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Jewish World Review Sept. 14, 1998 / 23 Elul, 5758
Thomas Sowell
THE BIG DOWNTURN IN THE STOCK MARKET will undoubtedly be used as an argument against
letting individuals invest their own Social Security money privately. However, the ups
and downs of the Dow Jones average mean a lot more in the short run than in the long
run -- and pensions are long-run investments.
Over almost any period of 20 or 30 years, the stock market pays off better than Social
Security does. The recent plunge in the stock market doesn't change that. Many a
baseball team has lost a double-header and then gone on to win the pennant.
My own pension fund is invested in the stock market. If the present drop in the Dow
Jones average is not good news for me,
At the end of the first six months, my pension fund had less money in it than it had at
the beginning, even though I had been paying in new contributions every month.
Eventually, of course, the market turned up. Even though it has now plunged down
again, the current Dow Jones average is still way above the 3300 level that it had when
I first put my pension fund money into the stock market.
Of course, it would have been better for me if the Dow Jones average had stayed
above 9000, as it was in July. But, even after it plummeted down into the 7000s, that
still meant that what I first paid in was worth more than twice as much as I paid.
For short-run investments, however, the kind of roller coaster that the market has been
on recently can spell disaster. But the stock market is not the place to be, for those
preoccupied with the short run, unless they are real experts.
Obviously, as each person gets older, there comes a time when all they have left is the
short run. At that point, it makes sense to start thinking of more stable places to put
their money. At any age, it makes more sense for someone unfamiliar with the stock
market to think of investing through financial specialists, such as those who run mutual
funds, than to try to pick individual stocks.
Politicians who oppose letting individuals invest their own Social Security money conjure
up an image of Joe Sixpack trying to pick stocks on Wall Street. But most people are
well aware of what they don't know -- unlike politicians and intellectuals. Just as most
people go to doctors with their medical problems and to repair shops with their
automobile problems, so they can take their retirement money to financial specialists.
The existing Social Security system could still be left in place for those who are fearful
of any kind of private investment. What the privatization of Social Security would do
would be to allow others to do otherwise.
It is not just individuals who can benefit from the option of privatization. The country as
a whole can benefit.
One huge difference between private investments and Social Security taxes is that
private investments increase the total amount of real wealth and productive capacity in
the economy. Private investments create factories, computer networks, apartment
buildings and other real assets.
The money paid into Social Security creates no real assets. It is just more money for
politicians in Washington to play around with, leaving it to future administrations and
future Congresses to figure out how to take care of future retirees. The so-called
Social Security "fund" consists of paper representing transactions whose net effect is
to make the national debt look smaller than it is and to provide a legal claim against
future tax receipts.
None of that represents an increase in the nation's real wealth or productive capacity,
from which pensioners could be paid. If Social Security produced real assets, like
private investments, then we would not have to worry about how many young workers
there will be in the future to take care of old pensioners. The old pensioners would be
paid from the earnings of their own investments -- and the number of young workers
would be irrelevant.
One of the biggest objections to privatization is ideological. The very idea that
individuals will look out for themselves is anathema to those who like to play the role of
guardians and saviors of us all. It is not a coincidence that the same people who
oppose school vouchers or gun ownership also oppose the privatization of Social
Security.
Individual self-reliance shatters the vision of those who think it is their job to run our
Taking stock
there was even worse news when I first put
my pension contributions in stocks. Almost immediately, the market headed south.
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