A Trillion Here and a Trillion There

Tomorrow, a really important speech you may have missed. But today:

HOW MASTERCARD CAME TO OWN 90% OF NEW ENGLAND

Silly but fun.

FIXING SOCIAL SECURITY

Randy Vanderbeek: ‘If you think that the Modern Portfolio Theory (for which Harry Markowitz won a Nobel Prize) is reasonable, then a mixture of investment classes could be compiled that would (theoretically) LESSEN risk as compared to US Treasuries alone yet give higher returns. Finding some honest experts to put this together, and keeping greedy brokerage firms out of it would be a challenge, but it’s something to consider.’

☞ Good points. But what about the trillion or two in additional debt we’d incur continuing current retirees’ full benefits while siphoning off funds to these new private accounts? A trillion here and a trillion there and pretty soon you’re talking real money.

And what about the ‘free lunch’ issue I raised here last week?

The problem is that we, as Social Security taxpayers, not only own a big chunk of the Treasury bonds that represent the National Debt . . . we also owe the National Debt. So what we might gain in higher returns by shunning Treasury Securities we would have to make up in the higher interest cost to carry our National debt.

It’s almost as if we owned most of Sears, and were also its biggest customer. Would we really come out ahead taking all our business to Wal-Mart?

And if we did shift Social Security massively away from Treasuries, driving down their price, would that not force the general level of interest rates up? What would that cost the US consumer?

At the end of the day, even if the administrative and transaction costs of privatization could be kept relatively small – a big if – what would this huge paper-shuffling exercise have accomplished? Why not just tweak the Social Security formula as suggested here last week and go on about our business?

Rich McAllister: ‘It’s important not to let people compare Social Security straight-up to a simple savings and annuity plan. To replace Social Security, Brooks would also have to buy a hefty life insurance policy and a very generous disability insurance policy, and with terms that would be very hard to get on the market – no exception for pre-existing conditions, for example. This hits home for me; my mom and dad both died before I was out of high school (expressions of sympathy unnecessary, it was a long time ago). Their life insurance paid nothing because they made the mistake of visiting the doctor and getting a diagnosis too soon after taking out the policy. Social Security survivors’ benefits kept a roof over my head while I went to college. (VA survivors’ benefits paid for the groceries, and I worked part-time and summers to pay for tuition and books.)’

☞ It’s a good safety net. The cost of administering it is less than one penny on the dollar. Can you think of any insurance company or charity that can say that?

Why risk screwing it up?

Tomorrow: That Speech