Monday, November 08, 2004

Privatization, Not Reform

First, oh media, please call it what it is. It's not "reform," it's "partial privatization." Or, at least, that's what we assume it is. There isn't actually a proposal on the desk, and nor was there one during the campaign.

But, in any case, the mutual funds are already squealing about the fact that administrative costs on low-dollar accounts would be high and non-profitable. Lovely.

NEW YORK (Reuters) - The bonanza many believe President Bush has handed the mutual fund industry with his plans to reform Social Security may be a mirage, industry leaders say.

How workers will be allowed to invest some of their payroll taxes in the stock market is far from clear, but there is a presumption it will be windfall for an industry that manages the nest eggs of about 95 million Americans.

The administrative costs for managing accounts that for the most part will hold less than $1,000 in the first year suggests mutual fund companies could easily lose money for at least several years, industry experts said.

Assuming the magic "2%" proposal is what happens, although something "bolder" could be in the works, someone earning $40,000 per year is going to be putting just $800 per year into one of these accounts.

But, more generally, this could be the most important domestic economic policy debate of our generation. And, it's going to be a lot more complicated than simply "should workers be allowed to divert 2 percentage points of payroll taxes into private accounts." While I hold my position that this is a universally bad idea, just how bad it is will depend on the details. And, there will be lots and lots and lots and lots of details. Sadly, our media will not be up to the job of informing people just what those details are.