ALIENS OUT & ABOUT

Social Security BullShit A Socratic Discussion With A Texas Cowboy At McDonald? S

Using non-technical language and a dialogue format, this short ebook explains the difficulties with privatization and misleading privatization arguments. Logical fallacies and economic concepts are presented in a Socratic discussion.

Steve Baba has a Ph. D. in Economics from the University of Maryland at College Park and contains taught economics in the united states, Europe and Asia.

The FREE eBook can be read on the web at http: //www. socialsecuritybullshit. com nevertheless the first chapters are reprinted below.

1. Introduction? Family Values and Paris Hilton

Economist: This McDonald? s sure seems busy for being in the middle of nowhere.

Cowboy: President Bush is having a town meeting on Social Security privatization. Supporters plus some demonstrators are here.

Economist: They handed me some brochures on privatization when I walked in. Unfortunately, it? s mostly sound bites and, while not outright lies, bullshit.

Cowboy: They handed me some brochures also. Some of it is obviously bullshit, wrapping oneself in the flag, family values and call one other side names, but I could? t tell if the economics is bullshit or maybe not.

Economist: Understand this nice picture of a happy, smiling family in this privatization brochure? parents, children, and grandma? all happy to have their Social Security privatized.

Cowboy: They look like they just received huge checks from their private accounts.

Economist: But people purchasing private accounts will not receive Social Security checks for decades.

Cowboy: In Texas, being so happy about money this one might earn in 2040 is counting your eggs before they hatch, but they are most likely just models in the photograph.

Economist: If Social Security is privatized, many people will profit immediately.

Cowboy: Let me guess, one is Wall Street.

Economist: Wall Street will make money using handling everyone else? s retirement money. But to be fair, most supporters of privatization, privateers as I love to call them, realize this you need to include these brokerage costs inside their estimates.

Cowboy: Who else will immediately benefit from privatization?

Economist: If people start investing Social Security money in stocks, such as Hilton Hotel stock, what do you think may happen to the price of Hilton Hotel stock?

Cowboy: The price tag on Hilton Hotel stock will rise.

Economist: And who owns Hilton Hotel stock?

Cowboy: Paris Hilton, the Hilton Family, corporate executives, as well as other investors.

Economist: As the buying price of stock rises, Paris Hilton as well as other millionaires will benefit immediately. They ought to put an image of Paris Hilton on their privatization brochures.

Cowboy: Will Paris Hilton buy our stock right back at a higher price in twenty years when we retire?

Economist: It? s highly unlikely that millionaires will fund Social Security by trying to sell stock low and purchasing stock high. But it? s a fairly long and complex question.

Cowboy: But if millionaires and Wall Street will profit immediately, aren? t ordinary people going to have less?

Economist: It will be means less for average folks? unless the economic pie grows. But there are also more costs of a privatized Social Security.

2. grants for single mothers for families and claim the moral high ground of family values.

Economist: This looks interesting for the audacity. This foundation says that it? s a? violation of family values? if you can die at 64 as well as your family gets nothing from all the Social Security payments you made your entire life.

Cowboy: Well, easily die at 64, my children gets my land. I'd reckon that most people would leave their house along with other assets to their family when they die at 64. Those without assets or people that have young kids can buy term life insurance.

Economist: But wouldn? t it be nice if you could give your entire Social Security to your family if you died at 64?

Cowboy: Yes, it might be nice if my family got an additional few hundred thousand dollars if i died before my 65th birthday. But wait, who is going to pay the extra thousands and thousands of dollars to my loved ones? the hundred thousand dollars that could go to other beneficiaries? It sounds like the foundation is trying to sell me a free of charge lunch. Aren? t conservatives usually against free handouts?

Economist: I believe the foundation would argue that it? s not just a government handout, since it will be a return of one's Social Security money? but that still leaves less overall in the system for the others.

Economist: If you die at 65, irrespective of being dead, you are also out of luck for the reason that you paid Social Security your entire life. But what if we live to 95?

Cowboy: We have been here eating lunch at McDonalds and so i don? t know if we will live to 95, but if we do, we will get years of Social Security checks.

Economist: The goal of Social Security is not to offer inheritances to younger generations.

Economist: But this added inheritance? life insurance? plan just isn't a good good term life insurance plan, since a family with a younger father, say 30 yrs . old, needs more to get his children through school, and there is unlikely to be much money saved while working in his twenties. While if your person dies at 64, he's probably already supported his family.

Cowboy: Doesn? t the private market already sell life insurance coverage?

Economist: Yes, the private, free market comes with a competitive life insurance market? but that's not stopping privateers from offering free insurance.

Economist: Introducing phrases like? violation of family values? is logical fallacy called attracts emotion.

Cowboy: Let me fully grasp this straight, Wall Street gets money for stock brokering, the Paris Hiltons of the world will get money from the increase in stock prices, and the groups of everyone who dies before 65 will inherit money. Where is this money going to result from?

Economist: It? s likely to originate from the? magic? of compound interest, and many of us are going to get abundant with the currency markets. (Laughing) But, seriously, I'm getting there.

3. Transition Costs? Paying Double

Economist: Along with Paris Hilton, other millionaires, Wall Street, and families that inherit, there are also the transition costs of paying today? s retirees, as well as saving for your own retirement.

Cowboy: But here it says that the transition costs are offset however the lowering of future obligations.

Economist: Technically it? s true that if you and our generation pay double, the government will not need to pay the next generation? but you still have to cover double. Doesn? t that make you happy, that you can pay double, and the government will thank you for lowering the us government? s future obligation to retirees in 2150?

Cowboy: I don? t care that much about retirees in 2150. How can i escape paying double?

Economist: Most privatization plans will borrow trillions for the transition to prevent paying double.

Cowboy: But won? t I find yourself paying interest on the money?

Economist: Yes, if you don? t pay double immediately, you, society can pay the interest and pay it back slowly. Either way, you will find transition costs if you switch systems.

Economist: But if we continue with a pay-as-you go system, we not have to repay it completely. In effect, we will continue to owe every 65-year-old. They eventually expire but are replaced by new retirees.

Cowboy: But if we switch to a private system?

Economist: If we switch to a private system, we need to repay all the current those who have contributed to the old system and save for our own retirement.

Cowboy: Let me understand this right, if we carry on with the pay-as-you-go system we not have to cover the transition cost?

Economist: Essentially we roll within the obligation from generation to another.

4. The expense of risk

Economist: There is another cost? which may informally be called the expense of risk? which privateers have largely ignored, nevertheless the risk may be the most vocally expressed complaint about privatization.

Cowboy: I don? t like risk, but what does risk cost me?

Economist: You don? t get a bill in the mail for risk, but people are prepared to pay to prevent risk. Suppose there were two possible retirement plans:

Plan A: $1000 each month guaranteed.

Plan B: $800 per month if the stock market is low when you retire (50% of time) or $1200 each month if the stock market is high once you retire (other 50% of time).

Cowboy: I might simply take the guaranteed $1000 per month. Living with $200 less, only $800 per month, will be a lot harder and never compensated by the possibility of $200 extra.

Economist: The economic basis for taking the less risky option is being? risk adverse? due to the? law of decreasing marginal utility of income.?

Cowboy: OK, if you say so, however it? s been many years since i have was in college.

Economist: Suppose I changed the plans to:

Plan A: $1000 each month guaranteed.

Plan B: $800 monthly if the currency markets is low whenever you retire (50% of time) or $1300 monthly if the stock market is high whenever you retire (other 50% of time).

which is the same as before except $1, 300 monthly could be the good result.

Cowboy: I may simply take the gamble for $1300, but it would be a detailed, hard decision. I'd definitely go on it for $1400.

Economist: Lets say it? s $1300. You obtain $800 if the market is low and $1300 if the market is high, an expected value of $1050, but you would be just as pleased with $1, 000 for sure.

Cowboy: They sound the same but someone is paying $50 more. Somebody must be paying $50?

Economist: In order to make you as happy as you would be with a sure $1, 000, you will need an expected risky get back of $1050? that your market would need to pay you simply to place you back to your original utility or happiness.

{5}. African-Americans and the price of annuities? The insurance company? s cut.

Cowboy: Here it says that African Americans are cheated by the Social Security.

Economist: It? s true that African Americans die sooner after retirement and receive less money after retirement than a similar white one who made the same Social Security contributions while working. But African Americans take advantage of the slight progressiveness of Social Security and take advantage of disability and survivorship benefits. I haven? t looked at the studies at length, but the others have argued that African Americans receive a better deal overall.

Cowboy: Shouldn? t we attempt to equalize healthcare so African Americans live longer?

Economist: Yes, I am not really a medical professional, but there may be genetic differences, which we are able to? t change. For example, women live longer than men.

Cowboy: Should African Americans get more on a monthly basis when they retire because they are prone to die sooner?

Economist: Private insurance companies will give you African Americans with larger monthly payments, since on average African Americans will collect fewer payments by dieing faster, which introduces a great point: When people retire at age 65, they should buy an annuity for monthly obligations the others of their lives.

Cowboy: Isn? t an insurance carrier going to simply take its cut?

Economist: An insurance carrier is going to just take its cut, and there are expenses in trying to sell the annuities. I have seen figures that it costs private insurance providers 15% to 20%, but with a larger government program? it could be possible to get this right down to 12%. Twelve percent is what Cato uses for their estimates.

Cowboy: Twelve percent is really a huge cut of my retirement! Twelve percent is really a huge cut of anyone? s retirement!

Economist: An insurance or other company selling annuities has to invest in bonds, do the actuary work, and simply take the chance that individuals live longer than expected. There are real costs.

Economist: This is why white males often earn low returns with Social Security: males don? t live provided that females.

Cowboy: Aren? t private insurance companies going to give less per month to women since women live longer?

Economist: In a free market actuarial system, white women will receive less per month. Did you every see the number of women in comparison to men in a retirement home?

Cowboy: I don? t see privateers emphasizing that women will receive less in these brochures.

{6}. Imagine if we don? t require people to buy annuities?

Economist: If we don? t require visitors to buy annuities once they reach 65 and retire, lots of people will outlive their savings? and public welfare can become paying.

Cowboy: But let's say some individuals have enough money, say $2, 000, 000 in the bank and won? t be considered a burden to the rest of us?

Economist: A person with $2, 000, 000 in the bank shouldn't become a burden to us? assuming they don? t gamble it away in Vegas or on risky stocks, but you can find other reasons for making everyone buy an annuity.

Economist: Suppose you had been sick whenever you retire at 65, and the doctor told you five years was probably the most you'd to call home. Would you buy an annuity?

Cowboy: No, I might live off my savings for five years and leave the rest to my children.

Economist: Right, you'll do this avoid leaving your cash to an insurance provider. But if everyone else who had been more likely to die soon did this?

Cowboy: Only the very healthy people would buy annuities.

Economist: In economics, this is known as? adverse selection.?

Economist: But what if you're sick and the government made you purchase an annuity?

Cowboy: I'd go to the insurance company, bring my medical reports, and say, I will be sick and likely to die. You'll have to pay me less, so I want to pay you less.

Economist: Exactly, insurance companies will start screening people and profiling people. Medical health insurance companies want healthy clients that have lower medical bills. In comparison, annuity companies want unhealthy clients because they can stop making the monthly payments when the client dies.

Cowboy: It sounds a little macabre in my experience.

Economist: We're able to need a one-rate for everybody, which will eliminate this costly screening and profiling.

Cowboy: Isn? t that what Social Security already does?

Economist: There is also another problem with inheritability and requiring everyone else to purchase an annuity at 65.

7. Throw Yourself From the Train at 64 as well as your family can inherit.

Economist: Suppose you might be in the hospital at age 64, several days lacking your 65th birthday.

Cowboy: Easily die before I'm 65, my children gets to inherit, while easily die on my birthday or later, I have the annuity for some days? a few dollars.

Economist: That is a rather strong incentive to die before you are 65.

Cowboy: I am strongly, although not absolutely, against suicide, but if one is very ill and my loved ones can inherit? it? s something to consider. If it were a matter of a few days, I would stop medical treatment early.

Economist: By dying several days earlier, you might give your family several extra hundred thousand dollars. What if it were 2-3 weeks, a couple of months, or perhaps a year?

Cowboy: It doesn't seem right at all. What if we changed age to 66?

Economist: Then you definitely might have the same problem at 66: die before your 66th birthday or generate losses.

Cowboy: In addition to being macabre, it does not seem fair. Some people would get to leave an inheritance and others wouldn't. What if someone threw mamma from the train, as in the movie?

Economist: I really do not think or desire to mean that privateers are in support of throwing people from trains. It? s an unintended consequence. I don? t even think that most privateers are liars, just great at political bullshit.

The FREE eBook can be read on the web at http: //www. socialsecuritybullshit. com and covers the next topics:

? Introduction? Family Values and Paris Hilton

? grants for single mothers for families and claim the moral high ground of family values.

? Transition Costs? Paying Double

? The price of risk

? African-Americans and the expense of annuities? The insurance company? s cut.

? What if we don? t require visitors to buy annuities?

? Throw Yourself From the Train at 64 and your family can inherit.

? All or Nothing Fallacy: Privatization or Bankruptcy

? False Analogies

? The false analogy that what will work for someone is wonderful for everyone: The Fallacy of Composition

? Free Lunch? Just eliminate wasteful government programs.

? If wasteful government spending could be cut, it could also be cut to save the present Social Security system.

? Corporate bonds and starving the beast (government)

? Let? s All Get Abundant with the Stock market

? Diminishing Marginal Productivity: Diminishing Profits

? Regression to the mean and other hazards of using past trends.

? Money is a veil.

? You are able to spend less, however, you can? t save most goods. It is possible to? t carry your retirement in your back to avoid burdening future generations.

? Aliens (foreigners, not space aliens) will buy our stock and produce our goods

? Interests Authority and Personal Attacks

? Present only selective facts. Half the story.

? The magic of compound interest isn't interest and is maybe not magic.

? Less Government is better Generalization

? More Choice is better Generalization

? Choice has more search costs

? Using charts to make Social Security look bankrupt.

? Big Scary Numbers

? Privatization is always better generalization. Privatize the complete government?

? Individuals make smarter investment decisions than government: requires separation of government (social security) and stock exchange.

? The externality of having your mother-in-law live with you.

? Gaming the machine and Bailing Out the Stock market Losers

? Ownership without any insurance discourages entrepreneurial risk taking.

? Growing our way out of the problem.

? Taxophobia

? You have no protection under the law to Social Security. Scare Tactics

? Leave if you'd like? but guarantee you won? t be a burden. The Slippery Slope.

? Leave if you would like? but pay your share of the transition costs before you leave.

? The employment and misuse of polls. Everyone wants more for less.

? The utilization and misuse of opinions and forecasts: trying to own it both ways

? The present Social Security System: the worst system except for all others?

? Ten Point Summary

See the entire eBook free of charge today at http: //www. socialsecuritybullshit. com
Law breaking immigrants to bankrupt US Social Security?