Professor criticizes Bush’s plan
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.
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