Social Security Privatization and Bad Times
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James Joyner | Monday, March 17, 2008 |
Publius snarks, “It’s too bad we didn’t invest one-third of the Social Security system in the market.”
Indeed it is. To be sure, we’d have “lost” money if we had done so in early 2005 and taken all of it out this morning. Then again, we’d have lost money anyway since, in lieu of investing it in stocks, we’re simply spending it and writing IOU’s.
Moreover, retirement savings is a long-term, large scale enterprise that reaps the benefits of compound interest and dollar cost averaging. During periods when the market is in decline, as it is now, one’s investment buys more shares of stock. During periods when the market is growing, as it has for most of the past thirty years, one earns dividends which are reinvested. Either way, there are no legal ways of which I’m aware to make more money over a long period of time.
About the Author: James Joyner is the publisher of Outside the Beltway and the managing editor of the Atlantic Council. He's a former Army officer, Desert Storm vet, and college professor with a PhD in political science from The University of Alabama. He lives just outside the Beltway in Alexandria, Virginia with his wife and infant daughter.
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There's been plenty of long periods where stock performance underwhelmed compared to fixed income. Think 1929-1955.
long periods where stock performance underwhelmed compared to fixed income
I'm sure that's the case. But that doesn't mean that the government wouldn't have been better off investing in stocks rather than just spending the money and relying on tax revenues to pay out said fixed income.
Moreover, retirement savings is a long-term, large scale enterprise that reaps the benefits of compound interest and dollar cost averaging. During periods when the market is in decline, as it is now, one’s investment buys more shares of stock. During periods when the market is growing, as it has for most of the past thirty years, one earns dividends which are reinvested.
You left out "During periods when the market completely melts down one loses *everything*." Which is kind of the point to not tying the market to our social safety nets.
You left out “During periods when the market completely melts down one loses *everything*.”
Because it's not true. The market has never melted down to the extent that you're left with nothing. And we're talking retirement annuities, not a one-time withdrawal where you'd be playing the lottery.
Really? How comfortable would you be with the federal government owning an ever-increasing share of American businesses?
The market has never melted down to the extent that you’re left with nothing.
Literally nothing? No. But if you'd had some portion of your SS benefits tied up in say Bear Sterns, you'd be an awfully unhappy camper today. You wouldn't have lost literally everything in that investment, but damn close.
There's a reason suicides went up so much during the depression.
Emphasizing James' point: The Worst Returns of the S&P 500 vs the Safest Investments on Earth
For the record, the absolute worst case U.S. stock market modeled in the link above is actually worse than what any real-life investor has seen.
