Sam Sez

Date: January 21, 1999

Question: "Stocks, Bonds, Social Security - What does it mean for the Political Economy?"

Answer: Sounds interesting but it can take you where you do not want to go. The discussion about permitting the government to purchase stocks - that is - equity positions in business changes the political economic landscape.

The President's proposal is seductively appealing because historically stocks have outperformed bonds. Given the current environment of 5 percent bond yields versus recent double digit equity returns it seems simple enough. All you need is the same amount of social security contributions (no tax increase) to satisfy future, unfunded liabilities.

This line of reasoning touts "the higher return, more productive investments" but fails to indicate the actual corporate presence of political appointees.

There is a catch. It is analogous to being a little bit pregnant. When the people or individuals own the productive resources and companies -STOCKS- then you have capitalism. When the government owns and influences these corporations, you have socialism. When the government completely owns these organizations, you have totalitarian communism.

Recently, several countries have recently experienced financial crises because their governments were partners in the ownership. Besides, if the government owns the shares, who votes the shares? Will these proxies be neutralized or can they be used for political purposes. You are talking board seats here. Will all the money go into index funds, total market value funds, emerging market funds, venture capital funds?

Perhaps, it is better to let each individual choose their own destiny, particularly with stocks. This could be accomplished by a mandated return of social security tax contributions to personally designated and privately owned retirement plans.

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