Confounding the Confused

The wife of future First Lady Bill Clinton tries it again:

WASHINGTON - Sen. Hillary Rodham Clinton, who last month suggested giving $5,000 "baby bonds" to every child born in America but later backed away, called yesterday for a new retirement plan that would boost individual savings with federal tax credits.

Clinton's plan would match the first $1,000 of retirement savings for families making up to $60,000 per year. The proposal would provide a 50 percent match for families making between $60,000 and $100,000.

"I believe that if you work hard and contribute to our country, you should have the opportunity to save and invest," Clinton said during the last of a four-day campaign swing through Iowa.

It's a strange mindset that presumes that it takes a government program to give people "the opportunity to save and invest." Hell, I thought we had banks in this country. But what I really like about her plan* is the outrage toward it at the Democratic Underground, many of whose denizens think that it's a) simply a ploy to boost the stock market or b) that it sounds like a Republican plan.

And while they may or not be correct that it is a "ploy," it certainly would boost the stock market. Any time you encourage more people to invest in stocks that is bound to happen. And it *does* sound like a Republican plan. It is, in fact, the partial privatization of Social Security. It's just done too stealthily for most to see it.

Work with me here a second:

The "real" inflation rate is at least three times the government's reported numbers. They exclude food and energy (food prices are increasing at a tremendous rate, oil prices are at an all-time high) and for the most part housing. For what is left government statisticians apply hedonic** price adjustments to trim the increase.

But SocSec increases (including distributions, which are gauged proportionally to how much one contributed but unadjusted for inflation) are based on the phony-baloney number, which means that as the years pass, Soc-Sec gets smaller and smaller relative to the actual money it costs to eat. It is also actuarially unsound, demanding that if current promises are to be kept the government must eventually break either the promises through means-testing, the economy through taxation, or the dollar through inflation.

So to avoid that triple-cross, Hillary would create a mobile 401(k) that would provide everyone with similar retirement income that would probably grow faster than SocSec monies. But it could still be counted a government benefit. It is functionally the same as GWB's SocSec plan, except that he made the mistake of calling it part of SocSec. Hillary's plan simply replaces SocSec while pretending it's still whole.

So as the years pass, SocSec begins to fade out, replaced by an individually-directed***, non-benefit-defined accounts. No wonder those at the Democratic Underground hate it, even if they don't understand it.

* Not that I particularly like the plan itself. It would be far easier and safer to simply eliminate taxation of interest and then stop driving interest rates to sub-market levels.

** Their word, not to be confused (too much) with hedonistic.

*** within government-approved bounds, i.e. the stock and bond markets, but one can still get around that by purchasing ETFs or royalty trusts as I do in mine.