Jason Fichtner is a mainstream Republican economist specializing in retirement issues. He worked at Social Security during the George W. Bush Administration. He's been associated with the Mercatus Center, a Koch brothers financed think tank. He's recently put out a "White Paper" on Creating A New Retirement Security Framework. Fichtner identifies real problems. Traditional defined benefit retirement plans are going, going, gone. People aren't saving much for retirement. The money they do save isn't generating much safe retirement income because interest rates are so low. Annuities would help some but people are suspicious of them. Delaying going on Social Security would help but most folks don't wait until full retirement age much less until age 70. Social Security has long term financing problems. What are Fichtner's solutions: Try harder to persuade people to delay going on Social Security retirement benefits and try harder to persuade people to use annuities for retirement income.
I think that Fichtner's solution to the problems he identifies are completely inadequate. In fact, I'd call them almost useless. We're not going to change people's retirement behavior in fundamental ways. People already have plenty of encouragement to retire later but they just don't want to. If people don't like annuities, they don't like annuities. You're not going to harangue people into liking annuities.
I see only one workable solution to the problems that Fichtner identifies -- beef up Social Security. Improve its long term financing. Increase its benefits significantly. That would work. Why can't Fichtner bring himself to mention improving Social Security even as a possibility? The man has on right wing blinders. He can't see the obvious because it doesn't fit into his ideology.
7 comments:
An idea that has been around since the Johnson Administration - allow people to buy an annuity from Social Security. It will never happen because insurance companies would never let it get through Congress. As for the trust funds "running out" by the time that happens, up to a quarter of benefits will already be paid from general revenues. Rather than cut 60+ million people's benefits by 25%, throw millions into poverty and cause an immediate, deep recession, Congress will eventually decide that general revenue financing of 25% of Social Security is not such bad idea. We already do it for Part B of Medicare and the world did not end.
The Koch Brothers were always more libertarian than conservative. Libertarian ideology is maximum freedom, government limited to courts, police and national defense and the free market controlling almost everything else. With a philosophy like that, you don't want to improve Social Security, you want to get rid of Social Security.
The Social Security program is popular despite the fact that it limits freedom. It is a forced retirement program and that is why it works. If 99% of people saved enough for retirement, we would not need Social Security. But that has never happened and it won't happen just by enacting libertarianism into law. The answer is enhancing Social Security benefits even if it means higher contributions. But don't look for this kind of proposal from a Koch Brothers outfit. They have their ideology. Don't confuse them with reality.
The problem with "Annuity Fichtner" 's approach is the vast number of annuities that would be involved.
Annuities are based upon a fixed-size universe of financial assets available for purchase/sale by the annuity seller (i.e. for instance, take listed company stocks, there were about 7,500 in 1998, but the market has contracted to only about 3,800 today due to consolidation/business failures, and a lot of the existing ones aren't worth much more than the paper they are printed on). With the current numbers of annuitants, the annuity system works because there are enough assets available at a low enough purchase price which are able to produce sufficient income to support the annuities sold while still enabling the seller to make a profit (assuming the seller does a good job managing the underlying assets, which isn't always the case).
However, dump 100+ million people in an annuity system and the calculus vastly changes. That fixed universe of assets (now only about 3800 stocks, for instance) is insufficient in size or scope to produce enough income to support that number of individual annuitants. The cost of the supporting assets will end up being vastly and artificially inflated, resulting in inflation in the cost of each annuity to the system. Further, the annuity system will be subject to expansion/contraction of the economy which it is only a little now.
In short, the annuity system ends up in the same mess that Social Security is now - not anywhere enough money to pay the promised benefits to annuitants.
The problem with "mainstream Republican economist" Jason Fichtner is that he's not an economist. Although he may have once served as SSA's Senior Economist he has no degree in economics. A political science BA in political economy doesn't cut it. Now he's just a shill for the annuity market which is just part of the insurance industry.
@7:39
Interesting. I have a political science degree and I can confirm I did not take any economic classes, at all, unless you count 1 course of statistics... which I passed, barely.
@9:01: You totally nailed it!
@7:39
Jason Fichtner was Michael Astrue's pocket economist. I think his official title may have been "Chief Economist" as a jab at Steve Goss, the "Chief Actuary," whose "Lead Economist" Pat Skirvin was an intellectual giant in comparison to Fichtner and an actual Economist.
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