Social Security Funds Must Not Be Invested In The Market
29 January 1999 By Stentor Danielson
We college students don't think much about getting old. But we do pay for it, every time taxes are withheld from our paychecks. Ordinarily, I'd just shrug at the Social Security deductions, and figure I'll be glad when I'm 70. But now, our illustrious President Bill Clinton has me worried about the fate of that money. Clinton, in his State of the Union address last week, committed himself to ensuring the survival of Social Security.
His proposal, in brief, is to set aside 62 percent of the projected budget surplus over the next 15 years to shore up the program's funding. Clinton, however, believes that even that four trillion dollar bonus will not be enough to alleviate Social Security's woes and make it viable and productive in the coming millennium. He boldly suggested that the federal government invest up to a quarter Ð 700 billion dollars Ð of the proposed funding boost in the private stock market. Unfortunately, such a move is bound to create a massive headache for the government and citizens alike.
The most obvious criticism of the plan rests on the natural unpredictability of the stock market. Over break, I saw an update on an experiment done wherein a leading investor and a chimpanzee were both asked to pick five companies in which to invest a hypothetical sum of money. At the end of four and a half years, the human finally took the lead in earnings, but not by much. What is more frightening is that both investments began by losing a substantial amount of money. Do we want to trust our future to such a risky undertaking, where a monkey can lose money and still be better off than a successful businessman?
Even if the government invests conservatively, following proven strategies to get small, but relatively certain, gains, what will the public think? Will they be comfortable planning their retirement based on a program that, despite being called Social Security, is subject to the whims of an entity as chaotic and poorly understood as the stock market?
Getting beyond the potential financial failure of the proposal, there is a legal angle as well. In order to prevent governmental interference in the selection of investments, Clinton proposes to have the investing done by a special group of private investors. Congress is supposed to be impartial, too, acting for the best interests of the nation or their constituency in general. But can anyone be so naive as to believe that this always happens? Lobbying and political pressures are facts of life, and such things will undoubtedly creep into any body officially designated to make such huge and influential decisions as the investment of Social Security funds.
But even if the investors remain true to their purpose, there is no guarantee that the American public will believe so. Accusations of favoritism, often amounting to lawsuits, will spring up, and with the unpredictable nature of the stock market, there will be little conclusive proof one way or another. Such hassles will pave the way for legislation to regulate investments -- so many dollars to minority-owned companies, so many dollars to companies based in such-and-such a state, so many invested in industry X. The focus will change from earning money to save Social Security to distributing government funds "fairly," so as to avoid losing those earnings in the courtroom. I'm certain that this bureaucratic nightmare was not what Clinton had in mind last Tuesday.
Finally, there is the public opinion to worry about. The same people who will sit on the couch this Sunday and coach the game better than Dan Reeves or Mike Shanahan have opinions on the government's investments. And you can bet the budget surplus that they won't agree 100 percent with the federal investors. Though the stock market may not be as exciting as the Super Bowl, it has more impact on their lives. These people will be mad, because they knew that Microsoft was going to go bankrupt, while New York Pizzeria (Slices) was going to become an international chain in a matter of years. And even if they didn't know back when it was time to pick an investment, they'll say they did. Social Security would become a tool for irritating America's back-seat drivers.
So if Clinton has his heart set on stock market revenues as the way to bolster our elderly's income, he needs a new plan. Perhaps he ought to give that 700 billion dollars back to the people, for them to save or invest as they see fit. That way, the people will have nobody to blame for their earnings but themselves.
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