Monday, January 17, 2005

Ownership and Social Security

On NPR's Talk of the Nation today, a Bush supporter was asked: if investing in the stock market is such a good idea, why don't we do it with the current Social Security Trust Fund? (I too have made that point. See, for example, Social security and magic.)

His answer is that the difference is ownership. If individuals own the investments, magic occurs; if the government does, no magic. He didn't explain why there was a difference in magic if both were required to invest in index funds. (I guess the market just knows.)

On the other hand, if individuals are not required to invest in index funds, he didn't explain why the average investor would do better than index funds. Most mutual funds do worse than index funds. Certainly some individual investors would do better. But others would do worse — and based on our experience with mutual funds, more investors would probably do worse than better. So since this is not supposed to be a investment program but a retirement program, why let individuals select their own stocks? The claim is that the market in general provides better returns than government bonds, not that individual investors are good stock pickers. These are really separate issues.

Also, if individual investors pick their own stocks, what are we to do about retirement for people who lose money in the market? Let them starve? Perhaps that just the way of compassionate conservatism. Or perhaps, private charities will be recruited to rescue those people.

I'm glad that I heard the broadcast, though. I was wondering whether there was a real argument about why, if one buys the Bush claim that investing social security funds in the stock market is a good idea, investing the current trust fund in index funds isn't. Apparently there is no such good argument.

But as usual, the Bush people don't care about reality. After all, they are not part of the reality-based community. When they say something, it creates a new reality. I keep forgetting. Foolish me.

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