Focus 580; Social Security

Part of focus 580 we will return to a subject that we have discussed before and I expect this is not the last time and the topic is Social Security. President Bush has said that here in this second term he intends to make Social Security and changes to Social Security one of his top domestic issues. He has for some months now been saying that the system is in crisis although I think recently he's backed off a little bit on using the word crisis but nonetheless he's made the argument that if nothing is done to change the way Social Security is organized that when young today's young workers get ready to retire the system will essentially be bankrupt and the money won't be there to pay their benefits and he has made a number of proposals. However other people in Washington D.C. aren't so sure. And public opinion surveys show that Americans understand that there is a problem and yet they don't seem to share this sense of crisis and have expressed some skepticism about some of the proposals the president has made particularly his

proposals about giving people the opportunity to set up private accounts. Well we will take up the issue once again this morning with our guest William Spriggs. He is a now a senior fellow at the Economic Policy Institute in Washington D.C. before that he served as executive director of the National Urban League Institute for opportunity and equality and he's had a long career both in academia and government. He served as senior adviser to the Associate Deputy Administrator for government contracting. He also worked in the Small Business Administration was special adviser in the office of the undersecretary for economic affairs at the Commerce Department before going to Capitol Hill. He was involved in the Clinton administration. He was the leader of the staff of the National Commission for employment policy. He's also taught at the university level. He taught in the School of Business at Norfolk State University in Virginia where he also directed the university's honors program. Also for two years at the School of Business at North Carolina and T State University in Greensboro. He's joining us this

morning by telephone. As we talk questions certainly are welcome. 3 3 3 9 4 5 5. We also have a toll free line good anywhere that you can hear us and that is 800 to 2 2 9 4 5 he was by the way here on the campus of the University of Illinois just a couple of weeks ago taking part in a forum on Social Security sponsored by the Center for Advanced Studies so perhaps some people who are be listening to us this morning in Champaign-Urbana might have had the opportunity to attend the forum and we couldn't talk with him while he was here but we did want to have him on the program so we're pleased that he could be with us. Dr. Sprague's Hello. Thank you for having me this morning well we certainly appreciate you giving us your time. I wonder if at the beginning we might talk a little bit about and you can share your perspective there being in Washington about where things stand now in the discussion about Social Security since everything I read says says a couple of things it says that the president is continuing to make the arguments that he has made

that on Capitol Hill they it seems that a lot of Democrats and even some Republicans aren't quite sure. What the nature of the part well maybe they know what the nature of the problem is but they're not quite sure what to do about it. And if you look at public opinion it says that yes people get it they they understand the idea that we're going to get to this point where they'll be more money coming out than going in. But again there there seems to be a little bit of ambivalence about well what do we do about these thing and and not a whole lot of support for private accounts where in. Politically speaking where does this debate stand right now. And it appears frozen. The Washington Post reported this morning that they conducted a poll which I guess works to verify for themselves. Many people know that the Democratic whip had been reporting for some time on the Senate side that the president was going to get any support of 41 Democratic senators that sent him a letter of same size. But the Post confirmed through their own polling that there just aren't any votes in the Senate to make this happen and

that Democrats are going to continue to serve. Say that if the president wants private accounts that's a nonstarter for the discussion. And I think everyone understands that the private accounts aren't a solution. And the president hasn't put on the table what he thinks of the actual solvency solution would be. So we're we're at a strange stalemate because the president has a proposal which has nothing to do with solve it see holding up getting to the discussion on what can we do about Social Security solvency. So that's where we are. I understand that there has been some talk about the fact that the administration while they have not made this as a formal proposal. There is. They have expressed they have laid out this idea that one of the things that could be done what would be to make a change in the way that the benefits are calculated and that essentially would reduce the payout to beneficiaries

in the future and that would help with the solvency issue. Now that apparently is out there but I don't think the White House says has any any sort of formal way said this is what we want to do. But it is out there isn't it. Yes. Correct. The president had a commission to strengthen Social Security aimed at providing different solutions for how you would do privatization and end that process. They came up with a plan which included a different way of calculating the initial benefit. One key way of looking at the problem I think as the president looks at the problem is currently we treat the old age benefit. We treat all benefits within the system because there's only one formula that determines benefits across the programs whether you get disabled whether you get survivor's benefits or they get the old age benefit your family gets the same benefit based on your work history. And it

is to allow you to replace your earnings. So essentially what that means is we are n DEC's seen the benefit as wages increase and wages tending crease as the economy increases so the president I think is looking at a problem this way. You can never reduce the cost of such a program because the the you are letting workers replace their current income and so each each beneficiary will have their benefits go up as the economy grows. So if you have an increase in the number of beneficiaries than the size of the program will grow. And the idea of price indexing is to fix the growth of the program so that it cannot grow as quickly and that.

Makes the program smaller and I think the way to think of this is is as follows. Because we index to wages it means that beneficiaries are allowed to consume pretty much as their size of the population grows. That's how we've currently geared it. And at some point a higher share of the population will be 65 or older. They're the predominant sort of age group they'll be 62 or older that's the predominate age group. And so you're going to have a bigger program because there are going to be because share the economy. And that would mean they would consume more. That's what it would be. So so it sort of follows that a bigger share of everything we produce would have been going to him unless you cut their income. And and that's really where the debate is because the price and taxation means that we're going to cut their consumption. We're not going to let them be the same percentage of the population as they are going to be of consumers.

That's that sort of in a nutshell what the issue is as you've said it seems politically when there's a stalemate. Now as people have looked at the solvency question they have said well there there some number of things that could be done. Individual nation we could fire for example this this what the White House has talked about well that's one thing you could do. You could raise taxes and you could raise the age at which people could receive benefits you could because right now that. And right now the amount of income that is taxed for Social Security purposes essentially is capped. So you could say well OK we're going to raise that or some combinations of these things could be done. Is there any in in Washington do you think is there even any kind of consensus on among the sorts of things that people have said well we could do this we could do this we could do a combination of these things and the sort of consensus that might lead to a

potential plan and anything anything that people could really sit down at the table and say OK here's some concrete ideas let's talk about this and see what we could do with this. Well that's where things fall apart. Yeah. Because as you mention a potential thing would be to raise the cap currently for this year income 90000 and below gets taxed but above 90000 does not get taxed. When the Greenspan Commission put forth the current financing plan in 1983 what no one could foresee was the rapid growth of any quality and a bigger and bigger share of income going to those at the top. So we have very quickly growing amount of earnings that go taxed. Somewhere on the order of 300 billion has now grown to on the

order of 700 billion and a very short amount of time. And the conservative Republicans those who belong to the Republican Study Committee caucus on on the Hill are adamant that they will not entertain any proposal that would raise the cap. The gap and financing that we're looking at so people can understand what we're really arguing. If you believe the Social Security actuaries instead of people paying 6.2 percent. If we did this. But taxes then they'd have to pay seven point one five percent. If you believe the trustees if you believe the Congressional Budget Office and set a pain six point two percent people would have to pay 6.7 percent. That's the size of the problem. And so when you do it when you hear it that way you know do I pay six point two or seven point one five.

Or do I pay 6.2 a 6.7. You know depending upon the forecast it sounds very small. But the study committee and conservative Republicans are adamant they're not for raising taxes either from the 6.2 to 6.7 or of saying to those who make 90000 and above. Look over the last couple years of the income growth has been towards the 6 percent of the population that makes that amount of money. And we've given you a big tax break because the effective tax rate for those above 90000 their effective social security tax rate has been declining rapidly. And and we don't want to we don't want to restore any Aqua Librium about the effective tax rate for those people so. So we're at a stalemate they can't get enough votes from Republicans. If you say you're going to enhance revenue Democrats have said nothing so far about

what they would accept or reject with then solvency. What they have said they would reject is private accounts because that really totally changes the nature of social security to not put Social Security back together once you put private accounts in. And again it's because currently the program is an integrated program. Retirement is not a separate program retirement is a benefit. I'm on disability and survivors and I know the current system which is an insurance system that's the same benefit. Let me ask you one further question. I have a couple of callers here I want to tell them which will make them wait forever. We'll get right to them. Given the fact that the Republicans and Democrats have both staked out some some territory and that they. They are looking forward to the midterm elections that's not that long from now and

certainly would not want to do anything to alienate their constituents and potential voters. What I wonder what you think the chances are that anything will happen on this issue before the mid-term elections and then one has to wonder even past that point that that is. Maybe I shouldn't say anything but anything in the way of a major change. I am. Well I would find it difficult to have the major change of private accounts happen politically because I don't think Democrats are going to back down from that. So will the president be willing to give that up and start the serious negotiations around the solvency. And. And I don't know because the the the real holdup in the sovereignty debate is the position that conservative Republicans have taken that

there is no way they will agree to increase revenues which means it would all have to be through benefit cuts and some form and. I don't think anyone wants to run that next year and so unless the mood of the country changes about the nature of the crisis then I don't think that that sellable I don't think people are willing to accept that if you're talking about paying 6.2 percent to 6.7 percent and you tell people why we're not agreeing to that or we're not agreeing to restoring the effective tax rate for those above 90000. The only way we can do this is to benefit cuts I don't think people are going to accept that this as a bargaining. Our guest in this far part of focus is Dr. William Spriggs he is senior fellow at the Economic Policy Institute in Washington DC

and has had positions in. Higher education in government. He's former executive director of the National Urban League Institute for opportunity and equality has had jobs in the Small Business Administration the Department of Congress and the Clinton administration he led the staff of the National Commission for employment policy. He's also taught at Norfolk State University in Virginia and North Carolina anti-state in Greensboro. He's joining us this morning by telephone we're talking about Social Security. We have several callers here who are interested in joining the conversation. We just ask people to be brief and we just ask that so that we can keep the program moving but of course anyone listening is welcome to call 3 3 3 9 4 5 5. That's for champagne Urbana toll free 800 to 2 2 9 4 5 5. Our first caller is someone listening in Indiana. Line number four toll free line. Well you know an anecdote and one question when this first hit the table in terms of basically being in the larger

newspapers and on public radio when I found out that the tax was going on up to $90000 and everything above that wasn't tax I thought that's extremely unfair. So I think that's the best way to go at it that people still retire at 62 they want to work or whenever. You know the mandatory question to countries Chile and Britain have this private donation to the rich. But anyway they have the privatization. I don't know what percentage it is. I don't know of any material things about you know how much you're allowed to put into things like that but I do know that the main criticism of it is that the ministry of costs usually wipe out whatever rise you might have in stocks. Thanks a lot. Right well is that something that you can talk about. Yes and it's true the way that they did it and chalet

and the U.K. brought about huge problems because they did it the way that a lot of people have to describe to them that is that you can invest in whatever you want to invest in it it's your money and you will make wiser choices than than the government the administration has learned from that and they are not going to allow that. So what the administration is proposing and it's private accounts is essentially a stock index fund that would be one choice which is the most risky. And then they are strongly encouraging people to get their life so they can cite coal fund which would put you heavily in stocks when you're young. But as you got older it would the portfolio would switch you into bond funds so as you got closer to retirement you wouldn't be as susceptible to market for actuations. But that means that the administrative cost of the program from the government's perspective are going to go up tremendously because currently the

program. Has miniscule administrative cost less than 1 percent. And so the administrative costs from the government perspective are going to skyrocket the government will have to step stablish an agency to handle the smaller accounts because we're not putting that on the the fund managers that will be on the government side and the money in these account the money in the social pretty system is capped in real time by individuals. And that's why you have to increase the bookkeeping of the government. And you're going to increase the government administrative cost tremendously. But but the fees that the Wall Street firms will try it will be extremely limited because really there isn't anything for them to do. I think in fact that some people have have made this argument in response to those people who say that if these accounts were put into place it would

be a windfall for the for people in the investment business because they would get to administer the accounts and there would be a lot of. WOMAN They would have the opportunity to make money I think some people have said willing to fact that it wouldn't that would not be the case that we would have we might have a lot of accounts but they wouldn't be very big accounts and that in fact Wall Street wouldn't realize a big windfall that they might even say it be more trouble for them almost than it would be worth is I don't know if that's if that's too extreme or actually there's something to that. Well it is a huge windfall to Wall Street and two ways one. Goldman Sachs estimates that this fund would end up being roughly equal to 25 percent of the market. And with the government paying for all the management fees in terms of you know actually holding the money collecting the money worried about where the money is with the government doing that and these funds be limited to index funds they could run by autopilot. So so be

even. Even if Wall Street only charged you know 4 basis points. This is a lot of money given that they don't have to do anything to earn it. So it is a windfall and the at some point of course it is as if the Goldman Sachs economist are correct in the size of the fund is what it is. It it will have a lot to do with what the price of stocks are so anyone who is in in the longer term relationship with the market and has stocks before this fund builds up is going to gain because the demand is going to drive the price up. So so will be a windfall for those currently in the market ahead of the curve. And and these fees are going to be collected essentially for doing nothing. And so that's a windfall to me.

All right let's go. We'll talk next with another listener This is someone in Champaign line one below. Yeah I think something interesting about this whole problem in that I don't sense that Bush actually wants to solve the problem of the curity. What I mean by that is since 1978 he's been very much into this notion of private accounts. And I think the kind of ideological driven us in this in so far as our impudence I suppose insofar as you know the White House itself that said this did not help the solvency of the White House own actuary on the hill a few days ago admitted that it would actually cost money. You know a lot of money to administrate this and that. He actually you know what the senators are saying that this would be up. Apparently 4 percent of the entirety of the security to do this which would cost in over 11 years of shortening of you know the time between now and the so-called bankruptcy so 2030 would be that would be the problematic year at that point and so what I don't understand is he's going on this large Tor claiming easting going to try to solve the security but

the whole poor in his open you know news that he wants to you know show that private accounts are a great thing as quote unquote a way to deal with security it doesn't make any sense whatsoever. And so I'm flabbergasted and I hope that the press will make a point of the you know fundamental in congruity of his position on is he not trying to solve the problem of security even according to the White House insofar as he just talked about private accounts. And so that's a problem and also you know when one thinks about the national debt I mean here's a man who's done nothing. You know I think we have the greatest national debt in history now I mean really second rate. And I suppose so. It's it's phenomenal because I don't know what you think but I can't imagine that this isn't a more urgent problem is the national debt rather rather than Social Security and another thing I just want to ask finally is Paul Krugman has said that you would have to get a return of about seven percent really to make money on these private accounts even if they do and you know it used Bush's plan. He said

it would be equivalent to the height of the 90s stock boom. You'd have to stay at that level for the duration of your life basically for you really to get your money back in this in this. And so I'm curious whether you think that's accurate whether that's a bit of an exaggeration I'm just curious. But I'd like to get your take on that. Well in order for the plan to do what the president would like it to do you do need something on the order of a 6 percent 7 percent rate of return from the market. And that is because. Again he doesn't want the program to grow the program will grow because the share of those over 65 is growing and that means if you don't want those over 65 to continue to consume what would be some people would say their fair share. And you know if you're 12 percent of the population you're going to consume about 20 percent of the GDP.

And so so at some point a disproportionate share of GDP are going to go to those over 60 to just because they're going to be a bigger share. Now how do you fund that. You could do it by saying the way we currently do it you just tax workers and that's how we do it or you say as the president is proposing we won't do that said of taxing workers out of the growth of productivity. We're going to use productivity growth. Through the stock market and workers will get it out of the way that productivity growth will evidence itself of the stock market. Either way you're still going to end up with a 12 percent GDP or whatever percent 6 percent is really what the program would be 6 percent of GDP going to. And so that that that you know of that that becomes a bet. Well you know what do you bet the market will do that or not.

And most people don't want to take that bet. He has created as you say a huge problem because in the short run the cash flow problem of the Social Security program is that from general revenue we have to pay back the Treasury notes that are currently held by the Social Security trust fund that's come out of general revenue and the budget that he has proposed increases the federal debt. The deficit as well as the debt. And so when that day comes in 20 19 or whenever he has not created a income flow for the government to pay the trust fund we will continue to borrow from the general population as well as the world. To do that. So he he he has not put in place a reasonable stream of government revenue because of his tax cuts.

Yeah I mean something that surprised me was that if I understand even in the popular press that you don't watch much but I've been noted there that they were noting that the White House admitted that this did not help with solvency this in term of the solvency of the security to private accounts. So it just doesn't make any sense to me that he's going around on this tour if they've admitted that it doesn't actually solve that problem. Well. And it's not reasoning with people because precisely because of the point you're making. It doesn't solve stuff and it has nothing to do with solvency it really has to do with the philosophical question of how will we handle a higher share of people being above 62 and letting them consume their fair share of GDP. That's a philosophical question and I think most people are answering in the polls. That's not something they want to gamble with. They think that. That you should do that with some

certainty. And again because that the tax gap is small where again if you believe the CBO projections we're talking about six point two versus six point seven percent and payroll tax we're talking a small gap and people don't get that that's such a crisis that you have to throw the baby out with the bathwater. Right well as you know of course they did with the famous internal memo among the top Republicans. I'm not sure which group it was exactly but saying that this is the biggest chance in 60 years for the right wing. So I think philosophical or ideological whichever way you put it I think that has a lot to do with their efforts in this regard. I think when you analyze it fully That's correct that this is really a philosophical question about. Whether we want to continue with the belief that that we are all and that together that we are truly insuring ourselves as Americans or whether we want to cast that aside and

say that we're not going to do that anymore. And and I do think that's what's driving this and that's why the lines are tripping. That the lines are the same just so deep we are talking this morning with Dr. William Spriggs. He is a senior fellow at the Economic Policy Institute in Washington D.C. He's former executive director of the National Urban League Institute for opportunity and equality. He has had a number of posts in the government. He worked in the Small Business Administration and also the Department of Commerce during the Clinton administration. He led the staff of. You may lead the staff of the National Commission for employment policy. He's also taught in the schools of business at Norfolk State University that's in Virginia and North Carolina anti-state in Greensboro. He's former president of the National Economics Association which is the organization of professional black economist He also serves on the Black Enterprise magazine board of economist and it was here in Champaign Urbana not very long ago back in February he was one of the panelists on

as part of a forum looking at the issue of Social Security sponsored by the Center for Advanced Study on the UVA campus questions are welcome. 3 3 3 9 4 5 5 and toll free 800 to 2 2 9 4 5 5. Next we'll talk with someone in Aurora. This is color on lineup. Well yeah I had a few questions at that point when an immigrant so the security Don't they have to have the 20 quarters to get it and I feel that the stock market will get the greatest benefit from this. And I wanted to know who was working with him in Washington on this. And how much how high. Is there a cap on if you have too high an income you don't get security. Well let me answer that question. Every everyone who who meets the criteria would

get a Security benefit you can get the benefit because you become disabled and are no longer able to to work. That's determine at a state level hearing and it's not the easiest thing in the world to get but that is available to American workers you get it if you're a family member of a worker who dies. Ninety eight percent of American children are eligible to get Social Security benefits in the event of a parent becoming disabled or dying. And you get the retirement benefit if you reach a 62 you can take early retirement or if you reach a 65 currently and it will increase for those of the Baby Boom update 67. So everyone we get it who meets those requirements so even if you're Bill Gates you would get a Social Security check. But that does reach a maximum.

And that's part of the logic behind the cap and the tax on earnings because it does not the benefit does not rise forever. The benefit replaces a high share of earnings for low income workers and then a decrease in share of earnings for other workers so that Bill Gates eventually reaches a maximum amount which which would be close to the replacement rate for somebody at $90000 a year. So despite the fact that he makes millions of dollars a year he will get a benefit roughly equal to the same someone who would make $90000 a year. And that's the reason for the cap of the tax. Immigrants can get Social Security but they have to have the same 40 quarters of earnings as anyone else so they would essentially have to have work 14 years to be eligible.

Their benefit would be based on their work history as is the case for all workers. And so in that sense and this is the difficulty in creating a private account the president doesn't have an easy way of maintaining equity. Every worker with the same work history gets the same benefit their family gets the same benefit this is a family program. The the there is a primary insurance amount that determines your benefit but is immediately tied to your primary insurance amount as the family maximum benefit. Anyone who is deep in debt on you being in the workplace gets a benefit to to recognize that the reason why Americans go to work is to support either their spouse or to support their spouse and their children. And so it's to prevent economic destitution because you lose the ability to work.

So when you introduce a private account and you start talking about retirement and everything that's been mentioned about the private accounts talks about a long time to make their long compound your gains and so by the time you're 65 you have this pot of money which could compensate someone drawing on the old age benefit. But people who become disabled or people who die unexpectedly of course don't have that long time horizon. And that means you can't quite piece together the equity that is in the system today and you can get all sorts of anomalies you can get someone for instance. If if today a man at age 58 had a massive stroke and couldn't work and took disability when that man reached a 65 they the family would start getting the retirement benefit.

They wouldn't notice anything at all because his work history aset his benefit levels set. And so no one would know in the family that they're now actually considered a retired worker even though he initially went in as a disabled worker nothing would be different. Under a private account then you have to say well what happens when he reaches 65. Now you're going to give him retirement benefits but he hasn't worked for seven years. His personal account is going to be smaller if you use. You take the fiscal neutral position that the administration has he has a reduced guaranteed benefit in the private account as opposed to make up part of that. Well he's not going to make it up fully in his benefit is going to get cut. So you know what does it mean if the president says he's going to hold the disabled harmless they're not really being held harmless if you say on the other hand oh ok I let him keep the higher benefit than certainly the disabled or be treated different than retirees and so that the guy's 58 becomes disabled is better off than the guy who

is healthy with the same work history. And that doesn't equal what happens if you say well you know why not I just have sympathy for survivors. So suppose he had the stroke of 58 and he ends up back in the hospital because of complications at 61. Is he going to be worth more to his widow if he die than if he lives. You get weird anomalies like that because you're you're you're separating out what is currently an integrated program and you would treat people differently. And currently the system treats people equally and that's why for instance when the president says African-Americans don't get treated fairly that's just patently patently false because the program treats disabled survivors and old age beneficiaries exactly the same. The family would get the same benefit no matter what happened that 50 euro. Thank you.

Jonah thanks for the call. I wanted to ask a question you just touched on it just in the last couple of seconds about about African-Americans and Social Security because the president in his book he's been talking about his ideas about Social Security a lot and has been traveling around the country talking to various kinds of groups and he has made I think a particular kind of appeal to African-Americans saying that he feels that the system as it is designed now that under that system African-Americans get it. Bad deal and that they as a group should be behind he is his plan to change the system because he feels that in that way that system will be modified and they will benefit more than that if nothing is changed at all. And I guess I do have that fundamental question I say when when he says that African Americans get a bad deal in the system as it is now. Is that do you think that that is the case.

If absolutely not the case. Clearly African Americans do not benefit as much from retirement benefits. He has the facts correct that African-American men in particular have a lower life expectancy. So he's absolutely right that it's far less likely than for whites that African-Americans would draw the retirement benefit. But because the program is an end of Great a program and disability survivor and old age are treated equally by the system. That means if you don't make it to retirement then the question is well how to cheat. How did the system treat you and see if it treats you the same because when you become disabled or or a survivor. That's why African-Americans under the current program get treated fairly. Senator Obama was on a panel with me yesterday and I think you put it. Really wonderful way Social Security is an insurance program. That title is old eight survivors of disability

insurance. The benefit is called the primary insurance amount the tax you paid to support it is called the Federal Insurance contribution Act tax the word insurance appears everywhere. Retirement never appears in the name of the program. So what Senator Obama pointed out was that would be like saying since black homes are worth less than white homes on average we know the median value of homes for blacks is last. The blacks shouldn't buy fire insurance because you're going to get a smaller benefit if your house burns down so you should self insure because your homes are worth less. And of course you know you listen to that you go. Right. It doesn't make sense. And that's really what the president is saying in it. And for that same reason it doesn't make sense that that African-Americans are shortchanged. We are all buying the same policy and we all get the same coverage. Now if if you privatized then you create a lot of inequities that start to work to the disadvantage of African-Americans on the retirement

side and then just just to to go through it quickly. Because of the cap and African-Americans make less than whites. Fewer African-Americans are above that $90000 a year group. And because of that a disproportionate share of the revenue into the program is paid for by African-Americans. It is a regressive Lea funded program. The program makes up for that because it's a progress of benefit so that those with lower incomes get a higher replacement rate. The private account is purely regressive because it depends solely on what you made. So you're replacing a progressive benefit with a regressive benefit on top of the regressive tax. So private accounts make it doubly unfair to African-Americans and then the private accounts it since you rate all of the racial disparities in the labor market that the Social Security benefit formula work

against. African-Americans are far more likely to be unemployed particularly when they are young. The Social Security Administration formula says we take your 35 highest years of earnings so essentially in the early twenties when African-Americans have a hard time getting attached to the labor market. Get excused under the current formula. African-Americans have to get more education than whites to make the same amount of money an African American needs some college to make the same amount of money as whites do with simply a high school education. So some years in the early part of one's career have to be spent getting that extra education on the part of African-Americans just to get the same pay as whites. And that's time out of the labor force when you're young and I bring up those two issues about what happens when you're young because you get more from savings that accumulate over a number of years than you would when you're older so the money that's put aside in your account when you're 20 creates a bigger

disparity than the money that's put aside when you're 40 because it has a longer time to compound. And then. The other problem is the labor market Mara the stock market kind of confluence. African-Americans because of our higher unemployment rate are far more sensitive to economic changes. And so when the stock market is doing real well it's because the economy is doing real well. And that means an African-American private accounts are going to have blacks to mean to to get more money put aside buying stocks when they're high and then when the market goes down that's because unemployment is going through the ceiling because the economy has slowed down. And so blacks are not accumulating lots of stocks when the market is down. So that will make the rate of return even lower Franciscan Americans. So you add up all the things that the private accounts would do. And there's no there's absolutely no way that private accounts make

things fairer. And of course private accounts don't solve the problem of life expectancy. It's still going to be the case that African-Americans make it to retirement where they have a private account or not. So so nothing in the private accounts makes any sense in the argument and it really is as Senator Obama said it's like telling somebody your house is worth less so don't don't buy fire insurance is self-insured. OK. Well we have several callers waiting. We'll try to get in as many as we can. The next in line is in. Banner line number three. Hello hello. Yes. Oh I really do appreciate him enjoying this. Your discussion very much and I would want you to discuss just a little bit. A question that I have and it involves you were talking about how the program would grow and it doesn't ever get smaller but.

To my way of thinking the number of retired baby boomers will be climbing now for I don't know what is it going to be 10 years in peek out maybe and then start to declaim on it so that there's a relationship between the growth of the program and the number of people who are going to retire but then eventually those retired baby boomers are going to start to die out. And then the program would begin to shrink up a little bit. Is that is that relationship true or not. Well what's about to happen is that the program will stabilize because the share of the population that will be older is going to reach its stable level and the real question isn't that to workers who want to retire really because that's comparing apples to oranges. Chris today are far more productive than workers in the past and you know it's easy to understand why they had telephones and typewriters. Maybe Rolodexes people today work with

the Internet in and have BlackBerry so it's easy to understand that and so what happens in the future is we will have to take care of more as a share of the population but that will stabilize and as productivity increases the burden that that places on a worker actually will continue to decline. So after the baby boomers retire there the burden of future retirees even though it will be two workers to one retiree. It looks very different because those workers will be that much more productive their lifestyles are going to be so much better that. And this is not a big program and the increase that we're talking about going from 4 percent to 6 percent of GDP is not a big deal when you think of the massive increases we have had in defense spending over time or the growth in other federal expenditures over time. So so this stuff they belies and it does

stabilize with respect to the size of the economy and and actually starts to get smaller as people become more productive. And yes it will look smaller again and from that perspective of what it would do we have available to pay the bill. But my understanding too is that this that this crowd of baby boomers is really a huge bunch of. People relative to the falling group and so it seems to me that when when they actually get old enough and begin to die out that you know the burden on the workers that are falling even further behind there it's going to get you know even a lighter share. But you know hard to guess what's going to happen in 20 30 years but that's what it seems like to me anyway. Thank you very well thanks for the call let's go next to someone else here a line for someone here in Champaign Urbana.

Hello yes interesting. Could you comment before on the cost of living allowance. Could it in theory ever be reduced. That is if average wages drop and so forth but the second question then the Concord Coalition and others they make projections as you mentioned so well recently that it should take into account productivity as well as the number of workers. But has anyone factored in fact that a lot of high paying jobs are going overseas. So comment on those. And I'm I'm fraid Dr Spriggs work and getting short on time I know there's a big questions I can really only keep you about a minute to make some kind of response. The growth of wages and the growth of wage inequality are the things that we have been very bad at forecasting even in the short run. And that is a key reason why we should not think that we can solve this problem for 75 years we should think about shorter time horizons and be quite

prepared as we have over the last 50 years to make changes as you know the numbers come in and we see what the future really does look like. Well my apologies to a couple of callers that we have left because we're not going to be able to take them. We have used our time however I am certain that we will in the weeks to come be talking about the same subject with the other guests we'll continue to follow the conversation so you can rely on that. We'll keep talking about it. Also want to say thanks to our guest Dr. William Spriggs. He is a senior fellow he's an economist and senior fellow at the Economic Policy Institute in Washington D.C. And Dr. Briggs thank you very much for talking with us today. Oh thank you I enjoyed it.