ARC's 1st Law: As a "progressive" online discussion grows longer, the probability of a nefarious reference to Karl Rove approaches one

Tuesday, May 17, 2005

Biased BusinessWeek - A (Long) Fisking

This is an example of why BusinessWeek is losing its credibility, especially in the business community (which I think is their target marketing demographic, but I coould be wrong).... I'm sorry for the length of this post... it was a cover story in BusinessWeek.

The cover story from the May 16th issue was a totally slanted piece on Social Security reform and only at the end did they even provide a pro-reform opinion, as voiced by a bush adminstration official.


It starts out this way:

"I Want My Safety Net"
Why so many Americans aren't buying into Bush's Ownership Society

George Silli, a 66-year-old waiter from suburban Philadelphia, had a brush with President Bush's Ownership Society, and it was an experience he'll not soon forget. Silli's psyche and his wallet still bear the scorch marks of the 2000 market meltdown. He saw the value of his mutual funds drop by 60% and is convinced that opening Social Security to individual investing would produce similar results on a massive scale. ``If people are left to their own devices, we'll become top-heavy with poor people,'' Silli says.

A political independent, Silli has learned enough about the market to be pessimistic about a small fry's chances. He not only wants to leave Social Security alone but also thinks politicians should expand entitlements by mandating near-universal health insurance as a shield against soaring medical bills.

Ok, so their frontpage poster guy is someone who is 66 years old (exempt from any reform) and who calls himself an independent, but sounds more like Marx.

Next up is a 30-yr old Republican, in that red of red states, Maryland (Kerry by 13% - heh)
But, says Tsirigotis, the divorced mother of a 7-year-old, ``I disagree with the idea of giving people private accounts in which their annual returns and their eventual benefits would be based on the stock market. It's too risky. No one knows how much will be there in the end.''

Hmmm... nevermind that she could choose (magic word that the Left supposedly loves) to instead hold Treasury Bonds... the very same investments which SS is currently based (so no net change in risk). However, if she did that, she'd still fare better , since it would be an asset that she owns and cannot be stripped away by the Feds. Oh, and that 7-yr old of hers? She could inherit whatever Ms. Tsirigotis bequeaths to her.
In an era of rampant job insecurity, when employer-provided pensions and health coverage can no longer be taken for granted, they want a middle-class security blanket that gives them protection as they build wealth.

Exactly.... the Ownership Society and SS Reform is about building wealth and removing benefits as the purview and bargaining chip of employers.
Even houses -- most Americans' entrée to the Ownership Society -- are increasingly in hock: In the past 15 years, mortgage and home-equity borrowing has risen from 35.1% of home values to 43.9%. That has made families, especially those with unskilled workers, more vulnerable to a catastrophic jolt such as job loss or serious illness. Personal bankruptcies increased fivefold from 1980 to 2002, with many filers citing a layoff or medical emergency as the tipping point.

Yes... mortage amounts have increased... But it's a rational thing when rates are at historic lows. Lock in more of your house's value at a low rate which you can pay off and convert that high-interest debt into your low interest mortgage. (Keep in mind, this is from BusinessWeek writers...) Also, with regard to bankruptcies, I'm sure those filing are reluctant to check off the "I got carried away with the bling and the bigscreen" box...
But despite such gambits, the President has little to show for a 60-day national sellathon that took him to 23 states. If Congress enacts Social Security reform this year, it could be a far cry from reformers' dreams of big private accounts carved out of payroll taxes.

4%.. yep, big private accounts carved out of payroll taxes... Heck, I'm all for choice and flexibility. Give me the choice to keep, save, and invest all 12.5%.
The result is riskophobia. ``With a far greater portion of family budgets devoted to the mortgage, car payment, and health insurance, a transitory shock to wages becomes much more menacing,'' says Raj Chetty, a University of California at Berkeley economics professor who studies risk. ``Equities are seen as risky, and if people aren't jumping for the investment option [as part of Social Security reform], there's a reason. Risk in general has become a much more pervasive issue.''

Which is riskier? Investing in a diversified group of stocks & bonds, shifting to bonds as retirement nears? Or "investing" in a big mortgage and car payment?
``Bush's timing is not good,'' notes Eva Bertram, a political scientist at the University of California at Santa Cruz. ``The public is leery of becoming more dependent on the market, and there is great anxiety over employment prospects and stagnant incomes. Right now it's just very hard to give up the security offered by things like Social Security and traditional Medicare.''

Ummm... if no one wants to set up a private account, then fine... no one will. And the system will continue as it does today. But I think all of these people in this article KNOW that millions will flock to the accounts and they're afraid of what removing this political tool will do for Left-of-center politics when they can't trot it out every 2 years.

Finally, into the 6th page of a 7 page article, BusinessWeek gives us this info:
What the White House proposes, in fairness, is not a complete swap of a public retirement supplement for a private one. Bush says that letting workers voluntarily set aside a chunk of their payroll taxes -- say, 4 points of the 12.4% tax -- in conservative investment options will let retirees reap a richer reward than the government system's puny 2% return. But if guaranteed benefits are slashed for the middle class and above, more Americans will be drawn into private accounts to make up the difference, changing the nature of Social Security. ``The plan does have a guarantee in it in the form of the core benefit,'' says Kent Smetters, a Wharton School associate professor and former Bush Treasury official. ``Since it's only partial privatization, Bush needs to play up the safety net angle.''
Perhaps you could've mentioned the 4% before page 6!

Finally, the political angle is uncovered on Page 7:
But in today's hyper-partisan climate, the fight over the ownership agenda has taken on a larger dimension. Bush wants to wind down dependence on the bureaucratic welfare state. Democrats want to revalidate government by weaving costly new safety nets for workers. It's an elemental struggle, but one in which outcomes can be perverse.

Ok, so the GOP wants people to be less dependent on bureaucratic welfare state.... Dems think it's a great idea.

The sidebar on Page 7 has a Q&A with Allan B. Hubbard, head of the White House National Economic Council. FINALLY, BusinessWeek gives us some details about what the President is proposing, instead of just giving us the tales of woe... Here's a link to the Q&A It seems that the online version has more Q&As than the print edition, but here's a good example:
Q: But what specifically do you tell the risk-averse people who worry about your ownership prescriptions?
A: There's risk in staying with what has been traditionally defined as a safety-net program. The least risk is investing yourself, and you can [always] decide to invest in risk-free investments, such as Treasuries. A perfect example is the Health Savings Account, which gives people more control of their health-care dollar and is a pool of savings to deal with future health challenges. It's affordable, which is important. When you change jobs, you can go for several months without coverage, or run into problems with a preexisting condition. This is a device for greater financial security.


*****
Now, here's a slideshow of the people that BW decided to highlight throughout the story:
George Silli - 66 Year Old Waiter in Philadelphia, PA - EXEMPT FROM S.S. REFORM
Mary Beth Griffis - 41 of CO - Bush Voter.
[If Americans have personal accounts,] they'll have a false sense of security... and get even deeper in debt, spending for that trip to Mexico or Michael Jordan shoes they can't afford
huh?!?! First, we have to trust BW that she's talking about PRAs and not people relying on Social Security. Assuming that, she doesn't make any sense. Should we give people a sense of insecurity!???
Douglas Turner - 38 from Chattanooga, TN -
Social Security will be gone by the time I retire. Or the retirement age will be bumped up to such a level that you'll work until you die."

No further elaboration as to whether he'd be for S.S. reform or not...
Karen Marshall Hudson - 43 of Houston -
I've learned that there's no such thing as a permanent job. Anyone can be removed from a job at any time"

Her bio says that she worked for 12 years as a bank vice-president at Chase in Houston and was a manager at Enron when it crashed, wiping out much of her 401(k). "While she likes the idea of investing a portion of her payroll taxes, the Enron experience left her with a diminished appetite for risk. An independent, she voted for Kerry last November.

I have to say two things... based on her bio, I bet Karen did quite well for herself. I also am assuming that she go caught in the Enron dive, where employees were buying up shares as the bottom dropped out to lower their average cost - and were stuck holding the bag as Enron switched plan managers for their 401(k), which requires a freeze in buying/selling until the switch has been completed. Second - NO ONE has talked about investing funds in a single stock, a single segment of the stock market (ie Biotech, IT, Petroleum, etc)...

Bruce Zeestraten, 46 of Hugo, Minn - A UAW member who voted for Bush whose son suffers from cystic fibrosis and faces huge healthcare costs. He's leery of Healthcare Savings Accounts (which allow for tax free savings during younger years when healthcare consumption is minimal and taxfree withdrawals for normal medical care in later years and insurance to cover catastrophic conditions, such as cystic fibrosis). Had HSA's been around when he started as an employee of the Ford Motor plant, he'd probably have a ton of cash to cover normal healthcare expenses (taxfree) and insurance would cover the rest.

Cyl Proufx, 53 of Michigan - Bush voter, who'll be exempt from any reform. Sorry, honey... you don't have any benefit b/c past presidents didn't have the courage to fix the ponzi scheme.

My take on the article?
They never communicated facts to the people, never asked questions which in anyway could be from someone who had considered that it might be a good idea to reform the system. They finally give a single sentence assessment of the 4% contribution under Bush's proposal on the second to the last page and finally interview someone from the Bush Administration in a sidebar on the last page. Their primary "emotional-tug" interviews are from people that are either exempt or are comparing their personal experiences with investing in individual high risk stocks to a measured social security reform plan that in my opinion is too timid as it is. The folks they highlight are actually mixed on the aspects of SS Reform and would propobably support the presidents plan if they sat in a room with two options (keep it or reform it) and enough information to make a decision (instead of relying on BW and the NYTimes for their information).

Your Co-Conspirator,
ARC: St Wendeler

Comments (1)
Blue Cross of California said...

I think health savings accounts are great and can make a major improvement on our health care system. Health insurance is a major aspect to many.