Rachel Maddow’s web site has the article We should be talking about expanding Social Security benefits featuring the Elizabeth Warren floor speech below.

Over the past generation, working families have been hacked at, chipped, and hammered.  If we want a real middle class – a middle class that continues to serve as the backbone of our country – then we must take the retirement crisis seriously.  Seniors have worked their entire lives and have paid into the system, but right now, more people than ever are on the edge of financial disaster once they retire – and the numbers continue to get worse.

That is why we should be talking about expanding Social Security benefits – not cutting them…. Social Security is incredibly effective, it is incredibly popular, and the calls for strengthening it are growing louder every day.

Search this blog for all I have written about Social Security. After all that, Elizabeth Warren’s speech inspired a new idea for me.

What we need is a 401K option to invest into a Government run pension system that invests wisely.  Such a plan has almost been proposed at MIT by Modigliani, et, al,  Such a plan has almost been put into legislation by Rep. Peter DeFazio (in 2001).  What is new in my idea is that this plan is not (only) to be part of Social Security, but it expands Social Security to cover the 401K also.  Think of this as the “public option” for retirement that is the equivalent of the “public option” we so much wanted for health care in the Affordable Care Act

I just realized that this “public option” idea is very nearly contained in the article that is the subject of my previous post Saving Social Security: A Better Approach. Not excerpted in my previous post, is the following excerpt from the article Saving Social Security: A Better Approach by Thomas K. Philips and Arun Muralidhar.

In addition, centralized administration and record keeping make pension portability exceptionally easy to implement. Therefore, workers would be free to gravitate toward the most productive sectors of the economy without fear of losing their accrued pension benefits. When an employee left a company for a job elsewhere, his vested pension benefits could be sent to the Social Security system for credit to his account. Adding a table to each account to track all the additional contributions made to it over the course of time would be a relatively simple matter. Employees’ payments in retirement would be based on the sum of their Social Security contributions and any additional contributions made to those account.

My innovation takes this idea for portability of vested part of an employer provided pension, and applies it to the 401K plans naming it the “public option”.  If the private pension assets were put into this new “public option” right from the start of the accrual of benefits, this would do away with the possibility of vulture capitalists taking over a company to raid its pension system.  This would be a tremendous benefit to society all by itself.

The extent of the howl of complaints about this from the private sector would be a good measure of the wisdom of this plan.

Financial Analysts Journal November/December 2008, Vol. 64, No. 6 has the article, Saving Social Security: A Better Approach by Thomas K. Philips and Arun Muralidhar.  Arun Muralidhar is the coauthor with Franco Modigliani of many of the items I have talked about before with regard to saving Social Security.  This article is a wonderful introduction to their ideas with some updating since the 2004 book that I have mentioned.

Here is one notable excerpt from the article.

Arnott and Casscells (2003) and Munnell and Sass (2008) pointed out that the real problem of designing a retirement plan for the population does not relate to inadequate savings, but rather to demographics and productivity (i.e., the generation of sufficient real consumption goods by the future young to support the consumption of the then elderly).

I particularly like this quote because it answers the article’s initial statements about the need for increased saving.

I like the thought experiment of considering the day when automation allows all the necessary goods and services to be produced without the need for anybody to work.  Would we have a society where the benefits of this paradise were shared among all the people?  Or would we have a society in which one or two people owned everything and the rest of us had to live as beggars?  This thought experiment focuses us on the real issue of the economy being able to produce enough goods and services.  If the economy is able to produce enough goods and services, then it is only a political/moral issue of whether or not everybody in society benefits. The issues of savings and investment are just bookkeeping.

Another notable quote is:

The assets of the Social Security system should be invested solely for the benefit of beneficiaries. And their management should be subject to the regulation of ERISA to ensure that neither the U.S. Congress nor any presidential administration can divert the assets to purposes that are not in the best interest of the entire system. In particular, all proxies should be voted to benefit shareholders (i.e., the citizenry of the United States) in accordance with ERISA, and not to protect inept or politically wellconnected special-interest groups.

I like the quote because it addresses just what stance the Social Security Administration should take with respect to the companies whose stocks it has in the Social Security Trust fund.  It also shows that the authors of the article address the many thorny, practical, political considerations in moving to the plan they propose.

Read the full article at the link I have provided above to get many more valuable ideas.

If you have a subscription to Financial Analysis Journal, you can read the Letter To The Editor “Saving Social Security: A Better Approach”: An Update March/April 2009, Vol. 65, No. 2: 10

The Progressive Change Campaign Committee sent me an email with the following message and a link to the video below.

Want to see a real progressive stance on Social Security? Check out Rep. Alan Grayson, PCCC’s Adam Green, and other Social Security heroes talk about staying on offense on Social Security.

Since polling shows that this initiative is supported by overwhelming majorities in all states, why wouldn’t the people in Washington D.C. who represent us also support this overwhelmingly? Maybe you should ask your representatives that very question.

In a previous post A Solution To The Social Security Crisis From An MIT Team, I mentioned a plan by an MIT professor and his coauthors to invest some of the Social Security Trust funds in the stock market. What I  failed to mention is that in 2001, Oregon’s U.S. Representative Peter DeFazio introduced a bill that had some similarities to the MIT plan.

At the time, I was living in Oregon and had read some about the plan.  In order to provide some details for this blog post, I have done a Google search to see if I could find the bill.

I found HR3315 – A BILL To improve the solvency of the Social Security Program, and for other purposes.

SEC. 2. INVESTMENT OF THE SOCIAL SECURITY TRUST FUNDS

‘‘(2)(A) The Independent Social Security Investment Oversight Board shall establish in the Federal Old-Age and Survivors Insurance Trust Fund—
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‘‘(iii) a Common Stock Index Investment Fund as provided in section 234(a); and
‘‘(iv) such other investment fund or funds as the Board may provide by regulation

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SEC. 3. RULES GOVERNING INVESTMENT OF FEDERAL OLD-AGE AND SURVIVORS INSURANCE TRUST FUND IN COMMON STOCK

(a) IN GENERAL.—Title II of the Social Security Act is amended by adding at the end the following new section:
‘‘INVESTMENT OF FEDERAL OLD-AGE AND SURVIVORS INSURANCE TRUST FUND IN COMMON STOCK
‘‘SEC. 234. (a) COMMON STOCK INDEX INVESTMENT FUND

You might also want to look at the March 2002 article Rep. DeFazio, citizens discuss social security in the Curry Coastal Pilot.

DeFazio said his plan would allow a portion of the Social Security Trust Fund to be collectively invested in stocks and bonds by a private board, similar to the Oregon Public Employees Retirement System.

In my Google search I also found an April 10, 2002 National Review article No More Secret Lip-Service: The Dems are mute on Social Security for good reason. Of course National Review, being a very conservative magazine, would look askance at DeFazio’s proposal for exactly the reasons why I like the proposal.  I still find it worth quoting the article because it does explain some of the main points of the bill.

But one gusty personal account opponent, Rep. Peter DeFazio (D., Ore.), has put his cards on the table, proposing government investment in the stock market and the biggest tax increase ever to keep Social Security solvent. Those choices aren’t pretty, which is why election-minded Democrats like Gephardt and Matsui are so eager to keep their own plans under wraps. But DeFazio’s proposal could start exactly what Gephardt, Matsui, and account critics least want: an honest debate on Social Security reform.

Give DeFazio credit. Most personal account opponents start bobbing and weaving the minute they’re asked how to fix Social Security, but the veteran Oregon Democrat says exactly what he would do. Like personal account proponents, DeFazio wants Social Security to hold higher-returning private investments. But unlike personal accounts, which let each worker decide whether to invest in stocks, corporate bonds, or ultra-safe Treasury bills, DeFazio has the government itself invest 40% of Social Security’s funds privately, effectively pushing all workers into the stock market whether they like it or not.

Government investment risks political influence over the hundreds of U.S. corporations Washington would hold equity stakes in. While DeFazio attempts to keep investments independent, the investment board members would be appointed by the president and could even include sitting federal employees. Federal Reserve Board Chairman Alan Greenspan calls government investment “very dangerous,” warning Congress in 1998 that any firewalls against political influence would inevitably be breached: “I know there are those who believe it can be insulated from the political process, they go a long way to try to do that. I have been around long enough to realize that that is just not credible and not possible. Somewhere along the line, that breach will be broken.”

Even former Vice President Gore called the risks of government investment “quite serious,” saying, “The magnitude of the government’s stock ownership would be such that it would at least raise the question of whether or not we had begun to change the fundamental nature of our economy.”

National Review might have actually liked one of the provisions of DeFazio’s bill, if they had acknowledged its existence,  but I found it not so likable.  This clause does not let the government exercise voting rights in the companies whose stock it buys.  This ought to alleviate the National Review‘s worry that “Government investment risks political influence over the hundreds of U.S. corporations Washington would hold equity stakes in.”

Actually, I think that the government’s exercising voting rights to introduce the concept of the holistic welfare of the entire country into the considerations of the company’s plans might put some balance back into the capitalist system.  It might help to correct the overly generous shifting of the economy’s wealth to the very few at the top.  Al Gore might have been correct that their might be an  appearance of trying “to change the fundamental nature of our economy.”  Unlike Al Gore, I think this might be a very good thing.

Even leaving out the exercise of voting rights normally given to stock holders, the DeFazio bill might have been a good first step to fixing the issues about Social Security’s future.  Had this passed in its year of introduction, it might have coincidentally been an opportune time to start investing in stocks. Although, timing the market is not something a smart investor would try to do, still, it was a golden opportunity missed.

Here is an email that I sent to Elizabeth Warren.

It is time to take up this proposal from Franco Modigliani, Maria Luisa Ceprini and Arun Muralidhar that I have been touting since about 1999. This plan will have as profound an effect on our society as FDR’s original plan had in his day and since. I would love to discuss this with you.

It has been so long that some of my references to the plan have almost disappeared, but this 1999 working paper is still available.

http://dspace.mit.edu/bitstream/handle/1721.1/2740/SWP-4051-42747675.pdf?sequence=1

Senator Kennedy was going to arrange for Professor Modigliani to present this to the Senate. That presentation never happened as far as I know. Now both of them are gone. However, I know that Arun Muralidhar is still available and a well respected advisor on pension plans.

If this email gives me room, I will quote just a couple of paragraphs from the MIT working paper.

“The centerpiece of our plan is the creation of a new public fund (NF), which like Social Security (SS) is financed by mandated contributions, and will offer defined benefits, but which will be fully funded, and establish individual accounts. The defined benefit will be ensured by a guaranteed return on contributions.

“Each participant’s contributions will be credited to an individual account, together with the accrued returns. However, for investment purposes, all the funds will be pooled and invested in a single, highly diversified “indexed” portfolio consisting of an appropriate share of the market portfolio of publicly traded financial assets. Despite its diversification, the return of this portfolio would be somewhat risky and variable. But a defined benefit system requires a rate fixed in advanced. To achieve this result, we stipulate that the Government should stand ready to “swap” the return of the NF portfolio against a guaranteed real rate of return.”

There is also a book: Rethinking Pension Reform, Franco Modigliani, Arun Muralidhar.

This is the idea that President Obama should be pushing when he talks to the Republicans.  Yes, it will blow their minds, but it is a serious proposal that I think could be the foundation of some profound changes to the way our society works.

has posted a video and a petition.

According to the Conservative Intel Poll:

59% of respondents reported they were less likely to vote for a candidate who supports the chained CPI. Republicans (57%) and Democrats (62%)

According to the National Academy of Social Insurance:

71% of Americans want to expand Social Security benefits and pay for it by making millionaires and billionaires pay the same rate as the rest of us, and having everyone pay a little bit more.

The President has pledged to focus on what the majority of Americans sent him to DC to do.

If the President is standing with the majority of Americans against all cuts to Social Security, including the chained CPI, and standing for expanding benefits…

…then let’s stand with him:

I am going to start making blog posts to debunk this thought of the President’s about the need to get our fiscal house in order. It took me a while to finally come to realize the practicality of the Government taking back the sole power to create U.S. Money.

On Saturday, Senators Tom Harkin and Mark Begich were on The Ed Show to introduce their plan to strengthen and expand Social Security to MSNBC’s audience across the country.

They certainly have the right idea. They’ve proposed bills that would strengthen and enhance Social Security for generations to come. That’s the kind of renewed commitment to community and security we need.

I have yet to hear the details of the Harkin-Begich plan. I’ll track it down, and find out more.

The Real News Network has a story Obama’s “Cat Food” Social Security Reform which further explains what I have been blogging.

JAY: So just quickly dig into this CPI thing, this chained cost of living. Why are people criticizing this, and what does it mean?

HUDSON: Well, because it’s not a cost of living index. It’s the cost of lower living standards index. It’s the–some people call it the cat food index.

Here’s what it does. Suppose that you have to switch away from eating steak or eating meat or eating fish to eating canned tuna fish or canned beans. That’s considered a price reduction.

If the chained index is done properly, you can cut Social Security by 50 percent. And here’s how. If people stop taking cabs and begin to take buses, that’s considered a lower cost of living. Well, what if they buy a bicycle? All Obama has to say is, look, folks, if you really want to save money, get a bike. That’s what Margaret Thatcher said. That was one of her campaign slogans, get a bike. So all of a sudden, the transportation in the cost of living goes down to zero. People pay between 25 percent and 40 percent of their income on rent. Let them live out on the street. Let them live in a homeless shelter

JAY: And that’s because the concept behind this chained CPI is that people are finding cheaper ways to do things, and that supposedly not being reflected in the current system.

HUDSON: That’s right. People are having to walk to work instead of taking buses. They’re having to eat tuna fish and canned beans instead of buying fresh food on the table. Of course they’re finding cheaper ways. We call that declining living standards.

And the start of the budget is: how can we screw the Social Security recipients, how can we pay them less to pay our clientele, our campaign contributors, the 1 percent more? You have to start with where they do, with the class wars back in business. And how do they sugar coat it? By calling it a price index instead of a cat food index or a declining living standards index. This is absolute slimy politics.

In my previous post Robert Reich on Chained CPI (the proposal to cut Social Security benefits), I remarked

With some Seniors eating dog food to make ends meet, what does the President want them to eat instead when dog food becomes too expensive?

So, I was slightly off. It’s not dog food, it’s cat food.

The White House hears PCCC voices on Social Security. Support the Progressive Change Campaign Committee to fight on this issue.

What the President still has not learned is that if your opposition won’t compromise, then don’t offer them a free compromise than is more than they dreamed of asking for. They’ll take the free offer and still not compromise.

This President does not ask us to help him get his program through. Instead he hopes we’ll be quite when he betrays us on the program he promised. If you can figure out a way to shout any louder (no violence, please), then do so.

They call him a Marxist and Ultra-liberal, when in truth he is a closet Republican.

Robert Reich has created a petition:

Mr. President, the chained CPI is a cut to Social Security benefits that would hurt seniors–it’s an idea not befitting a Democratic president. If you want to reform Social Security, make the wealthy pay their fair share by lifting the cap on income subject to Social Security taxes.

There are currently 149,726 signatures.  You can add your name by clicking the link above.

Here is the video that goes along with the petition.

Robert Reich explains that the chained CPI takes into account the fact that when certain items get too expensive, people substitute cheaper items. Thus the CPI based on a fixed basket of goods overestimates the effective CPI. Since the current CPI is not specialized to senior citizens, it already underestimates the inflation rate in what seniors buy (health care). With some Seniors eating dog food to make ends meet, what does the President want them to eat instead when dog food becomes too expensive?

Given my previous post Investigation Reveals Trillions Hidden in Tax Havens, my comment as I signed the petition was:

Go after the $32 trillion in illegally hidden, and untaxed bank accounts before you go after Granny’s Social Security.