2nd Try on Ms. W's Discussion Questions.

[ridgeway <riridgew@nyx.net>]

OK, although pressed on time, I made a point to give this some thought.
I've made a good faith effort to think about the questions below without
any framework to or about a SS reform plan.  My original response, even to me
was unsatisfying, I'm not that happy with this one but here goes.....
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First Q:, "What if we had another Great Depression or 
        at least another rotten period like we had in the 1970s. 
        Wouldn't a system of personal accounts collapse? 
        How can you guarantee people that they won't end up with nothing?"

Since I can't guarantee such a thing I assume this really
referrs to either (a) personal advice to people on how to
minimize the chances of ending with nothing or (b) it relates
to possible government actions to guarantee people they 
won't end up with nothing:
      (a) The ususal advice that you get:
          * Do your homework.  Peter Lynch frequently
            has the folksy saying that some people
            spend more time researching buying a
            new washing machine than they do on what
            stocks or mutual funds to invest in.
            See his books for more detailed good advice.
          * Start early in your worklife and have
            a monthly deduction made to dollar cost
            average into the market over many years,
          * The older you get, move assets into
            balanced funds.  Many mutual fund
            companys have lifecycle funds for example.
          * etc...., all the ususal stuff.
            At a personal level, on life in general,
            I believe it recall George Will pointed
            out that if people did just a few simple 
            things in life then there is about 90% chance 
            of doing just fine in life here in the USA --- 
            it was three or four very very common 
            sense simple things --- something like: 
            >Don't drop out of High School,
            >Don't have kids till you get married,
            >Don't get married till you graduate school...

Perform these simple rules combined with the basics of investing
and the chances of a reasonably good life is probably about 96 percent.
You will not want or need the government the government to be your
mommie or daddy. 
            
     (b)  Now, what might government's role be in this guarantee:
          * Well, the government can do something, but
            I'm not sure it should.  Certainly for a 
            able-bodied person I don't think the government
            should be there to make up for their errors.
            Life if full of choices, Mr. R talked about
            the variances in replacement rates for
            those that invested in the market and claimed
            they were very large.  I say there are other
            decisions in life that lead to much higher
            variances (e.g. Major in Art History vs Enigneering,
            work for the government vs private sector, 
            have a bunch of kids vs have no kids, etc...).
            Moreover, such government guarantees can create
            distortions.  In the 1980's I worked for a quasi-
            government agency that had authority to manage its own
            funds ourside the Treasury. We knowingly put money 
            in some weak institutions in high yield jumbo CD's 
            at like $90,000 in each institution.  We didn't care 
            since the Feds guaranteed the deposits!  I know 
            individuals that did the same thing.  Never lost a 
            dollar and got the higher yields.   QED.
            The government could impose restrictions and
            make people invest in highly rated debt; however,
            this is a restriction on people's freedom.
            The government could impose re-distributive
            tax structures to transfer income from those
            that had good economic outcomes to those that
            didn't --- another hard stop for me. 

              I think the example provided by the country
              of Brazil shows what will happen if the above
              policies, as well as those discussed below
              in the second question, are implemented by 
              central governments, even those with good
              intentions.
            
Second Q:"Even if we have personal accounts, we ought to 
         change the investment policy for the trust funds. 
         It just doesn't make sense to keep the social 
         security funds invested entirely in low-yielding 
         government bonds. With all the financial expertise 
         now available, it ought to be easy to figure out 
         how to ensure the government invests in a neutral 
         way, without any political interference. 
         How can it be done?

         * I regret that my answer is still the same.
           Short of spinning the trust funds back to
           individuals into their personal accounts,
           I simply do not think it is possible to ensure
           government invests in a neutral way.  I belief
           when you net it all out that Fed Chairman
           Alan Greenspan is 100% correct on this! NO WAY!
           NO matter how good it might sound on paper,
           the political forces will come to bare to 
           find a some way to manipulate funds held 
           collectively by or for the government.

Well, there you have it.  Its not much, I'm not proud of it,
no more proud than the first attempt to contibute something.
I give myself a grade of D on both of these attempts.
To pay for this poor performance, I will do the only thing honorable,
--- yes, honorable Harry Carrey --- i.e. take in a Cubs game!!
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