Brendan Miniter of the Wall Street Journal explains the true stakes in the debate over social security reform. Ultimately, says Miniter, the issue isn’t whether social security funds will be invested in the stock market. Rather, the issue is whether the government will direct this investment.
I think Miniter is correct. The news on the future of social security is almost entirely grim. At some point in the future, the system will have to be fixed through a combination of benefit cuts and tax increases. The one mitigating piece of good news is that, thanks to the stock market, social security funds can be invested in a way that, over time, will yield much higher returns than the present system does. Thus, whichever party fixes social security will want money to be invested in stocks. However, the high yields of the stock market can be exploited either by letting individuals invest their money in the market or by having the government invest it there for them. As Miniter argues, a huge problem with the latter approach is that it will give the government a powerful new tool with which to influence financial markets for political reasons.
My sense has been that, unless one party gains total political ascendancy, social security reform will not occur until the solvency crisis is virtually upon us. If I’m right, this means it probably won’t occur for some time. I’m hoping that by the time it does occur, the electorate will be dominated by people who are comfortable investing their money in the stock market, and who will be loathe to turn control of their investment decisions over to the government. I’m not confident that we have that electorate now.
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