RE: Reply to Steven H. Johnson: Its my money

[Michael Jones <powderfinger99@yahoo.com>]

<<<
I am not criticizing the Cato plan because I'm opposed to privatization,
as one participant seems to think.  I criticize the Cato plan
because it's impossible.  Total stock market capitalization has
averaged 65% of GDP from 1925 through 1995.  The Cato plan 
would lead to personal accounts acquiring assets worth 120% to 
130% of GDP - at least half of which would be in stocks.
>>>

The Cato plan does not preclude investing in bonds, money market
or other investments which are not equities. Focusing on the
pitfalls of stock investments really misses the heart of the
Cato plan.

Successful retirement plans require real wealth producing assets
which compound interest. The problem with Social Security is that
is does not provide such a benefit.

If Social Security were a real investment, I should expect that
the future value of my annuity to be equal to the compounded 
value of my contributions at the long term treasury rate (the trust
fund invests in treasury bonds). But, the actual value of my 
annuity will be less than the value of my total contributions. 

If I took the same money and invested in high quality corporate 
bonds, I could easily double or triple my return without investing
in stocks.

Even if the government tomorrow decided to offer a return equal
to the long term treasury rate, if would go bankrupt faster
than the system is right now. The fact is that the government
cannot create wealth, and therefore cannot satisfy this obligation
unless it creates more "wealth". Either through higher taxes, 
lower benefits or more borrowing.

So we are back to square one. Either we invest the money in government
, which requires higher taxes in the future. Or we invest the money
in the private sector, which creates real wealth. This tradeoff
is the heart of the Cato plan.

Michael