Social Security "reform"

[eldyna]

Has anybody noticed that all the SS privatization proposals have missed a vital point?

Company profits are the only source of stock market gains. If you don't understand this, you don't understand the market.

Add up the needs of all retirees, and compare that with the total profits of all companies. I have done the math, and there is a huge mismatch, especially if you consider the global picture.

Comments?


Tim

[eldyna]

For a more detailed discussion, see:

http://www.sucitax.com/index.html

Tim

[natedogg]

Two things:

1. Foreign markets.

2. Bonds.

But the paternalists in Congress will probably lock down options you'd have and I'm sure they'll exclude anything foreign, which is ridiculous.


natedogg

[eldyna]

[ QUOTE ]
Two things:

1. Foreign markets.

2. Bonds.

But the paternalists in Congress will probably lock down options you'd have and I'm sure they'll exclude anything foreign, which is ridiculous.


natedogg

[/ QUOTE ]

Foreign markets? This is more than balanced by foreign investors competing for the profits of American companies. Besides, Many of the companies listed on our stock exchanges are foreign companies.

Bonds? The total bond market is MUCH less than the market in equities. Government bonds are no solution -- that simply puts the burden on the taxpayer, just what the privatizers are trying to avoid.

You really have to do the math to show that privatization makes sense. Keep in mind that a major portion of company profits are already dedicated to retirement funds of many different kinds.

Please visit

http://www.sucitax.com/index.html

The arguments on my site, I firmly believe, refute unconditionally the arguments of the privatizers. Prove me wrong.

Tim

[Felix_Nietsche]

(1) The average return on SS taxes is between 1 and 2%. This is just marginally better than putting your money under a mattress...

(2) SS will not enough money to meet their obligations in the coming years.

(3) I'm less than impressed with the link you posted... I thought such primitive economic thinking was laid to rest after the cold war. In case you didn't hear. Adam Smith won and Karl Marx lost.......

Allowing 5 or 10% of SS payments to be invested will not upset the apple cart. The system needs fixing. Bush43 has the balls to try to fix it.

[eldyna]

Why is it that I am accused of Marxism whenever I resort to arithmetic?

Add them up. The potential investment returns simply are not there. Privatization seeks the legendary free lunch. It still does not exist.

Show me that buying stocks can produce $1 Trillion in 2005 dollars in real wealth every year, and I will instantly become a privatizer.

Do the math.


Tim

[MMMMMM]

I don't think you are considering everything, Eldyna.

Stocks, bonds, even plain old interest-bearing notes--all have generated much better than 1%-2% ROI over a 50-year period say. So too has real estate.

Remember when interest rates were like 18%? Heck even old Ben Franklin wrote that money was worth 6% a year.

Your argument seems to be that there simply isn't anywhere to invest the money that will pay better than 1-2% yearly long-term, or that there's no room to invest it. Doesn't sound right to me.

[eldyna]

More thoughts.

[ QUOTE ]
(1) The average return on SS taxes is between 1 and 2%. This is just marginally better than putting your money under a mattress...

(2) SS will not enough money to meet their obligations in the coming years.

(3) I'm less than impressed with the link you posted... I thought such primitive economic thinking was laid to rest after the cold war. In case you didn't hear. Adam Smith won and Karl Marx lost.......

Allowing 5 or 10% of SS payments to be invested will not upset the apple cart. The system needs fixing. Bush43 has the balls to try to fix it.

[/ QUOTE ]

You have been duped by the Cato Institute and other right wing propagandists.

I am 65. I have done the math, and my SS benefit is about twice what I would get if the Cato plan had been in effect. The imputed return on my SS taxes is around 8%.

Dammit, you gotta do the math. Don't let others do your thinking for you.

The SS system -- even according to the privatizers -- is solvent through 2042 or so. The "crisis" is entirely a fabrication of the far right.

"will not upset the apple cart" ? Where are your numbers??

This is not a difficult topic in principle. All that is needed is an elementary understanding of arithmetic.

The total of ALL potential investment returns is woefully insufficient to provide a living for retirees. I challenge you to refute that with hard numbers, not empty rhetoric.


Tim

[natedogg]

[ QUOTE ]

The total of ALL potential investment returns is woefully insufficient to provide a living for retirees. I challenge you to refute that with hard numbers, not empty rhetoric.

Tim

[/ QUOTE ]

So... if Social Security had never existed, what would have happened to the markets? By your logic, it is necessary to confiscate Social Security funds in order to shorten the money supply to allow the markets to grow. In other words, it is a scheme for the rich to keep themselves rich.

You should be opposed to such a scheme. I am.

natedogg

[eldyna]

[ QUOTE ]
I don't think you are considering everything, Eldyna.

Stocks, bonds, even plain old interest-bearing notes--all have generated much better than 1%-2% ROI over a 50-year period say. So too has real estate.

Remember when interest rates were like 18%? Heck even old Ben Franklin wrote that money was worth 6% a year.

Your argument seems to be that there simply isn't anywhere to invest the money that will pay better than 1-2% yearly long-term, or that there's no room to invest it. Doesn't sound right to me.

[/ QUOTE ]

You are ignoring the fact that the market doesn't pay a return as a percent of the amount invested. It pays a number of dollars per share. There are only so many shares, and only so much profit. The pie simply is not big enough.

This is at heart a math problem. The total of all potential investment returns is simply too small to fund the retirement of all American retirees.

I have done the math. Have you?


Tim

[eldyna]

[ QUOTE ]
[ QUOTE ]

The total of ALL potential investment returns is woefully insufficient to provide a living for retirees. I challenge you to refute that with hard numbers, not empty rhetoric.

Tim

[/ QUOTE ]

So... if Social Security had never existed, what would have happened to the markets? By your logic, it is necessary to confiscate Social Security funds in order to shorten the money supply to allow the markets to grow. In other words, it is a scheme for the rich to keep themselves rich.

You should be opposed to such a scheme. I am.

natedogg

[/ QUOTE ]

I'm sorry, none of the above makes economic sense to me. Perhaps you could expand on this thought?

Tim

[adios]

[ QUOTE ]
Company profits are the only source of stock market gains. If you don't understand this, you don't understand the market.

[/ QUOTE ]

That's not true actually, at least that doesn't jive with modern portfolio theory.

One can favor Social Security reform and not be for privitization btw.

[adios]

[ QUOTE ]
I am 65. I have done the math, and my SS benefit is about twice what I would get if the Cato plan had been in effect. The imputed return on my SS taxes is around 8%.

Dammit, you gotta do the math. Don't let others do your thinking for you.


[/ QUOTE ]

Show us your math ie how do you arrive at your conclusions?

[adios]

A non answer to his post, show us your math.

[rjduo1]

i am no math wiz, never claimed to be. i'm just your run on the mill plumber..<yes math is a big part of plumbing..lol> i do know one thing..i WANT MY MONEY to do what i want with it..thanks

[MMMMMM]

Eldyna,

Even if your argument is correct about the stock market (which I intuitively doubt), what about interest-bearing instruments?

The average rate of return on interest-bearing notes well surpasses 1%-2% over any long-term period. Interest-bearing instruments take many forms, and if I am not mistaken, in aggregate dwarf the stock market in terms of overall size.

By the way earlier you asserted that the stock market is bigger than the bond market. Well, what are their capitalizations?

[Wake up CALL]

[ QUOTE ]
I am 65. I have done the math, and my SS benefit is about twice what I would get if the Cato plan had been in effect. The imputed return on my SS taxes is around 8%.


[/ QUOTE ]


Incorrect, I have done the math. Have you?

[ QUOTE ]
This is at heart a math problem. The total of all potential investment returns is simply too small to fund the retirement of all American retirees.


[/ QUOTE ]


False, I have done the math. Have you?

[ QUOTE ]
You are ignoring the fact that the market doesn't pay a return as a percent of the amount invested. It pays a number of dollars per share. There are only so many shares, and only so much profit.

[/ QUOTE ]

More falsehoods, the $ amount is computed as a percentage of the profit then paid in dollars. I have done the math. Have you?

[eldyna]

[ QUOTE ]
A non answer to his post, show us your math.

[/ QUOTE ]

We will soon have 50 million retirees. If the average retirement income of each -- from all sources -- is $20,000/year, we will need to find $1 Trillion in investment gains.

$20,000 a year is very reasonable. Our per capita GDP is approaching $40,000, so this means that retirees will have to make do with half a piece of the pie.

Where is the cash to come from? The sum of all dividends paid by all public companies is on the order of $400 Billion. The interest on all corporate bonds is less than that, around $300 Billion.

The difference can only be made up by assuming that stock prices will continue to go up at a faster rate than earnings. This is generally known as the "greater fool" theory. Bluntly put, a system of individual accounts is nothing more than a Ponzi scheme.

The shortfall is even worse when you consider the rest of the world. Allowing for differences in retiree population and living standards, the rest of the world will need an additional $3 trillion a year for their retirees.

That's the math. Close your eyes if you want, and pretend that individual accounts will somehow be enough. Or do some research as I have.


Tim

[eldyna]

[ QUOTE ]
[ QUOTE ]
I am 65. I have done the math, and my SS benefit is about twice what I would get if the Cato plan had been in effect. The imputed return on my SS taxes is around 8%.


[/ QUOTE ]


Incorrect, I have done the math. Have you?




Are you telling me that you have put my earnings history on a spreadsheet and compared my SS benefits with the benefits I would get under the Cato plan? Where did you get my earnings history? Very clearly, you are not in a position to make the above ridiculous claim.




[ QUOTE ]
This is at heart a math problem. The total of all potential investment returns is simply too small to fund the retirement of all American retirees.


[/ QUOTE ]


False, I have done the math. Have you?



See my post of 1:34 today. Of course I have, but you obviously have not. All you have done is to close your eyes and deny.



[ QUOTE ]
You are ignoring the fact that the market doesn't pay a return as a percent of the amount invested. It pays a number of dollars per share. There are only so many shares, and only so much profit.

[/ QUOTE ]

More falsehoods, the $ amount is computed as a percentage of the profit then paid in dollars. I have done the math. Have you?

[/ QUOTE ]

Your understanding of the stock market is virtually non-existant. Dividends are paid in $$/share. You can divide that by the price you paid to get a percentage if you want, but the underlying company does no such thing.


Tim

[eldyna]

[ QUOTE ]
[ QUOTE ]
I am 65. I have done the math, and my SS benefit is about twice what I would get if the Cato plan had been in effect. The imputed return on my SS taxes is around 8%.


Dammit, you gotta do the math. Don't let others do your thinking for you.


[/ QUOTE ]

Show us your math ie how do you arrive at your conclusions?

[/ QUOTE ]


I don't propose to post a 45 line Excel spreadsheet here, nor will I share my lifetime earnings history with a bunch of strangers.

If you are really interested, get somebody who is around my age to give you their earnings history, then crank up your spreadsheet. You'll see what I mean.

Tim

[eldyna]

[ QUOTE ]
[ QUOTE ]
Company profits are the only source of stock market gains. If you don't understand this, you don't understand the market.

[/ QUOTE ]

That's not true actually, at least that doesn't jive with modern portfolio theory.

One can favor Social Security reform and not be for privitization btw.

[/ QUOTE ]

Modern Portfolio Theory merely addresses the manner in which the individual investor ought to diversify. It says nothing about the ultimate source of stock market gains.

I refer you to the works of John Burr Williams, who formulated the "Dividend Discount Model" back in the thirties. It has never been seriously challenged.

http://www.moneychimp.com/articles/valuation/dividend_discount.htm


Tim

[adios]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
Company profits are the only source of stock market gains. If you don't understand this, you don't understand the market.

[/ QUOTE ]

That's not true actually, at least that doesn't jive with modern portfolio theory.

One can favor Social Security reform and not be for privitization btw.

[/ QUOTE ]

Modern Portfolio Theory merely addresses the manner in which the individual investor ought to diversify. It says nothing about the ultimate source of stock market gains.

[/ QUOTE ]

Totally wrong.

[ QUOTE ]
I refer you to the works of John Burr Williams, who formulated the "Dividend Discount Model" back in the thirties. It has never been seriously challenged.

http://www.moneychimp.com/articles/valuation/dividend_discount.htm


Tim

[/ QUOTE ]

In a Discounted Cash Flow valuation model which a Dividend Discount Model is a special case of, the rate of return used to calculate the present value of future earnings (of dividends for the Dividend Discount Model) the rate of return aka the discount rate, represents two components. The first components is the time value of money and the second component is the risk premium (the CAPM gives the formula for calculating the discount rate (rate of return)). The risk premium is the extra return that investors demand for taking the risk. The ex post equity risk premium is generally accepted to be at about 5.5% above the coupon rate for long term U.S. Treasuries. Certainly the magnitude of the ex-ante equity risk premium is open to debate. Dr. Bradford Cornell has written an excellent book on the equity risk premium:

Summary of Cornell's book (http://www.meansbusiness.com/Finance-and-Profitability-Books/The-Equity-Risk-Premium.htm)

I'd also highly recommend both volumes of Dr. Aswath Damodaran's opus, Investment Valuation, where he goes into depth on valuation models (including the dividend discount model) and gives an explanation of the equity risk premium.

[adios]

Of course corporate bonds represent a small fraction of the coupons paid in the bond market. Payments from the coupons on U.S. treasuries are supposed to provide future funding for Social Security as well contributions from those currently. Long term returns on stocks including capital gains have dwarfed the return on bonds but I readily (gladly) concede that this may not be the case in the future. The proposals I've read about regarding privitization in accounts is such that only a portion of contributions would be available for private investment. I've also read that choices would be limited. Generally speaking, I'd like to invest after tax income that I earn as I see fit. Therefore I'm not a big fan of offering limited choices.

[ QUOTE ]
Close your eyes if you want, and pretend that individual accounts will somehow be enough. Or do some research as I have.

[/ QUOTE ]

Where in anyone of my posts did I state this? What is with people anyway? You rant about doing the math like your posts are crystal clear as to what your points are and believe me they weren't. There's nothing wrong with someone asking you to clarify a position that is unclear. I've taken the time to try and understand your rationale and that's greeted with basically attributing positions to me that I haven't taken. That's poor form. I can see you're more interested in having a flame war than discussing an issue. I've wasted enough time with people of your ilk.

[adios]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
I am 65. I have done the math, and my SS benefit is about twice what I would get if the Cato plan had been in effect. The imputed return on my SS taxes is around 8%.


Dammit, you gotta do the math. Don't let others do your thinking for you.


[/ QUOTE ]

Show us your math ie how do you arrive at your conclusions?

[/ QUOTE ]


I don't propose to post a 45 line Excel spreadsheet here, nor will I share my lifetime earnings history with a bunch of strangers.

If you are really interested, get somebody who is around my age to give you their earnings history, then crank up your spreadsheet. You'll see what I mean.

Tim

[/ QUOTE ]

What a line of crap. Use hypothetical numbers and describe the places where Cato is wrong

[MMMMMM]

[ QUOTE ]
This is at heart a math problem. The total of all potential investment returns is simply too small to fund the retirement of all American retirees.

I have done the math. Have you?

[/ QUOTE ]

First off let's be sure we are not comparing apples to oranges.

Are you talking about whether the potential for long-term ROI ought to be able to fund retirement of Americans, or are you talking about what would be needed to fix the current system and its projected shortfall, whether privatized or not? It wouldn't be fair to expect privatization to make up the projected shortfall and not hold the current unaltered system to the same standards. After all we are trying to determine which is better not which is less than ideal.

So fixing the system is one issue, and long term ROI funding retirements is another (though they are related somewhat).

You stated your personal ROI from SS is about 8%. If so, that puts you well above average for contributors in terms of personal ROI from SS (also the fact that you "lose" your "principal" when you die--you cannot pass it on to your heirs, nor can you borrow against it while living-- may depress those numbers but that is not necessary to address for the purposes of this discussion.).

What I can't see in your argument is this: why someone, starting at say age 20, should not be able to do better investing the money in the long-run provided they stuck to not-too-risky investments. Stocks, mutual funds, bonds, CD's, all manner of interest-bearing instruments, and real estate, have all outperformed the average ROI of SS which is 1%-2%.

So leaving aside for the moment somehow 'remedying' or 'adjusting' the system to avert future shortfalls, is it not true that other standard investmnents have significantly outperformed the ROI of SS? If so that means that greater returns would have been produced from those same dollars starting many years ago. How can that not be better for retirements?

I just don't see how a miserly rate of return can outperform average rates of return on standard investments over the long haul. Nor do I think the available places to put money have been so far saturated that no better returns could have been achieved. Nor do I think it likely that the economic paradigm has changed so immensely that that which has held true for centuries will no longer hold true.

The current system is unsustainable in its present form, in part due to demographics. Regardles of the demographic model, the higher ROI in standard investments argues strongly for somehow switching over to a privatized or at least partially privatized system. Is your argument really based on the notion of oversaturation of investments? If so please elaborate and NOT just on the stock and bond markets because there are clearly other viable investment vehicles as well. I cannot imagine they would all become oversaturated to the point of relative uselessness if SS were to be privatized, although there might be a jolt initially. At any rate I cannot imagine they would all pay les than 1%-2% on average over the long haul.

Anyway your argument might be slightly more convincing if you argued not only for the stock market and bond markets drawbacks to oversaturation of investment capital, but for real estate and all interest-bearing instruments as well becoming oversaturated. I for one don't buy it one bit but maybe you can provide some excerpts to show what I might be missing.

Also, let's just assume for a moment that you are right and that investment alone cannot completely fund retirement even if started at a relatively early age (hard to believe--if one starts IRAs etc. at 21 and goes on for 45 years contributing that ends up being a LOT of money). Anyway if investment cannot fund retirement even starting at an early age the only way to pick up that slack then would seem to be the Ponzi-type scheme of young wage-earners supporting old non-wage-earners. Clearly however bthis will prove more and more impractical as lifespans lengthen (unless health stops deteriorating rapidly due to major medical advances such as future cell repair, and people can work well beyond what is normal today). So the Ponzi-type system is no answer at all at least until we get some major longevity/health breakthroughs and people can work decades longer than presently.

Comments please Eldyna?

[eldyna]

First, my assumption is that it is complete privatization that is at issue. Bush may propose a partial privatization, but I believe he means to dismantle SS altogether.

On what do I base this? The Cato Institute last year proposed what they called The 6.2 Percent Solution, which calls for the eventual demise of the system. All of Presidents speeches on the matter are sprinkled with the same rhetoric as found in this document. The same phrases, the same arguments, the same logic.

So, I believe that dismantling the system is the real issue. We already have personal accounts in the form of IRA's, 401(k), and numerous public and private retirement funds. If we wanted to increase national savings, or increase the savings of the average worker, there are approaches that could be proposed that don't affect the current SS system. Those proposals have not been made.

I agree with you that demographic trends and advances in medicine pose a real problem, and I don't have any magic wand to solve these problems. That's a related, but different issue.

You propose a panoply of investment vehicles that might fill the gap that I have pointed out, but do you really think that Joe Sixpack is going to buy land, or engage in the sophisticated techniques you mention? The Cato plan advocates a mixture of "safe, government approved mutual funds". Joe Sixpack has only a muddled idea what a mutual fund is, let alone anything more complicated. Turn him loose in the investing world, and he is a certainty to be shorn. (I might well be one of those to do the shearing.)

Right now, SS benefits are paid out in the neighborhood of half a trillion yearly. If we privatize SS, this means that we will have to start producing an additional $.5 Trillion in real investment gains. You cannot cause this kind of money to magically appear just because you want it to.

You talk about the expected ROI of investments. Now, if I wanted to drive to Chicago from my home in South Bend, I could do so in about two hours. But some things cannot be scaled up. If the entire population of South Bend tried to go to Chicago tonight, the road system couldn't handle it. (It can just barely handle the traffic we have right now.)

So, if an individual could amass a $1 million nest egg by retirement (Peter Ferrara has tossed numbers higher than this around), it does not necessarily follow that 25 million retired couples could do the same. How can we expect the financial system to handle the additional load? Such a state of affairs is unthinkable -- it would imply assets in the hands of retirees amounting to $25 Trillion, plus a like amount in the hands of the workers still in the work force. That's $50 Trillion -- more than double the market cap of all the stocks you can buy on Wall street. And that's only considering American retirees. What about the Brits and the Chileans, and the Aussies, the French, ... ? The financial markets, and the opportunities for investment are global. Do you think that the Japanese will stand idly by while we Americans buy all the shares of Toyota? How can we keep the Germans from buying GE stock?

Now maybe you think that a $1 million nest egg is overstating the need. But consider this: According to the SSA, the average income in 1960 was $3000. A working couple had about $6,000 a year to live on. Had you proposed to them a system that could amass a nest egg of $200,000, they would have thought that more than enough. Today, that couple is retiring, and their pre-retirement income is maybe $70,000 a year. If they retire with a $200,000 nest egg, their nest egg doesn't look so great, does it?

Yes, part of their higher income is just inflation, but there are two other components: First the economy itself is greatly more productive that the economy of 1960. The rising tide floats all boats. Second, they themselves are more productive than they were when they entered the work force. Even after you discount for inflation, the Cato plan leaves them with a huge mismatch between their 2005 lifestyle and their prospective retirement income.

MMMMMM, you are obviously an intelligent person, and I assume you are fluent with Excel. Crank up you spreadsheet and run the numbers. If you are young, find somebody who is 65 or so, and use their salary history. Read the Cato proposal (Google "6.2 percent"), and assume it had been in effect in 1960. Now see what that person's income would be in retirement compared to his known SS benefit. And prepare to be shocked.


Tim

[eldyna]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
I am 65. I have done the math, and my SS benefit is about twice what I would get if the Cato plan had been in effect. The imputed return on my SS taxes is around 8%.


Dammit, you gotta do the math. Don't let others do your thinking for you.


[/ QUOTE ]

Show us your math ie how do you arrive at your conclusions?

[/ QUOTE ]


I don't propose to post a 45 line Excel spreadsheet here, nor will I share my lifetime earnings history with a bunch of strangers.

If you are really interested, get somebody who is around my age to give you their earnings history, then crank up your spreadsheet. You'll see what I mean.

Tim

[/ QUOTE ]

What a line of crap. Use hypothetical numbers and describe the places where Cato is wrong

[/ QUOTE ]



Please see my post of 8:10 tonight in reply to MMMMMM


Tim

[eldyna]

If you Google "Modern Portfolio Theory", and click on the firsrt link, you will find that I have given an accurate description of it.

Getting back to the original point, just where can stock market gains come from, if not from the underlying companies? Are we assuming that there will always be a "greater fool"?

I think you are trying to make a point about effective investing -- namely how to do better than other investors. My point is that all net gains (considering all investors) can only be a result of company profits.

Do you disagree with this? If so, could you point out the source of such gains?


Tim

[Zeno]

[ QUOTE ]
You propose a panoply of investment vehicles that might fill the gap that I have pointed out, but do you really think that Joe Sixpack is going to buy land, or engage in the sophisticated techniques you mention? The Cato plan advocates a mixture of "safe, government approved mutual funds". Joe Sixpack has only a muddled idea what a mutual fund is, let alone anything more complicated. Turn him loose in the investing world, and he is a certainty to be shorn. (I might well be one of those to do the shearing.)


[/ QUOTE ]

An interesting and poignant point. But to at least partially remedy this situation the US educational system should teach basic economics and sound investing to all students beginning at least in Middle School and continuing through High School. Of course this will take time to filter in, and given that bad information will probably be taught along with the good, the amount of progress may be slow and ungainly. But the effort should be made, in my opinion.

Also there are a considerable number of Joesixpacks that do own a home or are buying a home and will own before retirement.

[ QUOTE ]
You talk about the expected ROI of investments. Now, if I wanted to drive to Chicago from my home in South Bend, I could do so in about two hours. But some things cannot be scaled up. If the entire population of South Bend tried to go to Chicago tonight, the road system couldn't handle it. (It can just barely handle the traffic we have right now.)


[/ QUOTE ]


Would a phased approach work? Similar to having people merge onto the freeway? If this approach was implemented along with more emphasis in economics and investing being taught in schools perhaps the future would be brighter for everyone. I know that I would have benefited much more in my younger years if I had been exposed to sound economic theories and investing strategies.

-Zeno

[eldyna]

[ QUOTE ]
[ QUOTE ]
You propose a panoply of investment vehicles that might fill the gap that I have pointed out, but do you really think that Joe Sixpack is going to buy land, or engage in the sophisticated techniques you mention? The Cato plan advocates a mixture of "safe, government approved mutual funds". Joe Sixpack has only a muddled idea what a mutual fund is, let alone anything more complicated. Turn him loose in the investing world, and he is a certainty to be shorn. (I might well be one of those to do the shearing.)


[/ QUOTE ]

An interesting and poignant point. But to at least partially remedy this situation the US educational system should teach basic economics and sound investing to all students beginning at least in Middle School and continuing through High School. Of course this will take time to filter in, and given that bad information will probably be taught along with the good, the amount of progress may be slow and ungainly. But the effort should be made, in my opinion.

Also there are a considerable number of Joesixpacks that do own a home or are buying a home and will own before retirement.

[ QUOTE ]
You talk about the expected ROI of investments. Now, if I wanted to drive to Chicago from my home in South Bend, I could do so in about two hours. But some things cannot be scaled up. If the entire population of South Bend tried to go to Chicago tonight, the road system couldn't handle it. (It can just barely handle the traffic we have right now.)


[/ QUOTE ]


Would a phased approach work? Similar to having people merge onto the freeway? If this approach was implemented along with more emphasis in economics and investing being taught in schools perhaps the future would be brighter for everyone. I know that I would have benefited much more in my younger years if I had been exposed to sound economic theories and investing strategies.

-Zeno

[/ QUOTE ]


There is no phased approach that would enable all of South Bend to get to Chicago tonight. No combination of air, rail, road or boat could accomplish that. Similarly, it may well be possible that the same applies to privatization. Maybe not, but we have no immediate crisis, and the risks, not to mention the transitional costs, are very real.

Should we gamble the livelihood of 1/6 of our population, (and the stability of the market) on an untested theory? I don't think that's wise. If we were wrong, how could we recover?

Let me propose a slower approach. Suppose we mandate that all workers invest 2% of their income in retirement accounts, with no other changes to the present system. Five or ten years from now, the ante goes up to 4%. At whatever point seems appropriate could scrap Social Security, or scrap the mandated savings approach or opt for a combination of the two. No transition costs, and a gradual approach that would pose minimal risk to the stability of the financial markets.

The Cato proposal seems equivalent to going all-in UTG just because you like your hand. What's wrong with seeing what the flop brings?


Tim

[natedogg]

I'm curious eldyna. Do you think noone is ever going to start a new company again?

natedogg

[eldyna]

[ QUOTE ]
I'm curious eldyna. Do you think noone is ever going to start a new company again?

natedogg

[/ QUOTE ]

Oh, of course they will. But the gains generated by this will still have to come from the company itself. There simply isn't another source. Besides, your point ignores the fact that companies also go out of business on occasion.

My point is that investors -- taken together as a class -- cannot generate wealth by trading shares of stock with one another. Investment gains must come from somewhere. Can you point to a source of gains other than the underlying companies?

Tim

[MtSmalls]

re (2): Isn't it interesting that the CBO, based on the economic numbers from the last few years, AGAIN pushed out the SS surplus date another two years, without doing anything to the payroll taxes or to the benefits??

Also, it is spurious at best and bald-faced lying at worst that the adminstration (and those making their case for them in the media) are using one positive set of growth and economic assumptions for benefits available under a privatization plan, and a gloomier set of assumptions for the health of the current Social Security system...