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InsiderOnline Blog: October 2008

Risks in Perspective

The Dow stood at 8,607 in January 2003, which, as Radley Balko points out is the earliest point at which President Bush’s proposal for private Social Security accounts could have been passed. At close today, it stands at 8,579.

So that doesn’t look so good for private accounts. Balko points out, however:

No one gets his first paycheck five or six years before retirement. And all of the plans for full or partial Social Security privatization called for bringing in private accounts in phases. People already near retirement would have received the same benefits they were anticipating. But younger people would have had 20 or 30 or 40 years to invest, using the power of compound interest to yield returns exponentially higher than the maximum 1.5-2.5 percent you can expect from the government. Even if the Dow drops below what it was in 2003, anyone would have had Social Security funds invested in it wouldn’t be retiring for decades.

There’s no period in the history of the stock market—including the crash of 1929, the stagflation of the 1970s, the crash of 1989, and the tech bubble burst of the early 2000s—in which a worker who’d been investing for 30 years or more wouldn’t have still received a far better return than what he got from Social Security, even if he retired the day after a historic Wall Street dive.

Furthermore:

Critics now trying to use the financial crisis on Wall Street to make political hay of the push for private accounts in 2001 also neglect to mention that for all the risk they want to associate with Wall Street, if you’re under 40, you’re at far greater risk of never seeing your Social Security deductions under the present system than under any privatization plan. Social Security faces an unfunded liability of $4 trillion over the next 75 years. USA Today reported in May that the combined federal liability for Social Security, Medicare, and other government programs for everyone currently eligible is more than $57 trillion, or $500,000 for every household in the country. And, of course, Congress can raid the Social Security “trust fund” at will.

The stock market is risky? The federal government currently has obligations it will never be able to keep.

Posted on 10/09/08 05:55 PM by Alex Adrianson

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