Tweet
Andy Stern, a key member of the president’s deficit commission, proposes to invest a part of our Social Security funds in the stock market. Dean Baker, Co-Director of the Center for Economic and Policy Research, a liberal think tank, has expressed approval for Stern’s proposal. “I don’t think it’s necessarily a bad idea,” said Baker. “If he’s talking about getting money out of the trust fund for that purpose, I could live with it. You’d get a higher return now that stocks are falling.”
Alarmed at Baker’s statement, I wrote to him:
“Did you really assert (as Ryan Grim reported in the June 30th Huff Post) that it would be okay to invest part of our Social Security funds in Wall Street? Please say it isn’t so.
I regularly distribute updates on health care and the movement for single payer to 20,000 unionists across the country, and I have shared with them some of your analyses on the economic crisis. Your work has been helpful to union members struggling to understand the complex economic forces that are battering us. We have to find our way through the barrage of misinformation that comes at us from the journalists who are bought and paid for.
Where are we to go for economic analysis, if you now propose turning over a portion of Social Security to a gamble on Wall Street?
The need to stand on principle to protect our precious safety net programs far outweighs the gaining of a few bucks in the short run. Don’t you agree?”
I heard from Dr. Baker who has confirmed his support for investing a part of the Social Security Trust fund in the stock market as a way to get higher returns.
Social Security and Medicare are under a many-sided attack. I believe that if the door is opened to invest Social Security, even a small part, in the stock market, that the program will suffer
irreparable damage.
I invite Dr. Baker or anyone else who wants to invest social security assets in Wall Street to respond to these concerns:
Social Security is a trust and not an investment vehicle. The resources taken in for collective purposes should be held with no risk, not little or minimal risk.
Policy makers have no license to break into this trust for any reason other than to distribute its assets fairly and equitably. Social Security is held in trust for the people, not as gambling stakes.
The proper way to grow the trust is through mechanisms that fairly and equitably obtain the funds through taxes or assessments.
Funding should be solely a matter of social justice and not financial manipulation.
The market has no mechanism to insure the vitality of the trust. The Standard & Poor’s 500 stock index has fallen at an annualized rate of 3% a year over the past 10 years. The market will always be a gamble.
Investment requires investment managers. Their interest in the fund is to make money through management fees – a cost to the trust – and their incentive to grow the trust is based upon personal gain, a goal that encourages speculation and risk to the trust.
The aggregate performance of the market is one thing; the performance of particular investments is another. Like mutual funds, a Social Security investment bundle will depend on the skills and decisions of managers. Some are winners, some losers. There is no way of deciding in advance if we pick a winner. Even winners are later losers. Short of catastrophic default, the cost, recovery and return on treasury bonds are guaranteed.
In the long run, the dips and rises in the market do not correlate with the demographic dips and rises that determined funding requirements. As with the overall economy, these market-induced imbalances would guarantee periodic social security crises, whether real or politically manipulated, inviting the call for privatization.
The very success of a “little” investment of Social Security funds in the market will be followed by a cry for more and more, and in our very limited two party system, it will be very difficult to call a halt to enlarging the investment in a Wall Street that is temporarily producing gains. Private investment of a part of the trust fund will only grease this slippery slope.
Private sector investment will invite the charge that since public funds are now invested in private markets, why shouldn’t individuals make their own investment decisions with “their” funds? In other words, private sector investment will lead to the call for privatization.
Mary Katharine Ham of the Weekly Standard is ecstatic over the possibilities. Citing some liberal support for the partial privatization of Social Security, Ham asserts, “Improbably, Obama’s unifying rhetoric and bipartisan vision can now be applied more accurately to the formerly toxic idea of Social Security reform than it can to his own agenda.”
We can’t let it happen!
Kay Tillow
Unions for Single Payer Health Care-HR 676
Louisville, KY
15 Comments
Is the allure of being a regular contributor on CNBC atrophied BAKER’s brain. As the prescient comments of the writer indicate,social security is not a roulette wheel in a casino–but an obligation and responsibility to one another to end poverty in old age—as it existed pre-NEW DEAL. Wall Street has successfully transferred their risk taking joyride losses to the public sector across the world with the help of bought and sold political minions.If we had the reach of the financial sector megaphone,this blog would be read by every one and our battle would begin with pitchforks for DEMOCRATS and CNBC contributors as appropriate.
We need to be in the streets like the Pittsburgh folks. Watch here:
http://www.youtube.com/watch?v=K0cDSHw1R3g
LOL. Like a Deficit Commission Chair, a Deficit Commission Member, the House Majority Leader, the House Majority Whip, etc., etc.?
I agree absolutely that “Social Security is a trust and not an investment vehicle. The resources taken in for collective purposes should be held with no risk, not little or minimal risk. “, but please keep in mind the enemy here is the president’s deficit commission, not Ms. Ham.
When the weekly standard is jumping for joy at the prospect of privatizing social security, it’s time to wake up and smell the coffee.
Disappointing to hear that Dean Baker is even considering this as a viable solution.
Also, for some perspective, people should take a look at what was going on at the Pension Benefit Guarantee Corporation(PBGC) during the early stages of the 2008 bubble collapse.
The PBGC’s leadership was actively planning to shift PBGC’s Treasury bond holdings into the Stock Market. A stock market which was about to drop by 50%. At the time, it’s stated rational was that they were under funded and needs to take some additional risks to return to solvency.
Of course, the way I read the story, ex-Lehman guy Charles Millard was trying to loot the PBGC for some of his Wallstreet buddies. But that’s just my take on it.
Anyway… yeah, putting even some of the SS trust fund in the stock market is a can of worms and the results will be predictable.
Looks like the PBGC made the switch, at least partially, and it did not go so well.
You are probably right about Millard.
Boston.com March 30, 2009
Switching from a heavy reliance on bonds, the Pension Benefit Guaranty Corporation decided to pour billions of dollars into speculative investments such as stocks in emerging foreign markets, real estate, and private equity funds.
The agency refused to say how much of the new investment strategy has been implemented or how the fund has fared during the downturn. The agency would only say that its fund was down 6.5 percent – and all of its stock-related investments were down 23 percent – as of last Sept. 30, the end of its fiscal year. But that was before most of the recent stock market decline and just before the investment switch was scheduled to begin in earnest.
Good link. I think the Social Security trust fund will end up in the same boat as the PBGC if it starts investing in Wallstreet.
It’s not even a matter of gambling. It’s straight up looting.
Thank you for letting us know this, Kay. And for all the good work you do.
They don’t want to gamble with our Social Security, they want to steal it.
How do we know that “they” haven’t already? It’s seemed to me that this might really be behind the Catfood Commission. “They” have stolen it, and don’t want to have to pay it back.
They have already stolen it.
They have taken the money and spent it.
And now, they don’t want to pay it back.
Ergo, they want to privatize it and waste the rest of it, to dismantle the system so they don’t HAVE to pay back the borrowed funds that are now missing.
BushCo, all the way. 8 years.
And now, Obama is serving the corporate fascists that got him elected, and working to eliminate SS one way or another.
The funny thing is, SS is solvent thru some 20 more years I think I read . . . and if 30 million people could find full time work, the SS fund would never be trouble for 50 or more years . . . . and in 25 years it will get a bonus as the boomers die off and no longer take from it. Regardless of how much we paid into it.
Sadly, many of us yet to retire might not collect our just due.
Bastids.
Say it ain’t so, Dean!
There is absolutely no reason to put a portion of peoples’ Social Security dollars in investment accounts other than to allow the firms who use that money to profit. The implication that it MAY increase in value is the same logic that created much of the financial crisis in the first place–that home values WOULD go up. Social Security dollars need to be available for the people receiving them anytime. Many people depend on these dollars for 100% of their daily expenses, including food, shelter, and water. No theoretical benefit is worth the risk. It is simply another grab for profits.
“They don’t want to gamble with our Social Security, they want to steal it.”
Come one. They stole it a long time ago.
Dean Baker on Democracy Now! today, talking about Social Security (including this rather trivial matter):
Part I
Part II