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February 18, 2005

What Brit Hume Said


A few of you have written asking why I’m not featuring as many “Worthy Links.” 

During the campaign, I was keeping pretty close track of sites that I thought did a good job of presenting the case in visual form.  With the time I’ve been spending looking at photos, however, the links got pushed to the background.  I’d like to try and keep up, though.

One of my favorite political sites for turning words into pictures is UggaBugga.

Recently, Ugga broke down an analysis made by Brit Hume suggesting that FDR would have supported private accounts.  My image above is just a schematic of that diagram.  To see the actual chart with comments, go here.

  • Annoying Old Guy

    This graphic actually supports Hume’s statement. Note that the only non-contributory pensions are for “those now too old to build up their own insurance”. All other accounts mentioned are contributory, i.e. private accounts. The set of people “too old” in this plan have now all long since passed away. So FDR’s plan, from this graphic, would at the present time have no non-contributory pensions, i.e. it would be entirely what are now called “private” accounts. In fact, if anything Hume toned down FDR’s plan because it didn’t envision any non-contributory pensions for people who are alive today.

    But as someone here has stated the real problem isn’t the plan, but who proposed it. I think FDR was a very bad president (one of the worst) so I don’t personally care what he had to say on the matter. It does, however, seem to matter quite a bit to those who want to attack personal retirement accounts on “legacy of FDR” points instead of the actual plan.

  • Thomas

    No, you just reproduced Hume’s false statement and then drew false conclucions from there: “all other accounts mentioned are contributory, i.e. private accounts”. That’s a big leap you make in one abbreviation.
    “Non-contributory pensions” refer to Federal payments made to individuals who were too old (in 1935!) to pay into the system what they would get out. The rest of Roosevelt’s message has to do with the existing “contributory” system as it was and is set up — individuals make annual contributions, and the money that goes in is what is used to pay out: hence “self-supporting”. No mention of privately based self-supporting systems.
    It’s useful to understand the terms you are quoting before you manipulate them, and you might learn from Franken’s explanation linked to above.

  • Annoying Old Guy


    I can see how you might contest my statement, but I still not grasping how Hume mistated things. We agree that FDR states that the government funded pensions in point 1 would be phased out in favor of “self-supported annuities”. Are you saying that “self-supported” means “government funded”? If not, then what did Hume get wrong?

    Furthermore, perhaps it would be useful for you to understand the terms you quote before you manipulate them, as you are basically redefining the word “annuity”. The current SS system is not at all an annuity. It differs from them in multiple ways:

    • Contributions are defined by Congress, not the contributor
    • Benefits are defined by Congress, subject to change at any time, not by any legal or binding document. For instance, Congress could raise the retirment age to 75 tomorrow.
    • Money is not held in trust, but spent immediately, leaving the system dependent on future intakes for paying out its obligations (in the private sector, this is called a Ponzi scheme and results in long jail times for people who operate one).

    Because of this, the current system is not self-supporting. It happens, at the moment, to have intake higher than outflow, but that’s not a fundamental property, as it would be in a truly self-supporting system. It seems to me that what FDR was talking about here was precisely the shift from a Ponzi scheme to an actual investment structure, a shift that never occurred.

    In essence, the standard definition of annuity leads interpreting FDR’s remarks as leading to private accounts, i.e. accounts that private individuals own. You can avoid that conclusion only by redefining annuity to mean something completely different, such as the current SS system.

  • Thomas

    Fair enough, clarity is lacking on both sides. But I’m not sure how to respond, since your use of “annuity” is pretty convoluted. So let me just clarify what I understand things to mean before offering my interpretation of your mistaken view:
    1. The basic meaning of annuity is simply a yearly obligation to pay or receive funds. The private annuities market that is being offered as the solution to the “crisis” is only one form of annuity system, and is in fact, a very small annuity system relative to Social Security. When you call private accounts the “standard definition”, I think you mean the language being used in the contemporary economic debate, not FDR’s.
    2. Social Security is an annuity funded via the FICA tax. Whether or not it is paid for now or later, regardless of the demographic changes that undergird the supposed crisis, and no matter who decides how much should be contributed, the system receives payment and pays it back as income. This qualifies it as an annuity, though a particular kind of annuity. (By the way, if Congress decides to change the way benefits are distributed, it must pass legislation to that effect — that makes it “legal and binding”.)
    3. Self-supported simply means that no external funding sources (e.g. “general taxation”, as FDR states himself) would be used to pay the return — whatever is paid out to current recipients should be obtained from funds dedicated to the contribution system itself. Again, FICA tax.
    I think your basic error is identifying some implied emergence of a private scheme in the “which in time will establish” phrase of FDR’s second item. But as has been pointed out elsewhere and, frankly, is pretty clear in the original text, the establishment of a “self-supporting system” merely means moving from a partly federally funded program to one funded by the participants themselves.
    I think this passage a few paragraphs before the one we are beating to death makes it crystal clear what FDR had in mind:

    Three principles should be observed in legislation on this subject. First, the system adopted, except for the money necessary to initiate it, should be self-sustaining in the sense that funds for the payment of insurance benefits should not come from the proceeds of general taxation. Second, excepting in old-age insurance, actual management should be left to the States subject to standards established by the Federal Government. Third, sound financial management of the funds and the reserves, and protection of the credit structure of the Nation should be assured by retaining Federal control over all funds through trustees in the Treasury of the United States.

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