http://www.iSteve.com/05JanA.htm#social.security.trust.me
A reader writes in response to another reader's questions below:
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Why not have the government invest directly? No particular reason. That's what Calpers does. That's what Clinton proposed, kind of half-heartedly midway through his second term. Conservatives like to argue that if the government invested in stocks then the Feds would start "meddling" in the stock market. That's true, but the opposite is true as well: if the solvency of Social Security depended on the stock market, then the Feds would care a lot more about stock market returns than they do even now.
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Why have the government choose the investments we can make? This is an easy one: because most people are not financial professionals. Look, in my 401k I've got a very limited selection of investment choices. That's partly a matter of what our firm can get us in terms of a deal from fund companies, but it's also a matter of protecting us future retirees. Threre is a lot of room between "you must put your money in an annuity run by the government" and "you can invest your retirement savings in anything you like - pork bellies, wildcatting for oil, a perpetual-motion-machine startup, trips to Vegas." That middle ground is: you can invest your money at your preferred level of risk tolerance, but you can only invest in broadly diversified, market-like funds with low expenses. What is so terrible about that? You of all people, concerned about the left hand of the bell curve, should appreciate that the less-sophisticated consumer deserves protection not only from con artists and scammers but from his own poor instincts.
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Why not raise the retirement age a bit or slowly reduce benefits at the high end? Because these solutions are not popular. But rest assured: some kind of benefit cut will be a part of Bush's Social Security reform, assuming any such reform passes (which is highly questionable). This is the dirty little secret about Social Security reform: 80% of the reason for switching to personal accounts is marketing designed to mask a necessary reduction in benefits; the other 20% is conservative ideology (which I happen to buy) that ownership - whether of an annuity or of a block of assets (and, contrary to your suggestion, there is no reason you couldn't in principle purchase an annuity with your Social Security personal account funds, and thereby hedge getting old; every major insurance company provides such products) - builds character while entitlements encourage dependency, sloth and irresponsibility. All serious versions of Social Security reform involve giving people personal accounts *in exchange* for having them sign off on a lower benefit package from the government. Bush is hoping nobody notices the trade-off.
Well said. But you can see the underlying assumption here:
Sure, Bush will sell this concept to the moron voters as a get-rich-quick something-for-nothing scheme where all Americans will get big rewards investing their retirement nest eggs in high risk stocks (even though you and I know that reward correlates with risk), but the actual implementation of the details of the law by Bush will be sober, realistic, honest, and competent.
How I'd like to believe that's true! But how much evidence is there that Bush's actions generally turn out more responsible than his rhetoric? Iraq? Immigration? Medicare drug benefits? Tax cuts during war time? No Child Left Behind?
How about Karl Rove? Do you trust him? Tom DeLay? Bush's latest crop of economic "advisors"?
I trust Arnold Schwarzenegger about as far as I can throw him, but I have to admit that I'd trust a Social Security reform scheme from President Schwarzenegger far more than I'd trust one from President Bush, given their comparative track records.
Maybe Bush will finally surprise us this time by for once putting in the work to make his actual proposal better than it sounds. But that won't happen unless there is a lot of Show-Me-the-Details skepticism on the Right.
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