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Over the weekend, the local paper, the Island Packet, presented the view of both candidates on this subject. As an economic conservative, I found Sanders's position to be of some interest. He brings to light some of the profound misunderstandings that select politicians have about the free-enterprise system:
What a terrible idea investing even a portion of Social Security funds in the stock market would be . . . the volatile and highly uncertain nature of common stocks has become readily apparent in the last four years, particularly in the last six months. The scheme to allow a part of Social Security to be invested in the stock market is dangerously deceptive. Why is investing in America via the free-market system a "terrible idea" or a "scheme"? Just because a short-term sell-off in the stock market provides naysayers with fodder, the long-term returns of the market demonstrate that stocks make an excellent investment alternative. Proposals to privatize Social Security start with younger savers who will enjoy the benefits associated with long-term investment returns; they will not be limited to the short-term declines that Sanders relies on to build his case:
If individuals are given a chance to invest in the stock market when they are young, they will have accumulated enough wealth in a private account that they won't have to worry about putting bread on the table. As a matter of fact, any money saved in a private account would be their money. They could withdraw more or less depending on their own financial circumstances. Under the current system, it is impossible to take more money out when you need it; you're stuck with one maximum monthly payment — no matter how much you or your company put in. Yet Sanders, like many short-sighted Democrats, doesn't understand that responsibly investing in equities is one of the best ways to grow money over the long-term:
Mutual funds, by their very nature, diversify risks to avoid losing money because of situations like Enron and Worldcom. Mutual funds don't go bankrupt. In addition, most mutual funds were not invested in Enron and Worldcom, and those mutual funds that were invested in these two companies held relatively small positions. Sanders also failed to mention that the Social Security "trust fund" is allowed to invest in only one thing: non-marketable government securities. That's right, the entire Social Security trust fund holds IOUs of the federal government. So, guess what? When you and I expect to collect Social Security, the only way the government is going to be able to get the cash for us is by selling those government IOUs to another buyer or increase taxes. There is no money in the Social Security trust fund — only low-yielding, non-marketable government securities that were created when the government spent your Social Security money. Why do so many private economists forecast that the Social Security system will go bankrupt? Social Security relies on a vibrant, free-market-based capitalist system to remain solvent. Perhaps Sanders cannot effectively argue against this truth, and instead must resort to name calling and the misstatement of fact to build his flimsy case:
Nice try, but I don't think proponents of privatization fell silent 4,000 points ago — in fact, that's when they got more vocal about this positive solution to the Social Security problem. Sanders should also wait until he has reviewed a proposal from the proponents of privatization before he infers that such a plan will increase taxes or require borrowing by the federal government. And what does Sanders recommend should be done with Social Security? Not much.
Since the Social Security trust fund must hold only non-marketable government securities, the only thing the government can do is spend the money the system brings in. After skipping this point, Sanders adds that
In other words, Sanders doesn't have a clue what should be done with Social Security. America (and South Carolina) needs politicians who have ideas for action — not cynical theorists who support their arguments with distorted facts. Sanders, in the Island Packet, asks that we think "what the world was like 40 years ago." Well, 40 years ago was 1962. According to Ibbotson Associates, the return from an investment in an index of large-company stocks would have increased 26.8 fold over that 40-year period — or about 13% per year. That means for every dollar you invested that year, you would have almost $27 today. Not bad. And here is another salient point: To the extent that historical stock-market returns are the rule rather than the exception, future gains from private accounts would be yours too keep — and could be used to take care of your family in the way you see fit. In the current Social Security model, if you die, all of the hard-earned money that you have put into the system, along with your company's contributions, will disappear. Now there's a scheme if there ever was one. In the final analysis, Alex Sanders provides no viable ideas to solve the inevitable Social Security crisis. He merely suggests the appointment of a commission to figure things out. His criticism of his opponent's ideas flies in the face of historical experience. Obviously, privatization of Social Security will require some guideposts and limitations — similar to the rules of private investment management. Maybe privatization isn't the best answer, but we at least should be open to new ideas that appear to make sense and then make changes as appropriate. Sanders would throw the baby out with the bathwater.
— Tom
Nugent is Executive Vice President & Chief Investment Officer PlanMember
Advisors, Inc. |
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is an active race for senator down here in South Carolina. The Republican,
Lindsey Graham, is facing off against Alex Sanders, the Democrat, to replace
Senator Strom Thurmond, who is retiring. One of their debate topics is
Social Security. 
