I was struck by a particularly interesting stream of nonsense emanating from the mouth of the head of the Democratic Congressional Campaign Committee, Rep. Chris Van Hollen of the extraordinarily poorly governed state of Maryland. If we were to privatize or partially privatize the nation’s public-pension system, he argued, that would be the equivalent of “gambling.” Not investing, but gambling.
“If you privatize Social Security,” he said, “the end result will be that that money is not there. There is not a stable source of retirement money because we’ll be literally gambling it on Wall Street.”
Representative Van Hollen, as a pampered member of Congress, one day will enjoy a very nice pension funded by taxpayers. But he’s also an alumnus of a powerful Washington lobbyist/law firm, the well-connected son of an ambassador, and, even though he is not particularly well off by the standards of congressional Democrats (his ethics filings show his net worth to be considerably less than the price-tag on John Kerry’s yacht or Charlie Rangel’s sundry real-estate holdings) he’s not going to starve to death. If ever he leaves Congress, he will have a very lucrative career ahead of him. Chances are, he’ll retire a rich man. Is he going to invest all the money he makes in Treasury bonds? Does he invest all of his money in Treasury bonds today?
Presumably not. Most wealthy people invest their retirement savings in a mix of stocks, bonds, and other investments. The smart ones start off investing aggressively when they are young, getting more conservative and more liquid as they get older. That’s how you retire rich. That is not gambling. That is investing.
But many Americans, particularly Americans of modest means, find it difficult to save and invest. One of the reasons that they find it difficult to save and invest is that Uncle Sam skims 12 percent off the top of their paychecks and forces them to “invest” in Social Security — which, for most Americans, is an investment that provides embarrassingly low returns; for many Americans (such as black men, who are relatively short-lived), Social Security is a money-losing proposition.
Americans should keep this in mind: There is risk when investing in stocks and bonds. But there is also risk — real, terrifying risk — when “investing” in Social Security. Social Security’s unfunded liabilities are $108 trillion; if it were a bank or an insurance company selling retirement annuities, it would have been shut down long ago, and its executives probably would have been charged with crimes.
There is no corporation in the world that I am aware of with $108 trillion in net liabilities.
If you invest in a diversified basket of corporate bonds, there exists a possibility that some of them might go bad and default. (Speaking of which, junk bond issues are at an all-time high; what is it going to take to get Ben Bernanke’s attention? A giant flashing neon sign in the sky? A personalized message from God? An unexplainable rash in the shape of Milton Friedman?) Stocks and bonds go bad sometimes; that’s why you don’t put all of your money into one company. But for people of modest means, who will be almost entirely dependent on Social Security, all of their eggs are in a red, white, and blue basket — and they’re about to get scrambled by Congress and the Obama administration. When the time for choosing comes, and Washington has to decide whether to pay its bondholders in Beijing or little old blue-haired ladies in Muleshoe, Texas, waiting for their Social Security checks, who do you think is going to get shorted? The bond markets have the power to end Congress’s ability to borrow money on amenable terms — and that prospect scares the political class more than anything short of manual labor.
Don’t fall for the false-choice argument: There is risk to investing in stocks and bonds, but there is risk — probably greater risk — in counting on Social Security. You own your stocks and bonds, but Social Security can be taken away from you at the whim of Congress — or its value diluted by inflation when we start printing money to pay for all of the spending that Obama & Co. have been up to for the past couple of years.
Americans understand this, I think. Let me ask you to engage in a little thought experiment: Imagine that you are 25 years old. Given a choice between having the value of your future Social Security benefits in-hand today, either in the form of cash or in the form of a soberly diversified investment portfolio, or the promise of a Social Security check in 40 years, which would you choose? Why? Once you answer that question, you will know that Representative Van Hollen is talking through his hat.
– Kevin D. Williamson is deputy managing editor of National Review.