RE: General Comments

[Michael Jones <powderfinger99@yahoo.com>]

<<<
Individual Accounts -- Actuarially, these are a very bad idea. As
a matter of simple statistics, it is far cheaper to guarantee a
level of income with pooled funds for a group than with individual
accounts. We can know with a high degree of certainty what the
distribution of time of death for a group of people will be, but
for most individuals we have little idea when they are likely to
die. Viewed another way, if our goal is to provide retirement
income, then every dollar that gets paid out in the estate of an
individual account holder who dies before exhausting his account
is a dollar that is leaking out of the retirement system. It is
far cheaper to fund a system that avoids such leaks.
>>>

I assume here (when you mention pooled funds) that you are referring
to a "defined benefit" plan similar to employer plans. I think most
people would find this acceptable if the government properly
implemented the plan similar to private pension plans.

<<<
Equity Investments -- We have been very spoiled over the last twenty
years. A lot of the rise in stock prices is due to the decline in
interest rates and the decline in the "risk aversion" of investors,
which normally deflates the value of stocks. Interest rates and
risk aversion cannot keep going down -- they are both generally
limited at zero. It is probably more likely that the trend of the
last twenty years for these two factors will be reversed than that
it will be repeated. Stocks are no panacea.
>>>

This is really a red herring in the reform discussion. Stock
investments are absolutely not required. The key issue for most
reformers is the fact that all the monies are invested in government
bonds, which are not investments. Remember ,when you loan money to
the federal government, it pays you back using future tax receipts
or borrowing. So, the government can only pay you back if it can
tax in the future.

If the money were invested in private sector bonds (or equities),
that investment generates real economic wealth. The government
cannot create wealth, only redistribute wealth.

The government is taking in trillions of dollars in Social Security,
with the excess invested in treasury bonds.  The only way it can
pay off these loans is through future taxation.  The problem with
this funding scheme is that the government will not be able to pay
all these obligations in the future unless it can find a mechanism
to create more "wealth".

You need no further evidence that to look at your "investment" in
Social Security. If in fact this was a real investment, I should
expected the final annuity value of my pension to be my contributions
compounded at the long term treasury rate. It isn't even close.
In fact the value of the annuity is LESS than the value of the
lifetime contributions!

So the pertinant question is: are you willing to settle for poor
returns investing in government, or higher returns investing in
the private sector? Exactly where the money is invested in the
private sector is not the main issue.

Michael