Monday, March 21, 2005

Fool Me Twice, Shame On Me

Robert Genetski of Capitalism Magazine has done an interesting cost-benefit analysis ( retrospective in nature ) of the missed opportunity in 1982 of shifting Social Security, in the U.S., to personal accounts. The data compiled, based on fair and reasonable assumptions, is quite compelling. Focus, for example, on his data concerning low-wage workers. The study covers a 22-year span. Consider, if you will, a 40 year old , low-wage earner , who had invested in a mixed bond-S&P500 index fund since graduating high school. His Social Security account would now have a value of about $ 70,000 to $75,000!! With 25 years ahead of him before reaching retirement at 65 years old, this individual stands to have quite a nest egg in Social Security alone. In fact, in the March issue of The American Enterprise Magazine, Grover Norquist predicted ( using assumptions similar to those used by Mr. Genetski ) that the average American worker would accumulate about $950,000 during his work history.

Mr. Genetski also factors in the cost of the U.S. government borrowing to make good on past promises of traditional social security pay-outs. After subtracting costs from benefits, he arrives at a net gain of $ 10 trillion in benefits over 22 years. For those concerned with the additional benefits in our traditional Social Security system ( death benefits, disability etc.), certainly enough money exists within this $10 trillion dollar gain to take what is necessary to cover the truly needy. The best way to yield money to help those in dire need is to maximize the productivity and efficiency of our economy. Afterall, it is the dynamic nature of capitalism that enables the American people to be by far the most charitable people in the world.

Lastly, as you peruse Mr. Genetski's findings, note his point that the benefits are probably underestimated in that the creation of personal accounts in 1982 would have poured huge dollars into business ventures thereby increasing productivity in our nation. Consequently higher investment returns would have resulted.

One must wonder why the U.S. , whose example is greatest in affirming the liberating power of capitalism, sits on the side line with an old socialist sytem for retirement , while 20 other nations worldwide ( including Russia!!!!!) have adopted pro-growth, personal accounts. Let's hope we don't drop the ball again.