Good points.
"[W]ouldn't it be cool if some maverick congressman, say Tom Coburn just elected from Oklahoma, proposed a bill to kill the Thrift Savings Plan that federal government workers have, say because it violates the equal protection clause of the Constitution, or else because it's absolutely hypocritical? Here's an idea -- if/when a final bill to offer something like that for non-government workers comes to a vote, adduce a rider to that effect. Consider it a poison pill. So, the failure to pass this needed legislation would at once kill the TSP. Maybe self-interest would rule.
James Crystal
Shorter Kinsley:
1. His economic analysis: investing $100 billion more a year via private Social Security accounts in a $45 trillion stock market (0.2% of capitalization) will "bid down" the return on all stocks to the level on government bonds. Ergo privatization can't work. QED.
2. His social principles: investing Social Security in real economic assets to close the funding gap can't help and must fail because it is a zero sum game (see 1), adds nothing to the economy and ends up only taking from others.
OTOH, closing the funding gap on a paygo basis with tax increases, as we always have since the tax rate was 3%, and with benefit cuts, is superior because ... um ... they add to the economy? and don't take anything from anybody??
Both of which are nuts.
Jim Glass
For Lord’s sake, the point was never to invest the money for the sake of improving the stock market. The stock market is doing just fine, thank you – it’s Social Security that needs the help!
The point of partial privatization is to allow people, by choice, to get greater returns by doing the same thing with their Social Security money that so many Americans do with their 401-k's. It seems ridiculous that, when people get such better returns through these investments, workers are still required to invest in a government-run Ponzi scheme.
Whether stocks or bonds are sounder ventures is also a questionable issue. When an outside person lends the government money, that note is called a "bond." But when the government confiscates the money invested in Social Security and then writes itself an I.O.U. -- well, this is a bond of a different color. To treat this like a bond you or I could purchase is disingenuous. It’s like the difference between 1) borrowing money from a bank to buy a car; and 2) taking the money to buy the car from some other account supposedly dedicated to some other purpose, like your child's education, and promising to pay yourself back later. One is an honorable legal transaction; the other, unless you truly have iron discipline, is an invitation to disaster. (And don’t we know the government has iron discipline!)
Modern liberalism is a funny thing. Millions of Americans invest in private retirement accounts, with reliably profitable results. Yet current liberal dogma requires a man as sophisticated as Kinsley to pretend that the stock market is some exotic racket, which any sane person should approach like a terrified spinster considering a date with a sinister gigolo who has asked suspicious questions about her bank balance.
Another name for the stock market: the American economy. Investing in it genuinely creates wealth, rather than passing it back and forth in tricky pyramid schemes, or lending it to the government for pork barrel giveaways. Perhaps Kinsley considers the American economy a bad risk. But then it's hard to see how the country could have any money for Social Security benefits in a few years. At least, liberals should be honest about what they're giving such a vote of no confidence.
Michael Ladenson
How is this proposed change in Social Security any different then the shift starting in the 1970's away from defined benefit plans to 401-ks? It seems that this change will be on a smaller scale then that and not one of the suppositions of Kinsley or other naysayers happened from then 1970s-80s.
Patrick A. Joy
The only germane argument concerning equities vs. fixed income, which must be explained and re-explained, is that over the entire run of data (1926-present), the average annual return to equities has been 10.4%. That's not a projection or an expectation, that is the actual live average annual return. If funds are invested with a long term horizon (at least 10 yrs), the investor has an excellent chance to average this sort of return and virtually a zero chance of failing to beat the current Social Security expected return (such as it is). There have been only 2 periods longer than 10 years that have generated negative returns (1929-1942, -1%; and 1930-1942, -0.4%). The longer the funds are invested, the greater likelihood the expected return will be reached on an overall average basis. As I constantly remind my clients, the returns in any given year may be positive or negative and, in fact, an allocation may never actually realize the expected return on the button in any single year during the entire life of the portfolio. Discipline and a long term horizon are the keys to positive returns. The clear fact is that aside from the Great Depression years into early WWII, if an investor can stay put for 10 years, he can expect a return from the equity portion of his portfolio that dwarfs returns from the current allocation. Stacking that up against the current expected return of less than 1%, looks like a no-brainer, which of course is why Dems will resist.
When and if personalization is implemented, we can anticipate a complete and specious disregard for two terms: long term and expected return. The first time single year returns are below the long term expected rate, expect to hear a chorus of "I told you it wouldn't work, see my account actually lost money this year!" The amount of education that must take place among the general populace is probably the most onerous task in this whole scenario. But then again, many of us have been dealing with 401-k's for years. What does an average annual return of 10.4% look like? If an investor contributes a one time $100 today and 30 years from now he has averaged a 10.4% average annual (compounded) return he ends up with $1946. Adjusting for 3.2% annual inflation, buying power over the same period ends up at $805. Can we expect a 700% purchasing power return on investment from the current system? 200%, 100%? I think not.
Byron Sanders
-- all from
http://www.poorandstupid.com/2004_12_19_chronArchive.asp