portfolio should be invested in the stock market & risk taking investments and part should be invested in risk free assets for balance and certainty of future funds.
First question, is the individual solely responsible for the investment decisions in his/her portfolio? Second, should the government get involve with this decision?
My thoughts are that SS should be only a small part of the individuals retirement portfolio. SS should be risk free. If the government wants to be involved, I say only to the extent they educated individuals and encourage them to save for retirement outside SS. A small suggestion, going back to the hedge against the loss of the main wage earner, the government could offer life insurance for the benefit of the wage earners dependents which would be a low cost, fully paid for by the individuals. This would take some financial pressure off SS. A question for those promoting investing part of SS as a way of offsetting deficits, how do you invest a deficit? There is no logic here, if you don't have money, you can't invest. That is why so many Americans now do not have retirement savings.
Steven Pearlstein: Lots of good points there. By the way, I don't share the big concern of Fed Chairman Greenspan if the government were to invest some of its Social Security "surplus" into stock index funds, to generate a somewhat higher return. The fear is that if you have the government investing in private companies, it is the camel's nose under the tent of state socialism. That's really nonsense when you are talking about an index fund. The only condition I would add is that the government cast no votes on governance issues.
Another great column, but you fumbled once: "contributions to Social Security are largely proportionate to income". Sure, for most of us. The wealthy, of course, have their contribution capped so on a percentage basis they don't have to kick in that much. Justifications tend towards the idea of tying how much you put in to how much you take out, which brings us back to the point of your column: This is a social insurance program, not a bank account. You make more, you should kick in more.
Steven Pearlstein: Not sure where exactly I fumbled but I'll take the compliment anyway.
The current system is working just fine. The republicans need to quit stealing from the trust fund.
Steven Pearlstein: Technically speaking, they are just borrowing from it, with a very high likelihood that it will get repaid by our children and grandchildren. The financing is sound. Its the moral values that aren't.
One question I don't hear anyone raising on either social security or on any part of our social safety net is: What would Jesus Christ have done? Of course I don't think Bush thinks about money from a Christian view point. Therefore this question does not get asked.
Steven Pearlstein: I'll pass on making any judgments about what the Christian thing to do is.
The part I don't like about the Administration's proposals is that I'll have at least another two accounts to manage myself - the Health Savings Account and my Social Security Account.
I'm already managing a dozen accounts already -- my IRA, my 401ks from current and past employers, my checking account, my savings account, etc.
Who the heck has time to manage two more accounts?
Steven Pearlstein: I think the point is that you are supposed to pay some Republican money managers to handle it for you.
Silver Spring, Md.:
Re: not fair! Nobody will disagree that many people have advantages in our society but you're right: our country is still the land of opportunity that draws countless thousands every year - even in the worst economy since the depression (LOL!).
This is NOT a workers paradise where all are equal. Our movies glorify the average schmo from modest upbringing who overcomes obstacles to achieve his/her dreams - that's the story that connects with Americans.
I think the question is should the government help us achieve something like middle class lifestyle and retirement. Or, should it just get out of the way and provide a safety net?
Steven Pearlstein: You've put the question well at the end. I'd say provide a safety net and get out of the way. The question is how high do you want to put the net and how progressive do you want to make the scheme for financing it?
My problem is how to get the Democrats and others who oppose Bush's plans to succeed in making this a live issue? I'd like to see a return to more activist journalism, today's politics is pretty effective in controlling issues in Congress and in the media.
Steven Pearlstein: This is not the sort of issue that the press has the power to put on the front burner, even if it wanted to. It will require citizen action and opposition politicians.
Fort Worth, TX:
One would think that 'moral values' as touted by this administration would include compassion for the helplessly sick - young and old of this country.
Do you see any 'compassion' in that regard?
Steven Pearlstein: Some, but not enough. The number of uninsured Americans rose by several million during the first Bush term and you never heard the president of vice president acknowledge that fact or even say it was a problem. That is not compassionate conservatism.
As my parents told me at a very young age "Life is unfair". You waste a lot more energy cry and moaning about it then working hard to overcome it. So get off your butt and become the next Gates or who ever. Life is to short to cry about how unfair it is because in the end we all end up dead. Grow up!
Steven Pearlstein: At least you have the guts to say it just that candidly. The Republicans leadership believes it but won't say it because, unfortunately for your side, the American public isn't willing to embrace Social Darwinism to quite that degree.
In your column you say that the administration is really for equality of opportunity not outcomes. However, I would argue that they aren't even for equality of opportunity and this is most evident in their desire to repeal the estate tax. Like with Social Security certain people have the majority believe that people should keep what they earn - that people deserve what they have. To me this comes close to equating wealth with moral goodness. To counteract I suggest we all start calling the estate tax the Paris Hilton tax instead of the death tax and see what people think. Great column.
Steven Pearlstein: Thanks.
Interesting comparison to insurance. But is SS insurance for something bad happening or is meant to be a pension? Or some combination?
Steven Pearlstein: Some form of combination. That's why the public debate on it is often so off the mark. The Republicans want to frame it as a "bad" pension program, while the Democrats talk about it as if it is the only thing that stands between grandma and dog food.
How did people survive and thrive before the advent of Social Security? Do you know what the net worth is of the greatest generation? I hope that people one day stop thinking about the apocalypse should Social Security disappear and ask how we can do better? The worst outcome should never preclude a policy that lifts most ships; otherwise, the inmates have truly taken over the asylum.
Steven Pearlstein: We don't know that a privatized system would raise most boats. I think that is yet to be proven.
You state that "any system of personal accounts is bound to be less progressive" than the current program, but -- based on the official scores from the SSA -- this is almost universally untrue. All Congressional personal account based reform plans (with one exception) pay higher relative benefits to lower earners than do the current program -- i.e., they're more progressive. They do this via progressively funded accounts, minimum benefits for low earners, and enhanced widows benefits. It's not unreasonable to think that accounts could reduce progressivity, but in practice it's just not true.
Steven Pearlstein: It is true, you could construct a semi-privatized system that is as progressive as the current one or more. But the more progressive it is, the more difficult it is to fund a benefit levels anywhere near those under the current system. And it is because of that tradeoff that I suggested that a truly progressive system is unlikely.
I actually think the President is about half-right on social security. (Ignoring the problems and claiming that nothing can or should be done, which I understand to be the position of most Democrats, is just about 100% wrong.) I agree that we should allow people as much control as possible over their lifetime savings and retirement planning. What the President doesn't say is that his plan must ultimately lead to some form of means-testing for purely government funded benefits. I think that is the right answer, but I guess a politician will never admit it. Even more, I think if we simply eliminate the entitlement aspect of the program and make it a true poverty program, then we can simplify our tax structure (no more FICA or SECA) and our budget structure (unified budgeting). (I acknowledge that there are potential moral hazard and free rider problems, but we have dealt with those in many other programs.)
Steven Pearlstein: Ah, we have a real wonk weighing in from the Granite State (takes one to recognize one). I think you underestimate the moral hazard problem with retirement money, as well as all the games that will be played to hide wealth to be able to qualify for the benefits. But this is a debate worth having, I agree.
Again, "Equality of Opportunity":
You punted in your answer.
My point was that with radically unequal results, there is no such thing as Equality of Opportunity. Ergo, a debate between results and opportunity is false on its basis (the later poster made a very good point about the Estate tax repeal in context to this).
So please drop that "debate" as being valid. It doesn't exist.
PS - About Clifton, VA...wanna bet born to upper middle class or higher, with all the resulting privileges? Jonah Goldberg at National Review like to say the same things, which is funny coming out of a guy who would be writing on Star Trek fanboy sites, had he not been born to the secondary shrew of the Clinton witch hunts.
Steven Pearlstein: Look, there isn't perfect equality of opportunity but then again there will never be perfect equality of outcomes. I don't think it a false debate at all. And as far as Mr. Clifton Va., I bet you are wrong, actually. I bet it is somebody who got where he has in life on his own and thinks other people should do the same.
While I generally agree with your sentiments, your argument is technically wrong. While most proponents of private accounts are using them as a way to make the system less progressive, the accounts could be designed to make them as progressive as you want - just give big subsidies to poorer workers. Will that happen? Probably not. But opponents will have to make a political decision: Make a last stand against private accounts absolutely, or - if they seem to be unavoidable - work to make them as progressive as possible. For a more detailed argument for progressive accounts, see this Post op-ed.
Steven Pearlstein: This came in after my previous answer went out. But since it contains a reference for further reading, I'll put it in the mix. Thanks.
Steven Pearlstein: A very good discussion today, folks. Informed, pithy and intellectually respectful. Too bad we're not the ones in Congress. See you all next week.