Commentary Income Gap And Private Social Security Accounts

Money

One of the reasons that the income gap is widening is the impact of the gain in the stock market – wealthy Americans invest disproportionately in the market.  The less wealthy, for several reasons, don’t invest in the market.

Because of this, those wealthy Americans that DO invest in the market are seeing gains to their income due to the power of the stock market – the gains are flowing to the wealthy.

Consider this fact when reflecting on arguments AGAINST private investment accounts in place of social security*.  The idea that we reform social security away from the government trust fund to a privately held account that could be invested at the discretion of the individual.

The arguments against this plan is that it would expose the money to the vagrancies of the stock market and places the individual at too much risk.

This is very similar to the arguments presented by the liberal when it comes to the importance of money.  It goes something like this:

There is more to life than money, therefore a degree in Renaissance Art of Western Europe is valuable in its own right and a career in that field can offer a full and rewarding life.  The rich get richer and the poor get poorer – we need more redistribution of the money!

On the one hand, the argument states that money isn’t important and then becomes surprised when people who do value money have more of it than people who don’t value money.

The stock market is a massively effective method of building wealth.  Buying stocks during the recession, not selling, was responsible for astonishingly large gains for many many people.

If you care about income disparity, and we know that a large reason for this disparity is the market, how can you disagree with private social security accounts?

* I say this knowing full well that the REAL argument against private social security accounts is the same argument against Obamacare – Individual Liberty.  Social Security is nothing more than a mandate to save money and a private account would be no different than forcing  people to buy health insurance.

11 responses to “Commentary Income Gap And Private Social Security Accounts

  1. I don’t understand the opposition from public employees who have benefited from such a system for decades instead of throwing money away into Social Security (if one of them chimes-in, they can be safely ignored.)

    If anything, I can only assail this argument from the right — that it isn’t free enough. More social benefit would be derived from allowing IRAs to be brought-up to parity with 401K contribution limits, the same argument for giving individuals the same tax benefit for buying health insurance that employers do.

    Otherwise, it’s like another Obamacare, another disaster waiting to unfold. Further, where do you get all the extra money to purchase equities? Raise taxes? Present SS surpluses are immediately spent, so that spending has to be made-up somewhere. Why only equities? I could go on, but I won’t belabor the point. In theory, could SS be improved? Without a doubt. Could this generation in power do it right? Hell no.

    • Otherwise, it’s like another Obamacare, another disaster waiting to unfold. Further, where do you get all the extra money to purchase equities? Raise taxes? Present SS surpluses are immediately spent, so that spending has to be made-up somewhere.

      Right now, employers are required to contribute 6.5% with the employee contributing another 6.5%. This total represents 13% of your salary or wage.

      The idea would be to keep the with holding structure the same but allow the employee to keep 2 percentage points of the FICA contribution in a private account.

      They could:

      1. Keep it in SS
      2. Keep it in cash
      3. Invest it at their discretion in:
      a. Stocks
      b. Bonds
      c. Commodities

      • On the face of it, better than nothing, but yet not so little as to provide zero leverage for the political class. Hence, my preference for greater private incentives and equity among those incentives.

  2. Boy do I remember the leftists arguments against allowing private accounts in Social Security. The stock brokers will get rich. Grandma and Grandpa will get wiped out and eat cat food. Of course the restrictions on who could have those accounts and how much % they could risk made those arguments false. It did not matter, Democrats won the argument. There are no private accounts in Social Security.

    So the rich who can take the risk in stocks get richer and the poor fall more behind. But someday the market will crash again and the left will cry “see we were right “. Until then, stupid is as stupid does.

    • So the rich who can take the risk in stocks get richer and the poor fall more behind.

      And that’s my point.

      If I wanna be a better manager in my company, I search and copy the most successful manager I can find. If I wanna be more wealthy in life, I ought to search and copy the most wealthy I can find.

      Now, aside from the obvious trait that leads to wealth –hard work– the fact that the wealthy invest in the market ought to make the left wanna take advantage of that fact.

      But no.

      So we are left with a case where the rich, investing in the market, get richer all the while the less wealthy don’t.

      Sigh.

  3. If the poor got rich-er Democrats would lose an important political constituency. It is always about power, nothing else. When some poor do leave the economic bottom, then we just import more poor people.

    Meanwhile the gap between the rich and the poor grows under our Socialist dear leader.

  4. If there were private social security accounts and people invested poorly and ended up impoverished, they would get aid anyway. That’s because as a society we are not so evil as to let the elderly poor suffer just because they made bad choices. Alan, the Democrats and the left are driven by a desire to see the poor do better off. To claim they want just power is the same as the left saying Republicans want to screw the poor and have no compassion. When one demonizes the other side and sees them only wanting power, one is in denial of reality – both sides have lots of good people with good intentions (and both sides have power hungry people). When I worked in DC (for a Republican) I realized that neither party was truly more virtuous than the other. But they did have different world views. Ultimately that’s good – we learn through difference and disagreement than any other way.

    • If there were private social security accounts and people invested poorly and ended up impoverished, they would get aid anyway.

      Scott, the point is that you cannot complain that the rich are getting richer in the stock market and then prevent the poor from getting rich in the stock market.

      It’s nonsensical.

      That’s because as a society we are not so evil as to let the elderly poor suffer just because they made bad choices.

      There is no evidence that the elderly suffered before social security.

  5. Pingback: The Coming Financial Crisis – Retirement | Tarheel Red

  6. It’s not primarily because of the stock market that the wealthiest are getting wealthier. I think your argument is based on a false premise.

  7. Scott,

    Details are important. I believe you and I have discussed this issue before. If you look at the specifics of what President Bush proposed, your arguments about impoverished old people making poor choices investing their retirement funds, are meaningless.

    Long term investing in the financial markets is absolutely the best way for young Americans to have a good retirement. I will tell you from experience that anyone who stayed in the stock market from before the 2007 crash until today has done well.

    Age is the important criteria. Old people who can’t ride out investment disasters are not an issue. The private SS accounts were not open to them.

    When I analyze what the policies of leaders such as President Obama, Senator Reid, and Congresswoman Nancy Pelosi, I see only political considerations. I see little long term benefit to those they claim to be helping. I do not see the good intentions. I do not see a willingness to reverse course on programs that do not work. I see denial. I see brute force execution. I see only short term politicing.

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