What does a BIDEN Presidency look like?

[Berkut]

It isn't about me being brilliant. You and MM disagree with me. Good for you; maybe you are right.

It is about you being a piece of shit.

There is that "arguing in good faith" you and Beebs are such champions of!

[The Minsky Moment]

Yes, I am aware of the transitional legacy costs.  Chile managed to pay them.  And one thing the Furman paper fails to mention is that they are transitional: the country has to pay them for a while, but then gets to enjoy market returns in perpetuity.

His point is the apples to oranges nature of the comparison.  If the legacy costs were wiped clean the SS system would show higher returns as well.

At the end of the day, viewed solely as a annuity program - and as Furman points out, it's more than that - social security is identical to a private annuity but with lower costs and an investment restriction that permits only investing in US treasuries.

So the case for privatization would  have to be that you can get better risk adjusted returns by investing in other things.  But EMH says you can't.  So the case against social security can only proceed if you assume that markets aren't completely efficient.  But if markets aren't efficient that reinforces the case for social security as a safe backstop.

[Sheilbh]

I mean at the time of Bachelet's reform half of Chileans had no pension, 40% were not going to reach the minimum level so only 10% had a sufficient private pension (this is not what was projected when Chile was cited as a model). Since then there's been some big reforms.

But the pension issue was a huge factor in the protests in Chile and the tbd new constitution with a strong left vote. I don't think their model is anything close to socialy or politically sustainable.

You are mixing up the accounting fiction with the reality.  There is no money to run out of.

Yeah and the sooner everyone stops pretending it's a trust fund and acknowledges it's just a pension system the better.

Zany is not a synonym for unpopular.  Zany has to have some connection to irrationality.

Okay - I'd say zany is fringe, eccentric, out of the mainstream, a bit weird. But I accept your point - your view isn't zany. It's just fringe, eccentric, out of the mainstream, a bit weird

And I would argue that the unpopularity is at least somewhat a function of the scaremongering about "the stock market casino."

Maybe. I think it's more a function of the popularity of social security - that people don't want to and don't see the need to significantly reform it.

There's broad public support for some form of public pension/social security everywhere in the world and has been since the 30s.

[Admiral Yi]

His point is the apples to oranges nature of the comparison.  If the legacy costs were wiped clean the SS system would show higher returns as well.

I got that.  And i repeat, what he fails to account for is the one-time nature of the transition.  If recipients enjoy market returns until the sun goes supernova, then it seems to me those higher returns are not wiped out by the transition costs.

At the end of the day, viewed solely as a annity program - and as Furman points out, it's more than that - social security is identical to a private annuity but with lower costs and an investment restriction that permits only investing in US treasuries.

So the case for privatization would  have to be that you can get better risk adjusted returns by investing in other things.  But EMH says you can't.  So the case against social security can only proceed if you assume that markets aren't completely efficient.  But if markets aren't efficient that reinforces the case for social security as a safe backstop.

I see a flaw in Furman's (BTW, how did he manage to get out from under that OJ cloud?) thinking.  He seems to be positing that the risk adjusted real return on zero risk Treasuries is equal to the risk adjusted real return on equities.  That is not my understanding.  My understanding is that risk adjusted return on equity is higher than that on Treasures.

[The Minsky Moment]

My understanding is that risk adjusted return on equity is higher than that on Treasures.

That can only be true if markets are inefficient and systematically misprice asset classes. 
Normally the procedure is to assume markets are efficient and calculate the risk premium for equities based on the treasury yield.  In that case the risk adjusted returns are definitionally equally.
You can certainly argue that a proper risk adjustment would show that equities are systematically underpriced as an asset class, but only by breaking with the market efficiency hypothesis.

[Admiral Yi]

That can only be true if markets are inefficient and systematically misprice asset classes. 
Normally the procedure is to assume markets are efficient and calculate the risk premium for equities based on the treasury yield.  In that case the risk adjusted returns are definitionally equally.
You can certainly argue that a proper risk adjustment would show that equities are systematically underpriced as an asset class, but only by breaking with the market efficiency hypothesis.

It can be argued that the market for Treasuries in particular is inefficient because of financial repression.

Here's another advantage of privatization that I didn't see Furman account for: it's your money and the government can't decide to claw it back.

[Jacob]

I have a few different questions re: potentially privatizing social security in the US.

1)
If Social Security is privatized, presumably the private entities involved are going to want to take profit out of the system at some point. I rather expect they'll want to maximize their profit as well, being economically rational actors. Assuming that a privatized SS can generate a higher return the current public form can (which as per MM may not be a safe assumption), do we have anything other than optimism to indicate that that excess (and potentially more than the excess), won't be eaten up by the necessity for profit on the part of the private entities involved?

2)
Privatized SS presumably will provide more choice for the recipients. My assumption is the the economically unsophisticated and the economically disadvantaged are going to be the least able to take advantage of any such choices, and are at risk for worse outcomes than then the present situation. Are there any plans for designing this hypothetically privatized SS scheme such that the economically vulnerable do not end up worse off than they are now? Or is this an acceptable or even intended side effect of privatizing SS?

3)
The US has another system in private hands that is typically public elsewhere - the health care system.  Are there any useful lessons that can be drawn from that implementation to be applied to a hypothetical privatized SS?

[Admiral Yi]

1.  Competition.  Wealth management firms charge around 1% of total assets to make decisions for you.  Online brokerages charge nothing for trades.

2.  That's a real moral hazard.  Do you prohibit people from putting all their money in Dogecoin?  I don't know the answer to that.

[alfred russel]

There is a real benefit to socializing retirement savings. On average we may live to 80 and need savings to cover 15 years of retirement. But we have a risk of living to 100, and may not make it to retirement at all.

So an individual needs to either save enough to last 30 years, or risk running out of funds. But if we all pool our risk, it is only 15 years.

Of course social security is primarily a pay as you go system, without savings, but that principle shouldn't be forgotten.

[The Minsky Moment]

It can be argued that the market for Treasuries in particular is inefficient because of financial repression.

Anything can be argued; what is the evidentiary support?  There are no capital controls or interest rate caps in the US.

Here's another advantage of privatization that I didn't see Furman account for: it's your money and the government can't decide to claw it back.

An argument that makes no sense in a pay as you go system.  There are no accounts and no money that an individual can claim to own.

Stepping back, I think we are at risk of talking past one another because at the heart of the argument is different conceptions about what the objective of social security is and what problem it is seeking to redress. 

[The Minsky Moment]

2.  That's a real moral hazard.  Do you prohibit people from putting all their money in Dogecoin?  I don't know the answer to that.

On second thought, maybe we are talking about the same thing after all.

[alfred russel]

It isn't about me being brilliant. You and MM disagree with me. Good for you; maybe you are right.

It is about you being a piece of shit.

There is that "arguing in good faith" you and Beebs are such champions of!

I was talking to MM and (I think DGuller) about legislative strategy, and you come after me with a bunch of posts about my motives with some fascist allusions, but then accuse others of bad faith when they call you on it!

[Admiral Yi]

Anything can be argued; what is the evidentiary support?  There are no capital controls or interest rate caps in the US.

The evidentiary support is the accounting of Treasuries when calculating financial institution capital ratios and the requirement to post Treasuries as collateral when borrowing at the Fed's discount window.

An argument that makes no sense in a pay as you go system.  There are no accounts and no money that an individual can claim to own.

wut? That's exactly the thing I pointed out as a relative weakness of Social Security.

[The Minsky Moment]

Anything can be argued; what is the evidentiary support?  There are no capital controls or interest rate caps in the US.

The evidentiary support is the accounting of Treasuries when calculating financial institution capital ratios and the requirement to post Treasuries as collateral when borrowing at the Fed's discount window.

The latter is not true: https://www.frbdiscountwindow.org/pages/collateral/discount%20window%20margins%20and%20collateral%20guidelines

Risk weighting of bank capital comes from the Basel framework - the treatment of treasury securities seems reasonable to me. What is the argument that it distorts asset pricing?

[viper37]

I have a few different questions re: potentially privatizing social security in the US.

1)
If Social Security is privatized, presumably the private entities involved are going to want to take profit out of the system at some point. I rather expect they'll want to maximize their profit as well, being economically rational actors. Assuming that a privatized SS can generate a higher return the current public form can (which as per MM may not be a safe assumption), do we have anything other than optimism to indicate that that excess (and potentially more than the excess), won't be eaten up by the necessity for profit on the part of the private entities involved?

2)
Privatized SS presumably will provide more choice for the recipients. My assumption is the the economically unsophisticated and the economically disadvantaged are going to be the least able to take advantage of any such choices, and are at risk for worse outcomes than then the present situation. Are there any plans for designing this hypothetically privatized SS scheme such that the economically vulnerable do not end up worse off than they are now? Or is this an acceptable or even intended side effect of privatizing SS?

3)
The US has another system in private hands that is typically public elsewhere - the health care system.  Are there any useful lessons that can be drawn from that implementation to be applied to a hypothetical privatized SS?

1) it would need to be a lot of small actors involved to avoid that.

as per your point 3, I think there will be an eventual consolidation for the market, negating the benefits of privatization.  and as per point 2, it would require govt intervention anyway...

Unless I am mistaken about what soc sec represents in the US, I just don't see the benefit of privatization for something designed to provide the bare minimum.