Social Security - Research Paper Example

This paper supports the view that social security should not be privatized. Supporting points The very first reason not to privatize social security system this will hinder the realization of the social security objectives and goals. This implies that over the next forty seven years, privatization is likely to reduce the benefit levels by 44% as compared to the level of 2005 (Max, 2005). In addition, Max, (2005) tells us that implementation of privatization system is expensive. The costs that would be spent in the changeover process when coming up with new personal account and continuing to offer benefits to recipients of social security would require about $2 trillion.

Privatization of social security will as well hurt the economy. As pointed out by Orszag and Diamond (2005) this is because the high costs would be involved in the privatizing the accounts are likely to reduce the growth of economy (Orszag and Diamond, 2005). This implies that social security fund would be destabilized. Centralized deficits and debts will increase as a result of privatizing social security. These are likely to reduce long-term growth of the economy and the amount of the funds that is available for retirement of booming new generation.

The Center on Budget and Policy Priorities carried out an analysis which showed that the President’s proposal was to add $1 trillion in the new federal budget while implementing privatization in the first decade. The following decade was to use 3.5 trillion and much more trillions afterward. Accordingly, this would hurt the economy badly as noted by Orszag and Diamond (2005). The fact that particular insurance covers such as disability and survivors insurance which are offered by social security will decline when the private accounts become operational is a notable reason to oppose privatization.

As explained by Max (2005) privatizing social security also means that retirement funds are put on the stock market. This weakens the system of national retirement through potentially risky savings. The retirement savings are moved from a simple and an easy structure into a complex structure of investment that has a portfolio and shares of stock market which are not easy to understand and more risky to deal with. In addition, disproportionate returns are created by private accounts because individuals with higher income have more money and their risks for investment yields are higher as compared to workers who have low and moderate income.

Some countries have witnessed negative effects of privatizing their national retirement schemes. For example, in the United Kingdom, the private retirement account started in 1988 and averagely 43% of the return on their investments is spent on marketing fees and management costs (Krugman, 2004). This means much of fund which is supposed to benefit contributors is used to run the privatized social security system. Such a scenario should be avoided completely. In his argument against privatization of social security Max (2005) warns that during an economic crisis, privatization is very disastrous to people who make their contributions to the social security.

The households lose most of their properties when there is an economic crisis because their investments are traded on the stock exchange. Banks are enriched by