To listen to the lecture, click here.
President Bush separates two issues: privatization and viability
"Ownership Society"
pros: might encourage more saving; might encourage more work; builds on success of 401(K) plans; investment options limited to low-risk funds; reduce reliance on regressive payroll tax, particularly to pay for transition
cons: transitional deficit; risk of poor investment performance; intense opposition
alternative: add-on accounts; potential compromise, never got traction
Changing from wage indexing to price indexing
wage growth = inflation (price growth) plus productivity growth
Slows growth of benefits, particularly when productivity growth is high (but then you may not need to slow them)
retirement age never on the table--Gore in 2000, AARP in 2005
proportion of work force engaged in physical labor is about 20 percent and falling
alternatives: tax increases now--did not work when tried before; tax increases or benefit cuts later; pray for productivity
outlook: political situation appears hopeless, economic outlook promising in terms of productivity, alarming in terms of longevity