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 problems with privatization and misleading privatization arguments. Logical fallacies and economic concepts are presented in a Socratic discussion.

Steve Baba features 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 may be read on line 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 if you are in the center of nowhere.

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

Economist: They handed me some brochures on privatization when I walked in. Unfortunately, it? s mostly sound bites and, without 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 will? 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 very happy to have their Social Security privatized.

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

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

Cowboy: In Texas, being so happy about money that 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, some people will profit immediately.

Cowboy: Let me guess, one is Wall Street.

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

Cowboy: Who else will immediately make money from privatization?

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

Cowboy: The buying price of 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 price tag on stock rises, Paris Hilton as well as other millionaires will benefit immediately. They need to put an image of Paris Hilton on the privatization brochures.

Cowboy: Will Paris Hilton buy our stock right back at a higher price in two decades whenever we retire?

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

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

Economist: It will be means less for ordinary people? unless the economic pie grows. But there's 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 because of its audacity. This foundation says that it? s a? violation of family values? if you can die at 64 and your family gets nothing from all the Social Security payments you made all your life.

Cowboy: Well, basically die at 64, my children gets my land. I'd guess that most people would leave their property and other assets to their family if they die at 64. Those without assets or people that have young children should buy 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 will be nice if my children got a supplementary few hundred thousand dollars if i died before my 65th birthday. But wait, who is going to pay the excess thousands of dollars to my loved ones? the hundred thousand dollars that would go to other beneficiaries? It seems like the building blocks is trying to sell me a free lunch. Aren? t conservatives usually against free handouts?

Economist: I do believe the inspiration would argue that it? s not a government handout, since it might be a return of your Social Security money? but that still leaves less cash in the system for others.

Economist: If you die at 65, irrespective of being dead, you are also out of luck in 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 aim of Social Security just isn't to supply inheritances to younger generations.

Economist: But this added inheritance? life insurance coverage? plan just isn't even a good life insurance coverage plan, since a family group with a younger father, say 30 years 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 got probably already supported his family.

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

Economist: Yes, the private, free market has a competitive life insurance coverage market? but that isn't stopping privateers from offering free insurance.

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

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

Economist: It? s going to originate from the? magic? of compound interest, and we all have been going to get full of 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 personel 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 another generation? but you still have to pay for double. Doesn? t that produce you happy, that you can pay double, and the government will thanks 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 get out of 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 will pay the interest and pay it off slowly. In either case, you will find transition costs if you switch systems.

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

Cowboy: But if we switch to a private system?

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

Cowboy: I want to fully grasp this right, if we continue with the pay-as-you-go system we not have to cover the transition cost?

Economist: In place we roll on the obligation in one generation to another location.

4. The price of risk

Economist: There was another cost? that could informally be called the cost 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 willing to pay to prevent risk. Suppose there have been two possible retirement plans:

Plan A: $1000 per month guaranteed.

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

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

Economist: The economic reason behind taking the less risky option will be? risk adverse? due to the? law of decreasing marginal utility of income.?

Cowboy: OK, if you say so, nonetheless it? s been a couple of years since i was in college.

Economist: Suppose I changed the plans to:

Plan A: $1000 monthly guaranteed.

Plan B: $800 per month if the stock market is low once you retire (50% of time) or $1300 monthly if the stock exchange is high once you retire (other 50% of time).

which matches before except $1, 300 monthly could be the good result.

Cowboy: I would just take the gamble for $1300, but it might be a detailed, hard decision. I might definitely go for $1400.

Economist: Lets say it? s $1300. You get $800 if industry is low and $1300 if industry is high, an expected value of $1050, but you would be just like happy with $1, 000 for certain.

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

Economist: To make you as happy as you would be with a sure $1, 000, you will need an expected risky reunite of $1050? which the market would need to pay you simply to put you back to your original utility or happiness.

{5}. African-Americans and the price of annuities? The insurance provider? 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 cash after retirement than a similar white individual who made the same Social Security contributions while working. But African Americans benefit from the slight progressiveness of Social Security and benefit from disability and survivorship benefits. I haven? t looked over the studies at length, but the others have argued that African Americans get a better deal overall.

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

Economist: Yes, I will be not a medical doctor, but there may be genetic differences, which we could? t change. As an example, women live longer than men.

Cowboy: Should African Americans have more on a monthly basis once they retire because they are likely to die sooner?

Economist: Private insurance companies will provide African Americans with larger monthly payments, since normally African Americans will collect fewer payments by dieing faster, which raises a great point: When people retire at age 65, they need to buy an annuity for monthly payments the remainder of their lives.

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

Economist: An insurance carrier will simply take its cut, and you will find expenses in trying to sell the annuities. I've seen figures that it costs private insurance companies 15% to 20%, but with a larger government program? it might be possible to get this right down to 12%. Twelve percent is what Cato uses for his or her 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 buy bonds, do the actuary work, and 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 as long as females.

Cowboy: Aren? t private insurance providers going to give less monthly to women since women live longer?

Economist: In a free market actuarial system, white women will receive less each month. Did you every see the amount 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 people to buy annuities if they reach 65 and retire, many people will outlive their savings? and public welfare will end up paying.

Cowboy: But let's say many people can pay for, say $2, 000, 000 in the bank and won? t be described as a burden to ordinary people?

Economist: An individual with $2, 000, 000 in the bank shouldn't turn into a burden to us? assuming they don? t gamble it away in Vegas or on risky stocks, but there are other reasons for making everyone buy an annuity.

Economist: Suppose you were sick when you retire at 65, and the doctor told you five years was probably the most you had to live. Could you buy an annuity?

Cowboy: No, I'd live off my savings for five years and leave the remainder to my family.

Economist: Right, you'll do that avoid leaving your money to an insurance company. But if everybody else who was likely to die soon did this?

Cowboy: Only ab muscles healthy people would buy annuities.

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

Economist: But let's say you were sick and the government made you get an annuity?

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

Economist: Exactly, insurance companies begins screening people and profiling people. Health insurance companies want healthy clients who've lower medical bills. In contrast, annuity companies want unhealthy clients simply because they can stop making the monthly obligations once the client dies.

Cowboy: It sounds a little macabre if you ask me.

Economist: We're able to require a one-rate for all, which would 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 to buy an annuity at 65.

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

Economist: Suppose you're in the hospital at age 64, several days in short supply of your 65th birthday.

Cowboy: If i die before I'm 65, my children reaches inherit, while easily die on my birthday or later, I obtain the annuity for a few days? several dollars.

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

Cowboy: I'm strongly, but not absolutely, against suicide, but if one is very ill and my children can inherit? it? s something to consider. If it were a matter of a few days, I may stop treatment early.

Economist: By dying a few days earlier, you can give your loved ones a couple of extra hundred thousand dollars. Let's say it were 2-3 weeks, a couple of months, or a year?

Cowboy: It does not seem right at all. What if we changed age to 66?

Economist: Then you definitely would have the same problem at 66: die before your 66th birthday or lose cash.

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

Economist: I really do not think or wish to imply privateers are and only throwing people from trains. It? s an unintended consequence. I don? t even believe most privateers are liars, just great at political bullshit.

The FREE eBook could be read on the web at http: //www. socialsecuritybullshit. com and covers the following 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 cost of risk

? African-Americans and the price of annuities? The insurance provider? s cut.

? Let's say we don? t require people to buy annuities?

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

? All or Nothing Fallacy: Privatization or Bankruptcy

? False Analogies

? The false analogy that what is good for a person will work for everybody else: The Fallacy of Composition

? Free Lunch? Just eliminate wasteful government programs.

? If wasteful government spending might be cut, it could also be cut to save lots of the existing Social Security system.

? Corporate bonds and starving the beast (government)

? Let? s All Get Rich in the Currency markets

? Diminishing Marginal Productivity: Diminishing Profits

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

? Money is a veil.

? You can cut costs, however, you can? t save most goods. You are able to? t carry your retirement on your back to avoid burdening future generations.

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

? Appeals to Authority and Personal Attacks

? Present only selective facts. Half the story.

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

? Less Government is much better Generalization

? More Choice is way better Generalization

? Choice has more search costs

? Using charts to produce Social Security look bankrupt.

? Big Scary Numbers

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

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

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

? Gaming the device and Bailing Out the Currency markets Losers

? Ownership without any insurance discourages entrepreneurial risk taking.

? Growing our way from the problem.

? Taxophobia

? You have no rights to Social Security. Scare Tactics

? Leave if you want? but guarantee you won? t be described as a burden. The Slippery Slope.

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

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

? The use and misuse of opinions and forecasts: attempting to own it both ways

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

? Ten Point Summary

Read the entire eBook free of charge today at http: //www. socialsecuritybullshit. com
Impressive & Clear original Alien/devil photos commented by Jaime Maussan