Caveat on Social Security Reform

I had some links on Social Security reform here

One thing I forgot to mention -- No matter what we decide to do, please, please do not let the government invest social security funds in private equities.  I am all for giving individuals control of their social security funds and allowing these individuals to make their own investment choices.  But, allowing the government to invest in equities will lead to all sorts of problems:

  1. The most obvious is creeping socialism and regulation, particularly of companies that are not well-loved by the intelligentsia.  Mad at Dick Cheney?  Pass a law that the trust fund can't invest in Haliburton.  Don't like Dan Rather?  Pass a law that the trust fund can't invest in CBS.  You get the idea.  The mere threat of disowning the company's equity from the trust fund investments portfolio would force companies to kowtow to the populist notion of the moment.
  2. If you worry about private individuals manipulating the stock market, just wait until the government has the incentive to get in the game.  The government has all kinds of ways, from small (control of economics data) to large (interest rates and SEC regulations) to manipulate the market for short term gain. 

Marginal Revolution also has an interesting post on whether the historic equity premium would still exist if the government invested massively in equities.

  • Max Lybbert

    Perhaps I'm a little cavalier, but Senators have shown themselves to be pretty good at playing the markets (http://www.professorbainbridge.com/2004/11/senators_and_in.html ).

  • TKUe

    If Social Security is such a burden on the Federal goverment than why won't the Federal goverment hand the burden over to the States. Divide the current asset in the Social Security program between the States and allow each State to come up with a retirement program on their own. People that might move from State to State can transfer their accounts with them. Unless the Federal goverment still wants control of the money.

  • TKUe

    If Social Security is such a burden on the Federal goverment than why won't the Federal goverment hand the burden over to the States. Divide the current asset in the Social Security program between the States and allow each State to come up with a retirement program on their own. People that might move from State to State can transfer their accounts with them. Unless the Federal goverment still wants control of the money.