Fiscal conservatives also oppose reforms
Re: “Risks in privatizing Social Security worth it,” April 5
Adam Fowler writes repeatedly of the glories of the Social Security Administration buying shares of American companies. I object.
The first objection must be: never endorse legislation that has not been written. In Social Security, there is no written bill and the poor fellow designated to write it, Sen. Grassley, is woefully unenthusiastic.
The second objection comes from the underlying transaction of personal accounts. Ignore all that fluff about this money going from you into your personal account. Study the overall net effect. The federal government is going to borrow more money than it otherwise would and spend money that it otherwise wouldn’t to buy shares in America’s corporations. On a financial level it could work; the return on the shares might/should exceed the interest on the debt.
On a governance level it could be an apocalyptic disaster. The title on the share certificates is going to be Owner: Social Security Administration. Who decides how SSA votes on shareholder proposals to make an individual corporation more (fill in blank: green, Christian, union, family, health care)-friendly? Would SSA favor the current management of Morgan Stanley or the opposing group?
Do not pretend this is a small issue. The market cap of the S+P 500 is only $11 trillion. The annual income of SSA is growing toward $600 billion. If annual share purchases equal 1/3rd of the $600 billion (the 4 percent of personal income the president talks about), $.2 trillion per year could be going into the market. Even if the implementation rules (when written) and participation rates suppress the early year numbers, SSA is still going to become the largest single shareholder in a number of U.S. corporations in the next few decades. Should the SSA take the seats it will deserve on all boards of directors and have a more direct impact on corporate governance?
Who is making these decisions? Well, that’s not written, either. I’m working on the title of this position. Do you prefer Capitalist in Chief or Socialist in Chief? It’s a spin issue. Personally, I would not trust anybody with this power.
The good news is that I will be liquidating my retirement investments during a period of massive SSA buying. No doubt SSA’s buying will be driving the price of my investments up and I’ll come out just fine. I worry a bit though about how all this will affect my children. Good luck to them, good luck to you.
Dick Gasink is a graduate student in economics.