On Privatizing Social Security

I know, I know, the phrase "Privatizing Social Security" has fallen out of favor; however, the idea certainly hasn't gone away (in fact, it wasn't long ago there were a lot of Democrats talking glowingly about it as well). There are strong indications that some form of privatization is still near the front of the conservative playbook, and is likely to become an important issue, especially as the financial situation of our federal government gets worse. It is boosted by the fact that American society has been hypnotized by the "Government Bad, Private Good" mantra.

What I would like to share is an argument that is simple, direct and plays into people's self-interest - particularly those of us who are nowhere near retirement age. I think it can be used to blunt much of the argument for privatization, regardless of where people fall on the political spectrum.

What will happen if SS is privatized will look really good in the short term. Billions of dollars will suddenly be dumped into the stock market. This will inflate a new market bubble, similar to what we saw in the 90s and huge amounts of money will be made (mainly by the big financial institutions, however everyday citizens will appear to be striking it rich as well). Many smaller investors will use their gains to buy real estate, bidding up housing prices, and the net effect will seem to be large-scale economic recovery. The bubble will grow as long as the payments into the system exceed outlays to retiring Baby Boomers.

Here's the rub. A turning point will come just before the point is reached where more people retire than are entering the employment market. Stocks will begin to be sold off as institutional money managers dump their holdings, mainly onto their clients and small investors who do not realize that the wind is changing.

Once we little people do wise up, the stock dump will become an all-out rout. The stock market will collapse in a way that will make the dotcom burst seem like a hiccup.

When the dust settles, the government books will be cleared of its SS obligations, because we will have already given up our claim on the fed for payment. Of course, this is the ultimate goal of Chicago School monetarists, but I don't think it is likely to go over well with the average American.

The bottom line is, people have seen what a bubble-and-burst looks like really recently, and it shouldn't be hard to get them to envision this scenario. There is nothing unusual or revolutionary about the logic. It is simple common sense.


Hope this helps.

People have seen this scenario. Talk about privatizing social security has been on the back burner compared to a couple of years ago. Of course well fed right wing think tankers are still boosting this scheme; they don't have to worry about their retirement, do they? But it's not playing well outside of hardcore conservative circles and among the young. And so President Bush and, more importantly, Karl Rove have put this a bit on the back burner.

Bryant
Check it out --> http://politicalcomment.blogspot.com

I think giving small personal accounts to low income people with no savings of their own is a good idea...The nasdaq is already up almost 80% for the year...buying now would be suicide. I think if they can work it out so the investments are GUARANTEED and can be passed to a spouse or child in the event of death, its a good thing.