Operation: Iraqi Freedom
Clown's War Council

If I were King
Clown
Paulie

Concerning Social Security: Save What?

One of the most commonly trumpeted anti-tax war cries, is that we need to "preserve" the surplus to "save" social security. A majority of people still seem to accept this notion – for now. But, as politicians are well aware, the shadow of the slaughterhouse is, at long last, falling across the sacred cow of American politics. The day is approaching when a majority of American citizens, not only will lose interest in saving social security, but may even actively campaign against it. Most citizens do not yet know this, but the politicians do. And now they are desperate to talk the citizens into re-filling their favorite barrel of goodies, before the citizens become unsympathetic – or more accurately, before they inevitably discover better ways to invest their paychecks.

The need to "save" social security is properly likened to the need to save the oil lamp industry. Just as oil lighting was made obsolete by consumer access to superior electric lighting, social security is becoming obsolete because of consumer access to superior methods of retirement planning. And superior, they are. In fact, just 2% of one’s pay invested in stocks, as proposed by Mr. Bush, could reasonably be expected to yield a greater return than 14% of one’s pay contributed to social security.* This, of course, is no secret; people have always known that the stock market yields superior returns. In the past, however, the majority of Americans viewed the stock market as some kind of a Disneyland for stuffy millionaires and high stakes gamblers. Over the years that perception has slowly been shifting. Middle class Americans started finding their way, en masse, into the stock market through IRAs and 401Ks; then along came the proliferation of discount brokerage houses and online trading, giving consumers the opportunity to directly, and cheaply, manage their own stock portfolios. And now many companies are tying employee compensation directly to stock performance by offering stock options. Not surprisingly, knowledge of equity markets, once the exclusive realm of professional brokers and wealthy people, is seeping ever more pervasively into mainstream America. What was once far off, stuffy, and risky, has become accessible, appealing, and practical.

Victory Hugo said, "There is one thing stronger than all the armies in the world, and that is an idea whose time has come." A more appropriate statement could not be made regarding the momentum toward equity investing in America today. Like so many armies with a common enemy, mainstream politicians disagree, not on their objective, but merely on the proper strategy. Almost to a man, mainstream politicians want to preserve socialized retirement planning. Meanwhile, the idea of privatized retirement planning is quickly building critical mass among citizens. 25 years from now – maybe even 10 years from now – there will be as much interest in social security as there is in rotten fruit. Social security has just as much value, and it’s only a matter of time before everybody knows it.

*Based on a thirty year period. Assumes 2% return on social security (the % commonly quoted by Bush & Gore); 12% rate of return on the stock market (this is the stock market's historical RR).