Friday, April 28, 2006

Lessons

This Tuesday in Sean's class, a man named John Cogan came to speak. I honestly hadn't ever heard of this person before, not surprisingly as I am a political ignoranus (as Ali G would say), but he is apparently a big deal. Here is why: he was on the President's Commission to Strengthen Social Security, and he's been named one of the top 6 most influential people in social security reform, and he's basically the kind of guy who can call up Dubya any ol' time and say hey, what up g. Admittedly this makes him... um, well... a Republican. However it was still really interesting to hear him speak since he's kind of way up there as far as determining our nation's public policy, and he may have a hand in how much money the government gives me when I'm old, so I won't totally knock him.

BUT of course I'm not here to actually talk about him, but rather about me. What else is new?

I had read articles by Cogan about his big plans for personal accounts as an absolute necessity to save Social Security. In case you don't know even as much as I do about this, the gist of the idea is that one of the models (Model 2) of the President's Commission had optional personal accounts, whereby workers could divert up to 4% of their Social Security payroll tax each month to a personal investment fund of some kind (which they would choose from a set of pre-determined options). The reasoning behind this idea is primarly that it would change the Social Security so that instead of being pay-as-you-go (the revenues from Social Security payroll taxes are constantly being paid out to beneficiaries, so there is no investment, just "tax and transfer" of the money), it would mean that at least some Social Security money came from a plain old investment, like an IRA or a 401(k). That way instead of just moving money in and out, there would be a sort of "reserve." Part of this is to correct the fact that the current Social Security "trust fund" (a surplus of money that Social Security is currently bringing in, but won't be for long) is not actually a trust fund - it's a room in West Virginia where a filing cabinet contains a whole lot of bond certificates "representing" Social Security money, which in actuality has been spent on other general things like student loans or bombs or what have you. Cogan's argument is that personal accounts would effectively take that bogus trust fund money and put it in real investments and KEEP it in Social Security money instead of letting the government blow it all on unrelated items. Not to mention that the average return from stocks and things that personal accounts would get is higher than whatever interest accumulates on the current Social Security, so in theory with a personal account you would get more (even if it wasn't much more) than you would with standard Social Security.

Cogan's other argument for personal accounts is one that he got, actually, from a conversation with Pat Moynihan sometime in the 80s. The idea here is that since most lower-income workers don't invest or have the opportunity to invest in things like IRAs and 401(k)s (because after Social Security taxes, they don't have any disposable income that can be diverted away form living expenses and into long-term investments), this would give them an opportunity they never had before. The idea was that it would decrease this class's dependence on traditional Social Security and give them a chance to save.

Sorry, that was a long-winded explanation and probably a simplification. The point is: I kept thinking to myself, if personal accounts are such a great idea, and if they have this wonderful, democratizing and Democratic (in the party sense of the word) effect of improving retirement savings among the lowest-income people, then why aren't they mandatory? (The short answer is, because when the President commissioned the Commission, one of his requirements for their solution was optional personal accounts, not mandatory ones.)

This was a question that plagued me through Cogan's entire talk. And I kept wanting to ask it. But I didn't. Because I felt like it must have been a dumb question.

The urge to ask the question got stronger as Cogan talked about how education was absolutely necessary to get anyone to use the personal accounts, given how people are afraid of taking risks, how it's easier to inertly stay in traditional Social Security, and given how choosing a fund or whatever to put your personal account in would be baffling and confusing. And I was still sitting there thinking to myself, if it needs so much education, and if you are talking about the 1/3 of workers who have never invested in anything, then what makes you think anyone would use them?

Finally in the last 5 minutes of the class, Sean asked him the same question. Boy, do I feel stupid.

I guess that's the point though - I feel stupid outside of my comfort zone. I would have had no qualms asking a question in an English seminar, but I didn't even dare to raise my hand in an Economics class. It's sort of sad, really. Stanford is supposed to be this wonderful, multidisciplinary school, where you get a cross-section of everything. Boy do I wish. I, and every other "fuzzy" I know, wiggled our way out of real science (and as my experience with this economics class is teaching me, social science) into the easiest, least scientific, and therefore least useful classes on campus, as long as they filled the General Ed requirements. And that leaves us, graduates of one of the best schools (if not the best school) in the country, completely fucking clueless about real life, real policy, and real politics. What good does that do?

I remember when I was applying to college and I was drawn to the stringent, evil General Ed requirements of schools like University of Chicago and Columbia, not because I didn't want to be a total fool upon graduating, but because I wanted to learn all that stuff. I still do, and taking this class is reminding me of that (not to mention my obsessive daily reading of the New York Times and various other online publications that remind me how much more I need to, and want to learn). But I wish I'd been forced to remember that earlier - to remember how I wanted to be able to converse easily about any topic, instead of letting myself get paralyzed by the fear of looking stupid. After all, it's not exactly a total lack of knowledge or understanding we're talking about. I understand, at least generally, the whole personal accounts thing (even if I don't quite have an opinion on it yet). I clearly knew just enough to be able to roughly explain it in this blog entry. But in class, I was too afraid that my understanding was imaginary to actually test it. And that's how you really learn.

I guess the moral of the story here is never to be afraid to ask a question, something I clearly could have summed up in an easy cliche (which I won't bother to repeat). But also the moral is that if you want to know something about everything, you have to leave your comfort zone and take chances or else it won't work. You have to take risks. (Perhaps I need as much education about the benefits of taking risks as that bottom 1/3 of income workers do.) But it's worth it.

Incidentally, the answer to the question is, it doesn't have to be mandatory, but you can make it a default, and then most people will do it anyway. (And it's more politically viable.)

Look at me! I'm smart!

1 comment:

Sean Arenson said...

To clarify your parenthetical point about political viability, the reason Bush wanted personal accounts to be voluntary is because it is very hard to convince someone that something is a good deal if it is mandatory...it it's so great, why do you need to require it? Shouldn't I WANT it? So that's really the gist of it. There are legitimate arguments for mandatory personal accounts as well, but I won't get into those here.