Editore"s Note
Tilting at Windmills

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December 11, 2004
By: Kevin Drum

DAVID BROOKS TELLS THE TRUTH....I have a feeling this was a mistake on his part, but in today's column David Brooks accidentally tells the truth about Social Security privatization:

The government would essentially borrow at 2 percent in real terms, invest that money through regulated private accounts in the market and get a return, based on conservative historical averages, of about 4.6 percent. Those returns would, over time, cover the $11 trillion in liabilities that threaten to bring down the system.

If this scheme actually works, let's apply it to the entire federal budget! I propose that every year for the next century the government should borrow, say, a couple hundred billion dollars and invest it in the stock market. By the year 2100 this will have appreciated to a point where dividends and capital gains will fund the entire federal government with no need for tax revenues at all. It would be the greatest gift we could ever bequeath to our great grandchildren.

(Yes, the key word in Brooks' column is "borrow." If private accounts were honestly funded they'd be worth discussing. If they're based on borrowing, they aren't.)

And while we're on the subject, here's a historical note for Brooks. He complains earlier in the column that "Gone is the day when President Clinton could propose another plan diverting 15 percent of Social Security reserves into the stock market." Indeed, but who was it that shot down Clinton's idea? None other than Alan Greenspan and congressional Republicans.

Clinton's plan was perfectly doable with the right kind of regulation and would have taken advantage of the stock market's higher returns. So why didn't Republicans like it back in 1999? Because it would have kept Social Security as a government guaranteed pension program. It's not stock market returns these guys care about, it's an ideological drive to get the government out of the safety net business and force individuals to bear ever more risk in their daily lives. Don't ever forget that.

Kevin Drum 1:18 PM Permalink | Trackbacks

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