Monday, August 9, 2010

Social Security Thought

I am not an economist and I don’t necessary have a strong understanding of personal finance. Mark brought up the issue of wealth transfer as a part of the whole social security debate. But I will admit to one additional element of puzzlement when it comes to privatizing social security.

Namely, precisely what would one invest in? If one is investing in government bonds (the safest instruments) then isn't the government just writing an IOU to the bondholders? The only difference I can see between a personal account investing in US treasury bonds and social security is that social security can be amended, like in 1983, without a default on United States bonds.

Or we could invest in stocks, but them we have risk due to issues like decades with a net negative return. I'd always naively assumed that the real role of programs like social security was to smooth out variability in returns (as the government can afford to plan for the real long run) and that'd seem to be defeated by personal accounts.

No comments:

Post a Comment