Kentucky Blog

Because Kentucky Is Not Called the "REDgrass State"

Thursday, June 16, 2005

Random Thoughts on Privatizating Social Security

The thing that the Ohio investment scandals involving bad investments of a couple hundred million dollars in tax payer funds (or rather the loss of a couple hundred million) ought to tell us is this: privatizing social security is a dangerous move, but not just for the reasons most often stated. So far, Ohio Republicans have lost millions on a taxpayer investment into "rare coins" (managed by a big time Republican donor with ties to all top Ohio GOP and Bush/Rove); a couple hundred million with an investment firm with Republican ties (those ties are described here); and now a couple more million with a Maryland investment firm even after its owner was accused of fraud (in the loss of $40 million) and who is now convicted of various crimes related to it.

Sure, the stock market has the potential for higher rates of return over time, and for purposes of this simplistic post I'll ignore the inherent problems with the current plans being floated (start here and take the red pill, or see this post where I actually support reform with system wide investments, a position I'm now reconsidering). The problem isn't really with the stock market though, or the bona fide risks that an investor faces when placing their money with an honest, straight laced investment broker.

The problem is that the government (read: whoever the current party in power is at the time with the ability to do so) tends to reward its supporters, whether deserving or not (see Fletcher's current JOBTROT woes as an example). This includes unscrupulous investment brokers akin to what we're seeing in Ohio. Like the Republicans are fond of saying - you can't trust the government. And while they mean you can't trust them not to spend the social security surplus, it also means you can't trust them to give your social security to honest people. Maybe one day we'll be blessed with public officials that have an honest to goodness belief they work for us. I'm not counting on it, largely because we've grown accustomed to it and simply accept their shenanigans as "politics as usual." Reading any blog comments or message boards proves this.

My point is that when the government issues those "worthless IOU's" Bush is talking about in exchange for a loan from the surplus, those IOUs (a/k/a treasury bonds) happen to be backed by the full faith and credit of the United States. "Full faith & credit" is found in a little place I like to call the US Constitution, which is a little thing I like to call the intellectual and aspirational foundation of our country. Just as I don't care for Bush pissing on my country's full faith and credit, I don't care for the thought that my tax dollars would be placed with someone for investment who will piss on my investment.

No, I don't suggest all investments be in t-bills, that's just stupid. But Social Security isn't an investment. It's insurance. I think it's great if you don't need Social Security and have money to invest in rare coins or with a broker that boasts a negative $40 million dollar profit (i.e. a loss). But the funny thing about a $215 million loss by the state of Ohio with MDL Investments is that once the money's gone it's gone. It's now somebody else's money. Or no one's money. But it surely ain't the taxpayers' money.

Extrapolate that. The current SS surplus is $1.4 trillion (ignoring the annual $160 billion addition to the surplus) and let's say it's squandered on a beautiful collection of faux art (Rembrandt-esque, if you will). And let's say it loses 71.5% of its value (just like MDL did to Ohio's investments). That leaves $399 billion.

Another way to look at $399 billion? It's less than the defense budget for the United States.

It also looks like this: $399,000,000,000.

And the loss looks like this: $1,001,000,000,000.

Might I suggest an alternative investment be a game of chance? I play a mean hand of blackjack, and can anyone besides me imagine the comps you'd get in Vegas if you were tossing that kind of cabbage around? Oh yeah, we could shore up Social Security too (almost forgot that part).

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