Thursday, December 30, 2004

Gaming Your Retirement Income

If you’re addicted to the latest hot tip from Uncle Willie or listen to what your caddie heard whispered during a big-shot foursome last week, you’re bound to be enthusiastic about George W’s plan to put your future retirement income on ‘red 33’ and spin the wheel. Sounds like roulette but it’s called ‘privatizing social security’ and a good many thoughtful economists think W named it thus because it takes a public trust and puts it in private pockets.

Wall Street has a trade association, a nifty little group called the Security Industries Association. They have an opinion about how little their members will reap from privatization, which is sort of like foxes having opinions on how little farmers will miss the chickens disappearing from chicken-coops. Foxes haven’t yet organized trade associations, but that’s just another sordid example of the natural world’s superiority to man. Getting back to the SIA, they forecast no more than $279 billion in industry rake-offs over the next 75 years. A mere three and three-quarter billion a year. Chicken-feed for chicken coops for foxes and an out-and-out bargain at just six bucks a month for the current 52 million recipients.

Uncle Willie probably thinks that makes sense. Six bucks? It’s a glass of wine, for god’s sake.

Yeah! We’re supposed to collectively give Wall Street $312 million a month for the privilege of letting them put our pensions on ‘red 33’ and spin the wheel. Wall Street does not participate in the risk. If that elusive bouncing ball comes to rest on black (as in Black Tuesday) they still get their cut and it’s you and I and even Uncle Willie who get trimmed.

My old daddy used to say that Wall Street consisted of the sheep and those who sheared the sheep. Old daddy’s gone now, but he’d hear the clippers warming up if he were here.

Aside from the fact that it makes George W a very popular man among his peers to be able to deal out a limitless $10 million a day in their direction, the stock market has shown itself over time to be a far better investment than money-in-the-mattress, which is what social security is in its present configuration. Over time is the operative modifier in this assessment, which is otherwise quite true. The problem is that you and I and Uncle Willie do not retire over a period of time, we perform that act at a specific time and the condition of the market at that specific time can make or break our dream of rocking on the porch or wiggling our toes in the sand. If such a program had been in place over the past fifty years and had you retired in any of the sixteen severe stock declines of that period, there’d be no rocker and probably no porch either. Sand you might have gotten, but surely not in Miami.

  • The “what to do” conversation over social security is long overdue, although the fund is in considerably less trauma than recent TV declarations would have us believe. Weaning the trust fund away from pay-as-you-go is necessary and expedient, but a better (although less glamorous) method is probably by annuity-based government bonds paying compound interest. This would

  • offset the imbalance of foreign investment in our government bonds

  • force-feed savings in a savings-anemic national economy

  • take advantage of the power of compound interest over the working years of future retirees

  • secure social security trust fund capital against market fluctuation

  • bolster funds available to research and development, the currently starved segment of our most viable growth engine

  • avoid the hyper-activity of an already over-stimulated stock market

As to that last issue, “bubbles” in various stock markets inevitably follow a period of too much capital chasing too few shares and the relentless impact of floods of social security income upon a stock market can only tragically and permanently distort market levels. Rational investment and its steadying influence on stock pricing is only possible with less instead of more money on Wall Street.

We’re going to see a very intense advertising campaign on the part of George W and his most slavishly fervent followers to turn the tides of public opinion. Fasten your seat belts. Public opinion is not well informed on this issue to begin with because it’s complicated and the long-term effects of almost any proposals are at best judgment calls.

But certainly no time to let our president shove all the chips onto ‘red 33’ no matter what dear old threadbare Uncle Willy thinks.


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