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Market Crash No Argument Against Social Security Accounts
There have been many good, if ultimately unconvincing, arguments against allowing younger workers to privately invest a portion of their Social Security taxes through personal accounts. There have been even more silly ones. One of the silliest is the one regurgitated yesterday by ThinkProgress, that this week’s stock market decline proves that “If Social Security Had Been In Private Accounts The Stock Market Drop Could Have Been A Disaster.”
Few personal account plans would require a retiree to cash out their entire account on the day that the market crashed. But what if they did? It is important to understand that someone retiring yesterday would have begun paying into their account 40 years ago when the Dow was at 835.34. After yesterday’s decline, it opened at 15,676 today. Over those 40 years, the worker would have made roughly 1,040 contributions to their account. Only 48 of them would have been at a time when the market was higher than yesterday’s close.
Yep, even after yesterday’s crash, the worker would have made a tidy profit. In fact, his return would have been substantially higher than what he could expect to receive from Social Security.
The last that defenders of the status quo made this argument was 2009, during the market crash that led into the Great Recession. At that time the market hit a low of 6,547. Obviously, if workers had been allowed to start investing then, they would have done pretty well. But more importantly, retirees in 2008 would have done well too, once again better than Social Security.
Cato published this comprehensive study of that downturn and its impact on personal accounts: http://www.cato.org/publications/policy-analysis/still-better-deal-private-investment-vs-social-security
Social Security is running nearly $26 trillion in future unfunded liabilities. It cannot pay promised future benefits to young workers without substantial tax hikes. We should begin a discussion of how to reform this troubled program. A start to such a discussion would be to retire the canard about market crashes and personal accounts.
Crossposted to Cato@Liberty
My Next Book — You Can Pre-order
My next book, Going for Broke: Deficits, Debt, and the Entitlement Crisis, will be released June 7. It is a look at our growing $18 trillion national debt and the skyrocketing growth of entitlement programs like Social Security, Medicare, Medicaid, and Obamacare that underlies it.
Former CBO Director, Doulglas Holtz-Eakin says about the book:
“Michael Tanner has produced a must-read book on America’s fiscal future: clear, compelling, and … terrifying. At the same time, he charts the path toward a real solution: a social safety net we can both be proud of and afford.”
You can pre-order it now on Amazon:
The GOP candidates on Debt, Spending, and Entitlement Reform
Throughout the coming months, I will be looking at where the various would-be presidential candidates stand on the vital issues of the day. Today, in my weekly column for National Review Online, I look at how they would cut spending, reduce the debt, and reform entitlements. As I point out, it is very early in the campaign, and most candidates have now yet laid out detailed proposals. So, mostly this is an exercise in tea leaf reading, based on congressional votes or state budget performance, plus a statement here or there. Still, at this point, it seems reasonable to say that it looks like Ted Cruz and Rand Paul are the biggest fiscal hawks, trailed to some degree by Marco Rubio, Bobby Jindal, and Scott Walker, with other candidates bringing up the rear.
http://www.nationalreview.com/article/398361/debt-and-gop-michael-tanner
TannerOnPolicy 