Monday, January 10, 2005

Social Security funds hitting the market?

One of my students asked a smart question today. At least I thought it was smart because I didn't have the answer. Worse, I couldn't make some plausible sounding answer up on the spur of the moment. So, I figure it was a really smart question.

What happens to the market when we have whole lot of new Social Security money seeking a home in the market?

I have heard that its gonna be a whole bunch of wonderful for all of us employees to be able to invest some of our FICA clams in the market where, we are assured, we will become rich without need for knowledge, judgment, or luck. (Contrary to the experience of some others who've tried investment. )

And I'm prepared to believe something like that. Take the market history of the last 40 years and dump an amount equivalent to the amounts I put into Social Security over the years, and calculate earnings based on what the market as a whole (a hole?) has done, and the market looks like a better deal. And, if we are all invested in American industry, we all become a little less socialist in our thinking and values. And I've always thought less socialism would be a fine thing for all you out there.

But the market of the last 40 years isn't what we are going to get. Leave out the question of which particular investments to buy, and which not to buy. The market we get will be one where there are a whole lot more little investors than before, trying to park a few bucks each in the market by placing money the hands of so-called pros running funds. The market we get will be one where there are a whole lot more dollars trying to buy a relatively inelastic supply of quality investments. Well, what happens when demand for a commodity increases, but the supply of the commodity doesn't?

I don't think there are that there are all that many great business plans out there neglected and decaying for lack of capital.

That isn't to say that there won't be money to be made. But I've observed that sometimes while much money gets made, it just doesn't get made by the people who expected to make it. And not all companies that make money are making product that would survive without the constant injection of breathless imagination and lies -- I mean marketing. Lots of money is being made producing and selling product whose only utility is that it can serve to separate rubes from their money on its way to the landfill. So, I guess we can always whip up a few more IPOs to soak up the extra cash all us employees are going to place in the market for our own good. And I guess we'll need people to tout investments to all us new investers. There will be enough action for everybody.

I think the market we get with social security investment is basically going to provide just a lot more action. But if it's American action, I'm for it -- provided, of course, that some of it sticks to my chubby little fingers.

1 comment:

Michelle said...

A Little Socialism in a Democatic Society Isn't Such A Bad Thing Folks

According to George W. Bush, Social Security is in crisis now. However, according to the angst ridden, pessimistic analysts down at the Social Security Budget Office, SocialSecurity has a current $3.5 billion dollar surplus to sustain itself until the year 2042 when George W. Bush will be well into his 90's and I will be, well, we won't go there. This coming from an unusually pessimistic group of analysts. They also predict that if nothing changes the systems income will still cover roughly 37% of it outgoing and that's using the Social Security Administrations very conservative figures.If you use the Bush administrations own budget calculations the effects of Mr. Bush's own tax cuts the surplus will never run out. Don't believe me? Look it up for yourself, the data is there, right on the web. Sure there may need to be some minor adjustments along the way for inflation and age (we are on average living longer) but, the reality is folks Social Security really isn't in a crisis now.

Don't get me wrong I'm all for self-reliance and the ability to manage ones own wealth. But to think that by rushing to privatize accounts you will be making millions of investors is just a falacy. while it is true over a 40 year average the market has faired quite better than Social Security, individual investors as a whole have not have faired on average as well as the market has, not everyone is born to be an investor, not everyone has that skill or talent.Joe Smith who works at the auto body shop 9 to 5 and then the factory from 5 to 1 is not going to become that true investor. Joe Smith is more likely to dump his hard earned buck into some fund to be managed by a brokeage house. This truly is a windfall for Wall Street and the brokerage houses, not necessarily Joe Smith, maybe, but probably not.

Lastly ,the idea of Social Security has been that banishing indingence among our elderly is good. Taking care of those that have taken care of us is not only the right thing to do, it is something we must do. Wasn't moral values an elections issue last year? None of us, at any age, should be denied the minimal human dignity and decencies at the ends of our lives and last of all, for the neoconservatives out there still shaking your heads, we must as the bible tells us; "Honor thy father and thy mother, that thy days be long upon the land by which the Lord thy God giveth thee." Need I really say more?