From The Madison Capital Times, 7/14/03:
http://www.madison.com/captimes/opinion/column/guest/52699.php
Privatizing Social Security would usher in a disaster
By John J. Waelti
Hey, folks - anyone out there itching to put your Social Security
contributions into the stock market?
Any of you soon-to-be-retired folks sorry that your anticipated Social
Security checks won't be based on those higher returns promised by
George W. Bush and Steve Forbes if Social Security were privatized?
Any of you retirees willing to swap your dependable monthly checks for
those you would receive if they were tied to current performance of
the stock market?
Privatizing Social Security never was a good idea, for a number of
reasons - some obvious and some not so obvious except to economists.
But even the economists have inexcusably dropped the ball on this
debate.
First, the obvious:
As younger Americans have learned and older Americans have been
harshly reminded, stock prices don't always rise.
It should now be obvious that to base Social Security income on fickle
financial markets would be folly, indeed!
For those advocates of this idea who failed to grasp this arcane point
several years ago, the teachable moment has arrived.
Its advocates will quickly assert that privatization doesn't
necessarily mean that all Social Security contributions (or taxes if
you wish) would be invested in stocks.
This brings us to the second reason why privatization is a bad idea.
The average American high school graduate can doubtlessly recite the
biography and current love life of his favorite movie or rock star but
would be hard put to compute, let alone explain, the significance of
compound interest or discounted present value of future returns.
College students, save for a select few, would not fare much better.
So we are to expect people who don't know the difference between a
stock and a bond to properly diversify and manage a portfolio on which
their retirement income depends?
Forget it!
A few could and would.
Many more could not and would not.
Some would fail miserably.
Enthusiasts for privatization will remind us that competent advisers
are ready and willing - even anxious - to assist.
Yeah, right!
With six-figure analysts recommending Enron and WorldCom as "strong
buys" even as they were heading into the toilet, we are reminded that
not all financial advice, even by the most celebrated and highly
acclaimed professionals, is good advice.
The third, least obvious and least discussed, but arguably the most
important, reason why privatization of Social Security and tying it to
financial markets is a bad idea has to do with macroeconomic
stabilization.
In plainer English, fixed, dependable Social Security checks,
delivered to recipients during good times and bad, help to prevent
recession and take the edge off recessions when they occur - like now.
Because of the reliability of Social Security checks as a source of
continued economic activity, economists refer to Social Security as an
"automatic" or "built-in" stabilizer to the economy.
Economists have been woefully remiss in not making this case in the
strongest possible terms during the privatization debate.
Picture the worst case scenario - a recession coupled with a prolonged
period of falling stock prices.
Sound familiar?
If Social Security checks were tied to depressed stock prices, not
only would those who depend mainly on Social Security payments be
badly hurt, but the level of spending in the economy would fall just
when it is most needed to sustain economic activity.
Much is made these days of the importance of maintaining consumer
spending to get us out of recession.
The current Social Security system tends to moderate recession or, to
use language of the economist, acts as a countercyclical force.
Should people invest in stocks?
Yes!
That is, with appreciation (perhaps newly acquired) of tolerance for
risk.
But private investment in stocks should be in addition to, and not a
substitute for, fixed payments into and receipts from the current
Social Security system.
Those who would privatize Social Security to "ease the burden of
government" have it completely backward.
It is not the responsibility of Wall Street to bail out the federal
government.
Who in their right mind would trust Wall Street for this awesome
responsibility anyway?
It is the responsibility of government to provide the structure and
proper fiscal policies by which to minimize the frequency and severity
of recession - and to make Wall Street behave.
But that's another story.
Social Security in its present form is a significant, though
unheralded, policy that is useful in keeping recessions from being as
frequent or as severe as they otherwise would be.
This contribution to macroeconomic stability is yet another reason why
the system needs to be protected, enhanced and assured to be there for
future generations.
So forget about privatizing Social Security.
Let's toss that dangerous scheme in the ash can.
It never was a good idea!
______________________________________________
Let's face it. Right-wingers hate Social Security and Medicare. They
always have. The programs were enacted over their dead bodies. Given
their history, why anyone would believe anything they have to say
about saving the program is beyond comprehension.
Harry
.
|
