Pennsylvania’s Republican senate nominee, former Rep. Pat Toomey, has been going to great lengths to reassure everyone that his plan to privatize Social Security will not, in fact, be detrimental to the program. In fact, Toomey denies that his plan involves privatization at all (even though it very clearly calls for the creation of personal investment accounts, which is privatization).
Last night, during an interview with Ted Koppel, Toomey said that there’s no reason to be concerned with the creation of private Social Security accounts, as long as you’re “bullish on America”:
Koppel also pushed back on Toomey’s long-standing and somewhat controversial stance on allowing American employees to invest their Social Security privately. Koppel pressed that if President George W. Bush had been successful in getting such a plan through, people would have lost their savings during this recession. “The big question is whether you’re bullish on America,” Toomey said. “If you think in the long run that America is not going to grow, is not going to thrive, then you should be worried about this approach.”
As my colleague Ian Milhiser has noted, “privatization imposes significant new risks on seniors, while creating new administrative costs and forcing benefit reductions. Yet despite being a riskier, less beneficial program for seniors, it also will cost more money than the present system.” And even if you’re bullish on America, the fact of the matter is that investments and the stock market go up and down, which is precisely the kind of uncertainty that we don’t want to inject into senior’s retirements.
As CAP economist Christian Weller wrote in 2005, long before the market turmoil of 2008, “while the market has increased on average by over 6 percent over the past 75 to 100 years, it has also seen extended periods in which rates of return were well below or above that…At its lowest point, it had an average rate of return over 35 years of 3 percent over inflation. Individual account holders would lose money under this scenario.” If the U.S. stock market had behaved like the Japanese market during the life of a 2008 retiree, a private account would have lost $70,000.
And, of course, the financial meltdown of 2008 should have been the final nail in privatization’s coffin, as someone retiring that year would have seen $26,000 vanish right then and there.
These numbers have nothing to do with being bullish; they’re simply calculations made from market behavior that the country has already experienced. Unless Toomey has a super-secret plan for guaranteeing market stability — which, given his pride in having deregulated risky financial instruments, I’m betting he doesn’t — Toomey is asking seniors to trust in a system that can’t deliver.