Equality: All in Poverty per NYT Editorial

Brookings Martin Mayer writes in a NYT op ed that the Fed’s interest rates at any given time will greatly affect the cost of purchasing a retirement annuity under Bush’s private account proposal. The idea is that upon retiring, the generation that has paid into SSI must purchase an annuity that will produce income that supplements the recalculated SSI payments.

While that is one of the options (and I prefer the Peter Ferrara’s suggestion that we receive a lump sum upon the institution of the new private system which we can immediately invest), Mayer is concerned that the Fed may treat interest rates in a more political manner given the effect on retiree income or cost of those annuities.

However, Mayer gives himself away with the following:

Most people concerned about the security of their pensions in a world of personal accounts worry that the money would be invested in an Enron. As advertised, diversification would take care of most of that problem. But you can't diversify time. If President Bush's proposal had been in effect for the last 30 years, an American retiring in the spring of 2000 - having earned an average income and built an average personal account in index funds - would retain a personal account at least a third larger than the personal account of his younger brother, who had the same income and the same investments but retired in the spring of 2003.

And this difference would have resulted not from anybody's working harder or investing more intelligently or more fortunately. It would stem simply from the accident of having been born a couple of years later.

OK, one brother is doing better than the other. By the time they retire, income differences will be only one of many issues they will have with each other. But let’s consider where these two brothers would be without the 30-year private accounts! Sure, they would be relatively equal in benefits. That equality would be living at the poverty line. I am sure they’d take an extra 33% or more of income under the private account proposal. Then, instead of being forced to live with each other in a small apartment, they could call each other on their cell phones from their spacious homes.