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March 19, 2005

How About Some Free Money to Fix Social Security?

If you spend an afternoon walking around lower Manhattan, you will come across lots of big buildings filled with lots of busy, high-paid people. The New York Stock Exchange building is one of these buildings. The beautiful World Financial Center Plaza near Battery Park encompasses others. If you tour one of these buildings, you will see people talking on the phone and staring at large LCD computer monitors, but you won’t see any tangible goods being produced. What, then, pays for all of these buildings and all of these people? It isn’t taxes—these people work in the private sector and are paid by customers who can say, “No”. One answer is, “a financial service called ‘asset allocation optimization’”. There are many, many different kinds of financial assets in today’s world: common stocks, preferred stocks, private equity, REIT shares, corporate bonds, Treasury bonds, etc., etc. Counting factors such as the identities of the issuers of the assets, maturities, restrictions, etc., there are literally billions of discrete financial assets. There are also millions of different potential owners of these assets, each one having a different set of needs and objectives. The people in those buildings in New York City are paid (very handsomely) to optimize the allocation of the available financial assets among the myriad of potential owners. Social Security is an amalgam of a “Forced Retirement Savings” program, a “Death and Disability Insurance” program, and a “Welfare” program. In effect, today’s Social Security System forces all 160 million participants in its “Forced Retirement Savings” program to invest their retirement money in the same asset: U.S. Treasury Bonds. Economically, this is irrational. There are buyers out in the world who would want those Treasury Bonds more than the assets (such as common stocks) that they are now holding. There are also many Social Security participants who would be better off owning retirement assets other than Treasury Bonds. The creation of Personal Social Security Accounts (PSSAs) would permit a massive re-optimization of the world allocation of financial assets and generate billions of dollars of value. This extra money (which would be realized as higher returns on PSSA assets) could be used to help restore solvency to the Social Security System and also to provide workers with higher retirement incomes. To pass up this “free money” and instead dump the problem on the backs of taxpayers and future retirees would be insane. But Democrats and RINOs will do a lot of crazy things to help maintain mass dependency on government.

Posted by Louis Woodhill at March 19, 2005 2:06 PM | Print

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