Social Security
Rx for Social Security  Three UC Berkeley experts dissect the system's problems and suggest remedies; Q&As and video clips |
The following professors from the University of California, Berkeley, are available for interviews with reporters about Social Security. Their expertise includes investor behavior, the Bush administration's plans to partially privatize Social Security, the current state of the Social Security program, and how similar reforms have worked in other countries.
Richard M. Abrams
Professor of the Graduate School
Phone: (510) 642-2611 or (510) 527-0462
E-mail: abramsr@socrates.berkeley.edu
Expertise: Recent U.S. history, industrialization and globalization. Can compare social security programs in industrialized countries.
A critic of the proposed Social Security changes, Abrams describes as "wildly unrealistic" the idea that individuals can wisely invest money to reap better benefits than those offered by the Social Security system.
"Few of the 'experts' in the brokerage business have the necessary information to know good investments from bad," Abrams says. "Only insiders stand to benefit reliably from investments in publicly traded securities."
Abrams also questions how pulling money out of the Social Security fund will save Social Security. "We're looking at a scheme to reduce mandatory employer contributions, to bolster business for stock brokers, and to reduce retirement benefits under cover of 'permitting' people to compensate for those losses by their private investments," Abrams says. "Those who don't choose to invest part of their payroll taxes in the securities market will inevitably find their benefits reduced anyway as the system loses input."
Alan J. Auerbach
UC Berkeley professor of economics and law, director of UC Berkeley's Burch Center on Tax Policy and Public Finance. Auerbach has served as deputy chief of staff for the U.S. Joint Committee on Taxation and as a research associate at the National Bureau of Economic Research.
Phone: (510) 643-0711
E-mail: auerbach@econ.berkeley.edu
Expertise: Tax and fiscal policy
Auerbach says Bush's proposal for partial privatization will "simply change the timing of budget deficits," reducing them in the future when benefits are reduced while increasing them in the near-term when additional debt must be issued to pay for the benefits of current retirees.
"Only if it is coupled with benefit cuts or tax increases can privatization address Social Security's fundamental problem," Auerbach says. "Indeed, this may be one of the unstated objectives of reform: By changing the system, it may be easier to disguise tax increases or benefit cuts that occur simultaneously."
Jonathan Berk
Harold Furst Associate Professor of Management Philosophy and Values in the Haas School of Business Finance Group
Phone: (510) 642-3364
E-mail: berk@haas.berkeley.edu
Expertise: Investment decisions, portfolio management, market "anomalies," information revelation in stock prices, and evaluation and performance of active portfolio managers
The justification for the idea of privatizing Social Security because the stock market has a higher return than treasuries is a classic case of politicians and voters wanting something for nothing, says Berk. He contends that the effect of privatizing Social Security would create higher costs in the long run because the government will inevitably be in the position of having to support irresponsible people who exposed their retirement savings to high-risk investments and lost.
Thomas Davidoff
Assistant professor in the Haas School of Business Real Estate Group
Phone: (510) 643-1425
E-mail: davidoff@haas.berkeley.edu
Expertise: Annuities, including Social Security, home equity and mobility among the elderly, taxation, retirement behavior of the elderly and household portfolio management
Davidoff says that private accounts funded by a deficit will make senior citizens more, not less, vulnerable to poverty. The idea that the government can create money by borrowing and investing it in the stock market runs counter to the free market principles the Bush administration claims to support, he says.
"If the administration believed there was such a money machine, it should not stop at Social Security, but should provide everyone in America with a new home and a new car and cut taxes to zero," Davidoff says.
Allowing the Social Security Administration to do the investing would guarantee sound investments, minimal administrative costs, and shared investment and labor income risk, he says.
Davidoff adds that a more sensible approach to ensuring the future of Social Security would be to reduce the deficit, extend Social Security taxes to higher incomes, encourage private savings among the poor and, if necessary, reduce the rate of benefit growth.
Neil Gilbert
UC Berkeley professor of social welfare, director of the Center for Comparative Family Welfare and Poverty Research, co-director of the Center for Child and Youth Policy
Phone: (510) 642-4362
E-mail: ngilbert@berkeley.edu
Expertise: The design and evaluation of social service delivery systems
Gilbert says the Bush proposal to partially privatize Social Security has already been done in Sweden by left-wing Social Democrats, and that many industrialized welfare states have some version of this privatized model. If done cautiously, he says, privatization would have two positive results — the use of public support for private responsibility and the spread of financial risk.
George Lakoff
Richard and Rhoda Goldman Professor of Cognitive Science and Linguistics, senior fellow at The Rockridge Institute, a progressive think tank he helped establish
Phone: (510) 643-7616
E-mail: lakoff@cogsci.berkeley.edu
Expertise: Cognitive linguistics, conceptual systems, conceptual metaphor, syntax-semantics-pragmatics and the application of cognitive linguistics to politics, literature,
philosophy and mathematics
Lakoff says conservatives have been trying for years to destroy Social Security. They believe such social programs remove the need for discipline and create dependency, he says, and that businesses benefit if they can capture Medicare and Social Security money as investments in companies rather than in the people whose health and futures are insured.
Lakoff says government-run Social Security offers economy of scale and of protection — from stock market declines and bad judgment in investments — as well as protection from an individual's squandering.
But he says conservatives contend that "if you're undisciplined enough not to establish a personal savings account, or not shrewd enough to invest it wisely, then you deserve to lose your health and retirement money and starve in your old age." Lakoff adds that 25 percent of our workforce is stuck in low-paying jobs, with no spare money to invest.
Ronald Lee
Professor of economics and demography, director of UC Berkeley's Center for the Demography and Economics of Aging, member of the National Advisory Council on Aging
Phone: (510) 642-4535
E-mail: rlee@demog.berkeley.edu
Expertise: Demographics of aging, Social Security, U.S. Census data
Lee is an expert on forecasting aging, measuring long-term Social Security finances, the impact of immigration on Social Security, and how the program compares with similar efforts in other developed nations.
He has testified before the Senate Budget Committee and was an advisor to the Social Security Administration for his work on forecasting aging. After his work suggested that Social Security forecasts of future life expectancy were too low, Social Security actuaries raised their projections and now differ little from his projections.
Lee believes the current problems are serious — but not a crisis — and that the Bush administration is correct in using the "infinite horizon" instead of the current 75-year projection to tabulate the system's finances. The actuaries report an "infinite horizon" estimate of 3.5 percent, about twice as large as the 75-year figure. But Lee's calculations place the measure even higher, at 5.2 percent.
David I. Levine
Professor in the Haas School of Business Economic Analysis and Policy Group and Haas Organizational Behavior and Industrial Relations Group
Phone: (510) 642-1697
E-mail: levine@haas.berkeley.edu
Expertise: The impact of Social Security on the economy, wage determination, worker participation in the United States and in international settings, and obstacles to good management
Levine says that the United States faces a serious crisis paying for baby boomers' retirement. Reducing payments into Social Security does nothing to increase national savings or to address that long-term problem, he says. Arguing about private accounts misses the point that we do not have enough money in the budget to keep our promises (largely about medical care), according to Levine. He says Washington should spend more time on important problems and less time creating means to make Wall Street wealthier.
Daniel McFadden
E. Morris Cox Professor of Economics, 2000 Nobel Laureate in Economics, president of the American Economic Association, 2005
Phone: (510) 643-8428
E-mail: mcfadden@econ.berkeley.edu
Expertise: Economics and choice theory, health and welfare economics, economic growth and development, consumption and savings of the elderly.
The Social Security system could be put on sound fiscal footing, McFadden says, through modest increases to the payroll tax rate, tilting benefit payout formulas to encourage later retirement, indexing benefits to life expectancy and/or taxing total income, including Social Security benefits as outlined in "Saving Social Security: A Balanced Approach," by Peter Diamond and Peter Orszag (Brookings, 2004).
Financing a transition of Social Security now will require substantial new taxes or heavy government spending, McFadden says, and that is something the United States is ill-prepared to do because of budget deficits and "off-book" war financing.
McFadden is concerned about how to prevent a privatized system from being plundered by excessive management fees, and how to protect individual investors from investments that are too risky. He questions whether Congress can stand up to industry lobbyists and political constituencies in order to design a successful, privatized Social Security system.
Terrance Odean
Associate professor in the Haas School of Business Finance Group
Phone: (510) 642-6767
E-mail: odean@haas.berkeley.edu
Expertise: Behavioral finance, investor behavior, day-trading and mutual funds
Odean says privatizing Social Security will expose workers to markets risks they do not currently face. If workers are permitted to choose their own portfolio compositions, he says, some may get lucky while others do poorly.
Employees would be forced to make investment decisions for which many would have little or no educational preparation and that might profoundly affect their future standard of living.
Evidence from 401(k) plans indicates that workers often make less than optimal choices, he says, and that employees could lose their jobs and retirement savings if they invest in a company that fails, like Enron did.
Odean says that, in general, individual investors display many less-than-ideal investment biases. If Social Security is privatized, despite sound arguments against doing so, he says, the new system should encourage sound investment practices through sensible investment choices and defaults.
Robert Reich
University Professor and Maurice Hexter Professor of Social and Economic Policy at the Heller School for Social Policy and Management at Brandeis University, visiting scholar at UC Berkeley's Goldman School of Public Policy
Phone: (510) 643-4266, ext. 2
E-mail: rreich@berkeley.edu
Expertise: Political economy, labor markets, industrial policy
Reich says there is no Social Security crisis and that the system is financially sound through the 21st century. "The 'crisis' is trumped up," he says. "At a time when the gap between rich and poor — and everyone between — is wider than it's been in over a century, the Bush administration seems intent on carrying on its campaign to grant more and more tax cuts to the wealthy while heaping more tax burdens on the middle class and the poor. Their 'supply-side' economics doesn't work, and it will only push us faster toward a two-tiered society.
"The president's Social Security package will exacerbate this situation because it will necessarily enlarge the budget deficit (causing everyone's interest rates to rise, and burdening the poor, mostly), and result in a huge windfall for Wall Street, which will rake in huge fees by managing these individual accounts. The best bet would be to exempt the first $10,000 of income for Social Security payroll taxes, and make up the difference by raising the cap on income subject to the payroll tax — now set at $90,000."
Andrew Scharlach
UC Berkeley professor of social welfare, director of the Center for the Advanced Study of Aging Services
Phone: (510) 642-0126
E-mail: scharlac@berkeley.edu
Expertise: Aging services and issues; caregiving; work/family issues; death, dying, and bereavement.
Scharlach says the problem with President Bush's proposal to privatize Social Security is that it further reduces the safety net available for those individuals who have not benefited from investments in equity instruments, corporate bonds, etc. The well-educated, technologically-savvy, investment-minded individuals who develop public policy do not understand that there are sizable numbers of older (and younger) adults who have neither the time, information or access necessary to outperform the Social Security Trust Fund.
He says there is a more desirable method for reducing reliance on public Social Security funds. Older adults may represent the greatest untapped and underutilized resource our country has. By revaluing what elders have to offer, and facilitating opportunities for them to make productive contributions through paid and unpaid employment, it may be possible to lessen current dependence upon Social Security. In essence, this would be a "welfare-to-work" program for senior citizens.