I applied for Medicare on Friday. I'm going to be 65 in roughly three months. When I called the Social Security Agency (welcome to socialist America), I had an hour-and-fifteen-minute wait before I could get through, and they told me that I had to apply online. Mark Zuckerberg needs to know, and make no mistake, Facebook can know if it wants to. The Social Security website froze me out because I had typed in the wrong password when I had checked it several months before, so I called the helpline, which involved an additional 50-minute wait. The young government worker was helpful, and I eventually applied after a four-hour battle.
As I was waiting on voicemail, the SSA proudly announced that 50 million Americans are currently on Social Security. The number of Americans on means-tested welfare is roughly the same, about 52 million. If you add the number of government employees, about 22 million, that's 124 million. In July 2017 there were 252 million Americans over age 18, the voting age. That means that 124/252 = 49.2% of Americans are dependent on the state. If you add to that the people who work in zombie industries that would not exist without state support-- including Wall Street, the auto industry, and public partnership real estate--the percentage of voters who depend on government is well above 50%.
In other words, the productive sector in America is well below 50% of the economy. So much for land of the free, home of the brave--or liberty and justice for all. America is a socialist welfare state with a dependent population.
I recently finished Garrett C. Fagan's audio Roman history series from the Great Courses, which was a wonderful experience. The Great Courses lectures are all wonderful, and Rome was one of my favorites, along with Vejas G. Liulevicius's World War I. Fagan teaches at Penn State and Liulevicius teaches at the University of Tennessee. My next one will be William R. Cook's history of the Catholic Church.
In between, though, I am listening to Tucker Carlson's audio book Ship of Fools. Carlson makes a number of excellent points, and I am finding the book to be educational. Also, his writing is sharp. I'm only up to Chapter Three. (I listen to all this in my car, so it is slow going.)
Carlson blames much of the recent decline in the American economy on elite selfishness and immigration. Some of his arguments parallel Christopher Lasch's in his books The Revolt of the Elites and The Culture of Narcissism. Like Lasch, Carlson notes that the segregation of elites in all-white, upper-income neighborhoods makes them insensitive to the effects of the policies they advocate.
Carlson's pillorying of Democratic Party looters is awesome. His discussion of dumbed-down, overprivileged millennial Chelsea Clinton is hilarious, and his discussion of Mark Zuckerberg and the ugly effects of Facebook are eye opening. He accurately depicts the Southern Poverty Law Center as a one-time opponent of racism that has become a fraudulent partisan advocate for Democratic Party elitists.
As well, Carlson accurately depicts the current economy as one of decline for the average American and one of subsidization and privilege for financial, political, and technology elites. However, a point of disagreement is that Carlson places the blame on immigration.
Real wages have stagnated for the past 50 years, since the early 1970s, when immigrants were less than five percent of the population. Immigration is not the reason for stagnant real wages. It is at most a contributory factor, but in the absence of regulation and subsidization, immigration flows would adjust to the market- clearing level. Native Americans ought to enjoy an economic advantage over immigrants, who do not know the language and culture. Increasing the minimum wage is likely harming immigrants, whose labor is less valuable than native speakers. I'm not convinced that immigration is the real problem, and Carlson does not offer much fact for his claim. The real hourly wage began to stagnate in the 1970s, right after the abolition of the gold standard and less than 10 years after the establishment of Medicare and Medicaid. By 1980 immigrants were still only six percent of the population, but real wages hadn't grown in seven or eight years.
At the same time, it may be time to put a moratorium on immigration because of the anger it has caused. I have heretofore been in favor of open immigration, but about ten years ago I remember thinking that perhaps a moratorium on immigration might be helpful to American workers, who have suffered grievously at the hands of the Fed, the Democratic Party, and big government. In general, a free economy based on limited government will result in optimal economic outcomes, including rising real wages, modest income inequality, and a stock market, with six percent returns. In the 19th century most of the returns from the stock market were in the form of dividends.
Besides immigration, my chief point of disagreement with Carlson is that he seems to believe that old-fashioned state activist liberalism--New Deal liberalism,--ought to be the new conservatism. The old-fashioned state activist liberalism of the 1930-1970s may still capture President Trump's supporters' imaginations, but it will not restore the economy; it will not restore real wage growth; it will not return the country to the rapid economic growth of the laissez faire, Progressive, and New Deal eras (which ended in the 1960s).
It is true that much of America's elite--the Clintons, Buffetts, Goldman Sachses, Zuckerbergs, Soroses--are a cancer on the average wage. It is also true that New Deal policies led directly to their ascendancy, and the group that was in power before them was already taking the country down a primrose path. Replacing today's rapacious, politically correct, finance-and-technology elites with the military-industrial complex about which Eisenhower and C Wright Mills warned and included George HW Bush's dad, Prescott Bush, will not change the underlying problem, which is the result of monetary and regulatory systems controlled by a centralized, special-interest dominated state. The federal government has squashed real wages and allocated credit to crappy technology like Facebook, crooked Wall Streeters like George Soros, and crooked hacks like the Clintons and Bushes.
Franklin Roosevelt, copying the innovations of Gustav von Schmoller and Bismarck in Germany, implemented a system that has similarities to what brothers Tiberius and Gaius Gracchus imagined for Republican Rome in the early phases of the Roman Revolution, which led to its becoming a dictatorship, then an empire, and ultimately a monarchy: Their plan was to give the plebeians cheap grain. (Later in the empire Emperor Septimius Severus made grain free.) The dislocations of World War I and Progressive eras paralleled the processes in the Roman Revolution, which lasted about 150 years. Although the Progressive era was short, its system may last for as long as the early empire and the Pax Romana, which lasted 150-200 years. It may be that in 2,000 years historians will view our era as an extension of the Progressive and World War I eras. This is already occurring as historians are beginning to view the two world wars as one war.
It is sad to see an America with the beautiful ideals of Locke and Jefferson turned into a bread-and-circus, totalitarian state dominated by the nincompoops of today's state, technology, and finance elites and their dumbed-down propagandist-journalists. Carlson's hilarious depiction of psychopath Max Boot is on the money.
Even if President Trump follows the proscriptions of Carlson and slows the looting by state, technology, and Wall Street elites, there is little hope for improvement because Americans have been satisfied with a $16,000 Social Security benefit, a welfare check, and Medicare. The dynamics of public choice and special interest behavior guarantee that a large, centralized government will benefit the most corrupt and opportunistic, and Carlson's debate with the Democrats ignores the underlying dynamic.
Sunday, February 10, 2019
Thursday, January 31, 2019
Jim Cramer's Gold Gene
According to Kitco, Jim Cramer has predicted a 15% increase in the price of gold. I last bought a physical ounce of gold in the fall of 2018, when the price dipped to $1,165. It is currently above $1300. I don't know where the price will go. Jim Rogers believes that it will fall back to $900, where it was in 2008. I'm still a buyer at $1300, but not much above. I had bought some gold investments in the 1300s a year or two ago, and some are still in the red, but the inflection point seems to be approaching.
I once ran into Jim Cramer on the New York City subway. There was this dapper guy standing in front of me while I was half napping, and I kept thinking that he looked familiar. I finally roused myself out of my torpor and asked him, "Do you work at Brooklyn College?" He replied in a whisper, "Television Show."
I like his show, but I don't watch TV often. I see Cramer as a voice of Wall Street. Hence, when Kitco quotes Cramer as follows, there is reason to think that a bull market in gold is near:
Don’t listen to the Fed watchers who claim that Powell caved to the stock market or the president...The only thing Powell caved to is reality … This is about the economy — who doesn’t want a healthy economy? If Powell had stuck to his plan for a series of lockstep rate hikes, it would’ve been a lot more devastation to Main Street than to Wall Street.
It pays to read between the lines when listening to Wall Streeters talk about the Fed. If they ever told the truth, there would be a revolution. What Cramer is saying is that short-term economic contingencies are making long-term dollar declines necessary. That means that gold will rise. The $1500 price target is a short-term prediction based on Cramer's intuition or inside information. The ultimate price of gold in our lifetimes is likely to be much higher. That's because of massive indebtedness.
My late friend Howard S. Katz used to talk about a commodity pendulum, whereby monetary expansion causes low-interest-rate borrowing by miners, who overexpand. That crushes commodity prices in the short run. In the long run the miners go bankrupt because of the competition from the overexpansion, and the declining supply leads to sharp price increases.
My guess is that there will be a short-term bubble, perhaps to $1500 as Cramer says, then a downturn, perhaps as far back as the 1100s, but not necessarily. This will punish short-term buyers, making it easier for insiders to buy at a cheaper price. Eventually, we will be seeing much higher prices in gold. It is debatable whether an ultimate dollar collapse will lead to a new gold standard. If it does, we could see $10,000 gold, so my 2010 prediction of $3,500 may have been too low.
I once ran into Jim Cramer on the New York City subway. There was this dapper guy standing in front of me while I was half napping, and I kept thinking that he looked familiar. I finally roused myself out of my torpor and asked him, "Do you work at Brooklyn College?" He replied in a whisper, "Television Show."
I like his show, but I don't watch TV often. I see Cramer as a voice of Wall Street. Hence, when Kitco quotes Cramer as follows, there is reason to think that a bull market in gold is near:
Don’t listen to the Fed watchers who claim that Powell caved to the stock market or the president...The only thing Powell caved to is reality … This is about the economy — who doesn’t want a healthy economy? If Powell had stuck to his plan for a series of lockstep rate hikes, it would’ve been a lot more devastation to Main Street than to Wall Street.
It pays to read between the lines when listening to Wall Streeters talk about the Fed. If they ever told the truth, there would be a revolution. What Cramer is saying is that short-term economic contingencies are making long-term dollar declines necessary. That means that gold will rise. The $1500 price target is a short-term prediction based on Cramer's intuition or inside information. The ultimate price of gold in our lifetimes is likely to be much higher. That's because of massive indebtedness.
My late friend Howard S. Katz used to talk about a commodity pendulum, whereby monetary expansion causes low-interest-rate borrowing by miners, who overexpand. That crushes commodity prices in the short run. In the long run the miners go bankrupt because of the competition from the overexpansion, and the declining supply leads to sharp price increases.
My guess is that there will be a short-term bubble, perhaps to $1500 as Cramer says, then a downturn, perhaps as far back as the 1100s, but not necessarily. This will punish short-term buyers, making it easier for insiders to buy at a cheaper price. Eventually, we will be seeing much higher prices in gold. It is debatable whether an ultimate dollar collapse will lead to a new gold standard. If it does, we could see $10,000 gold, so my 2010 prediction of $3,500 may have been too low.
Monday, January 21, 2019
Sunday Snow
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| The Bushkill Creek as seen from my yard on Sunday, Jan. 20 |
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| My house. The snow was about six inches deep. |
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| Went for a walk on Moon Haw Road. A cabin that belongs to one of my neighbors. |
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| The view from Moon Haw as I walk back home. My house is at the foot of the small mountain ahead. |
Sunday, January 13, 2019
Why You Can't Retire
I recently conversed informally with a financial representative of TIAA-CREF. He is in his thirties, and he expressed concern that the Social Security retirement age would be raised to 80 or greater before he retires. I agreed that the age would be raised, but I suggested it might not be as bad as 80--perhaps the ultimate age would be 69 or 70. Unfortunately, the problem will become worse if it is not addressed currently, and the media and the public have not been overly interested. Hence, the broad explanation as to why you can't retire is inattention at both the personal and public levels. Public policy that has hammered down savings rates and interest rates and has helped wealthy investors with strong risk appetites hasn't helped.
Because of monetary stimulus, low interest rates, inflation, and money illusion, along with escalating health care costs, many Americans have earned low wages. Money illusion and health care cost inflation have caused productivity growth to exceed wage growth. Also because of inflation, many Americans have avoided saving. Lower-income Americans are not used to investing in the stock market and so have not benefited from the Federal Reserve Bank's inflationary reallocation of wealth from wages and savings to capital and stock-and-bond investments.
The Fed's pumping up of the stock market for the past three-and-a-half decades has exacerbated a natural tendency for the market to rise when a disproportionate share of the population (the baby boomers) is young. (In 2017 the Census Bureau found that the average age had increased since 2000 from 35 to 37.) Although the market averages are still high, in 2019 the majority of stocks have moderate price-earnings ratios. That may be consistent with an underlying downtrend in valuations as the average age increases. What's propping up the S&P 500 are a few bubble stocks like Amazon.com. A declining stock market in the boomers' later years might make retirement difficult.
High tax, health cost, and rent burdens haven't helped. The Peter G. Peterson Foundation finds that median taxpayers pay about 14 percent of their income in federal taxes. The Tax Foundation says that median taxpayers pay about 9.9 percent in state and local taxes. Hence, about 25% of income is paid in taxes. That is low in comparison with other OECD countries, but the majority of Americans pay for their own health insurance, and the $18,000 cost for a family is about thirty percent of the $61,000+ median household income as of 2017. Of that, about $6,000 is paid out-of-pocket. The incidence of the $18,000 cost is likely on employees as is the 6.2 percent employer Social Security tax (see the 1971 American Economic Review article by John Brittain). If one adds the 25 percent of income paid in taxes to the 10 percent of income paid for out-of-pocket health insurance costs plus the 6.2 percent employer Social Security tax, the tax burden to employees is above 38%. (The base needs to be grossed up for the imputed employer Social Security tax.) If you include the $18,000 family health insurance cost, the tax-and-insurance burden is close to 48 percent. (Again, the based needs to be grossed up for the imputed non-out-of-pocket health insurance costs and the employer Social Security.) That's a little lower than the highest-tax country, Belgium (54 percent), but about equal to the second-highest-taxed country, Germany (48 percent). Hence, contemplating the incidence of the employer Social Security tax and family health insurance cost places the US in the top three of OECD countries with respect to tax burden.
Given that Federal Reserve Bank policy has been for the Fed to pump up asset values, rents have escalated. According to the Census Bureau, rents in 2000 dollars rose from $284 in 1940 to $602 in 2000. According to Household Income, rents increased by 12 percent from 2000 to 2010, but the median income fell by 7 percent. In other words, the real cost of rents has more than doubled while real wages have remained stagnant.
Federal policy has been to burden US employees with high taxes (when supplemented by health insurance and employer part of Social Security costs) and to subsidize landlords with escalating property values that boost rents by several percent each year. How many wage earners can save given that constellation of policies?
As well, Social Security is insecure. According to Steven C. Goss of the Social Security Administration, taxes will cover only 75 percent of benefits by 2035. (Note that Goss does not use the word contributions, which is appropriate to a pension, or the word premiums, which is appropriate to insurance.) As well, even if the problem in 2035 is solved, there is an additional problem looming in 2080, when infants born in the next few years retire. There is no talk about solving the later problem.
With respect to the 2035 problem, Goss says that if changes are made immediately, there will need to be a benefit reduction of 13 percent or an increase in the FICA tax rate of two percent (from 12.4 percent to 14.4 percent) to cover the shortfall.
The average American retires at 62, the first year of eligibility for Social Security retirement benefits. According to the Social Security life expectancy table, life expectancy at 62 is 20 years; at 66, the current normal retirement age, life expectancy is 17.1 years; at 70, life expectancy is 14.3 years. To reduce benefits by 14.7 percent for those first eligible to retire, the minimum retirement age of 62 would need to be raised to 66. To reduce benefits by 12.3 percent for those who retire at the normal retirement age (currently 66 but scheduled to increase to 67), the normal retirement age would need to be raised to 69 or 70. The precise amounts would be adjusted by actuarial calculations, but a three- or four-year increase in the retirement age would solve the issue.
The Social Security benefit structure favors low-wage workers because the salary bands have higher percentages at lower bands than at higher bands. That is, as of 2019, the benefit based on the highest 35 years of indexed monthly earnings is calculated as 90% of the first $926; 32% from $926 to $5,583; 15% of the monthly earnings greater than $5,583.
Someone having 35-year indexed earnings of $2,083 a month will get $1203 a month in Social Security ($14,400 a year) while someone having a 35-year indexed earnings of $8,333 will get $2,569 (30,828 a year). The $1,203 is 58% of the earnings of the person who makes $25,000 per year; the 2,569 is only 31% of the earnings of the person who makes $100,000 per year.
Hence, the benefit structure is subsidized in favor of low earners, but it is meager across all income levels. Moreover, the Brookings Institution argues that the welfare subsidy to lower-income workers should be increased because they suffer from lower life expectancy and decreasing lifetime earnings. Brookings advocates increasing the welfare plan essence of Social Security by reducing the rate for the top band.
The Heritage Foundation also suggests supplementing Social Security's welfare component. The Heritage Foundation suggests reducing benefits and contributions for those whose retirement incomes are above $55,000 and eliminating it for retirees whose earnings are over $110,000. For those born after 1985 Social Security would be turned into a flat payment.
Income during retirement is primarily from six sources: stock dividends, savings accounts, bond interest, 401(k) plan distributions, defined benefit plan distributions, and IRA distributions. However, retirees can reallocate wealth into investments, such as growth stocks, that chiefly pay capital gains and so sidestep the maximums.Thus, rich retirees could still collect Social Security if they prefer.
It might make more sense to simply face its welfare essence and to eliminate Social Security for those who have above a minimal level of income. Perhaps a mandatory public-private target benefit plan approach could be used so that benefits are funded though a combination of sources depending on income level. A certain benefit could be targeted or defined, such as 80 percent of income at age 70, based on long-term assumptions, but the actual benefit would depend on the amount in the fund. For those earning below the average wage each year, a small out-of-pocket contribution, say one percent, could be supplemented with a welfare subsidy.
For instance, for those earning half the average wage, the government might make all of the contribution; for those earning three-quarters of the average wage, the government might make half of the contribution; for those earning the average wage and above, the taxpayer might make the full contribution. An contribution as percentage of pay actuarially expected to achieve 80 pension income replacement could be invested in ways that the taxpayer chooses. Perhaps the investment choices could be vetted to ensure legitimacy, although such a review likely would have passed Enron and Worldcom with flying colors. Perhaps investors might be permitted to change investment direction only once every five years and not be permitted to make interfund transfers. There's a bit of nanny state in this, but eliminating centralized control through privatization will provide better choice.
The usefulness of a Social Security trust fund is doubtful. If you had invested $4,000 at six percent interest from 1979 until today, you would have $619,000. That would buy an annuity of over $40,000 at today's rates. In other words, it's far from clear that Social Security is a good deal. Taking investment policy out of politicians' hands would help the economy and help investors.
Perhaps retirement policy might be downloaded to each state, allowing the states to determine preferences that differ locally. New York or California, for instance, would probably prefer a higher welfare component while Idaho, Utah, or Georgia would probably prefer a lower welfare component. Rather than one region's imposing its preferences on another, a decentralized approach would allow expression of local preferences.
Because of monetary stimulus, low interest rates, inflation, and money illusion, along with escalating health care costs, many Americans have earned low wages. Money illusion and health care cost inflation have caused productivity growth to exceed wage growth. Also because of inflation, many Americans have avoided saving. Lower-income Americans are not used to investing in the stock market and so have not benefited from the Federal Reserve Bank's inflationary reallocation of wealth from wages and savings to capital and stock-and-bond investments.
The Fed's pumping up of the stock market for the past three-and-a-half decades has exacerbated a natural tendency for the market to rise when a disproportionate share of the population (the baby boomers) is young. (In 2017 the Census Bureau found that the average age had increased since 2000 from 35 to 37.) Although the market averages are still high, in 2019 the majority of stocks have moderate price-earnings ratios. That may be consistent with an underlying downtrend in valuations as the average age increases. What's propping up the S&P 500 are a few bubble stocks like Amazon.com. A declining stock market in the boomers' later years might make retirement difficult.
High tax, health cost, and rent burdens haven't helped. The Peter G. Peterson Foundation finds that median taxpayers pay about 14 percent of their income in federal taxes. The Tax Foundation says that median taxpayers pay about 9.9 percent in state and local taxes. Hence, about 25% of income is paid in taxes. That is low in comparison with other OECD countries, but the majority of Americans pay for their own health insurance, and the $18,000 cost for a family is about thirty percent of the $61,000+ median household income as of 2017. Of that, about $6,000 is paid out-of-pocket. The incidence of the $18,000 cost is likely on employees as is the 6.2 percent employer Social Security tax (see the 1971 American Economic Review article by John Brittain). If one adds the 25 percent of income paid in taxes to the 10 percent of income paid for out-of-pocket health insurance costs plus the 6.2 percent employer Social Security tax, the tax burden to employees is above 38%. (The base needs to be grossed up for the imputed employer Social Security tax.) If you include the $18,000 family health insurance cost, the tax-and-insurance burden is close to 48 percent. (Again, the based needs to be grossed up for the imputed non-out-of-pocket health insurance costs and the employer Social Security.) That's a little lower than the highest-tax country, Belgium (54 percent), but about equal to the second-highest-taxed country, Germany (48 percent). Hence, contemplating the incidence of the employer Social Security tax and family health insurance cost places the US in the top three of OECD countries with respect to tax burden.
Given that Federal Reserve Bank policy has been for the Fed to pump up asset values, rents have escalated. According to the Census Bureau, rents in 2000 dollars rose from $284 in 1940 to $602 in 2000. According to Household Income, rents increased by 12 percent from 2000 to 2010, but the median income fell by 7 percent. In other words, the real cost of rents has more than doubled while real wages have remained stagnant.
Federal policy has been to burden US employees with high taxes (when supplemented by health insurance and employer part of Social Security costs) and to subsidize landlords with escalating property values that boost rents by several percent each year. How many wage earners can save given that constellation of policies?
As well, Social Security is insecure. According to Steven C. Goss of the Social Security Administration, taxes will cover only 75 percent of benefits by 2035. (Note that Goss does not use the word contributions, which is appropriate to a pension, or the word premiums, which is appropriate to insurance.) As well, even if the problem in 2035 is solved, there is an additional problem looming in 2080, when infants born in the next few years retire. There is no talk about solving the later problem.
With respect to the 2035 problem, Goss says that if changes are made immediately, there will need to be a benefit reduction of 13 percent or an increase in the FICA tax rate of two percent (from 12.4 percent to 14.4 percent) to cover the shortfall.
The average American retires at 62, the first year of eligibility for Social Security retirement benefits. According to the Social Security life expectancy table, life expectancy at 62 is 20 years; at 66, the current normal retirement age, life expectancy is 17.1 years; at 70, life expectancy is 14.3 years. To reduce benefits by 14.7 percent for those first eligible to retire, the minimum retirement age of 62 would need to be raised to 66. To reduce benefits by 12.3 percent for those who retire at the normal retirement age (currently 66 but scheduled to increase to 67), the normal retirement age would need to be raised to 69 or 70. The precise amounts would be adjusted by actuarial calculations, but a three- or four-year increase in the retirement age would solve the issue.
The Social Security benefit structure favors low-wage workers because the salary bands have higher percentages at lower bands than at higher bands. That is, as of 2019, the benefit based on the highest 35 years of indexed monthly earnings is calculated as 90% of the first $926; 32% from $926 to $5,583; 15% of the monthly earnings greater than $5,583.
Someone having 35-year indexed earnings of $2,083 a month will get $1203 a month in Social Security ($14,400 a year) while someone having a 35-year indexed earnings of $8,333 will get $2,569 (30,828 a year). The $1,203 is 58% of the earnings of the person who makes $25,000 per year; the 2,569 is only 31% of the earnings of the person who makes $100,000 per year.
Hence, the benefit structure is subsidized in favor of low earners, but it is meager across all income levels. Moreover, the Brookings Institution argues that the welfare subsidy to lower-income workers should be increased because they suffer from lower life expectancy and decreasing lifetime earnings. Brookings advocates increasing the welfare plan essence of Social Security by reducing the rate for the top band.
The Heritage Foundation also suggests supplementing Social Security's welfare component. The Heritage Foundation suggests reducing benefits and contributions for those whose retirement incomes are above $55,000 and eliminating it for retirees whose earnings are over $110,000. For those born after 1985 Social Security would be turned into a flat payment.
Income during retirement is primarily from six sources: stock dividends, savings accounts, bond interest, 401(k) plan distributions, defined benefit plan distributions, and IRA distributions. However, retirees can reallocate wealth into investments, such as growth stocks, that chiefly pay capital gains and so sidestep the maximums.Thus, rich retirees could still collect Social Security if they prefer.
It might make more sense to simply face its welfare essence and to eliminate Social Security for those who have above a minimal level of income. Perhaps a mandatory public-private target benefit plan approach could be used so that benefits are funded though a combination of sources depending on income level. A certain benefit could be targeted or defined, such as 80 percent of income at age 70, based on long-term assumptions, but the actual benefit would depend on the amount in the fund. For those earning below the average wage each year, a small out-of-pocket contribution, say one percent, could be supplemented with a welfare subsidy.
For instance, for those earning half the average wage, the government might make all of the contribution; for those earning three-quarters of the average wage, the government might make half of the contribution; for those earning the average wage and above, the taxpayer might make the full contribution. An contribution as percentage of pay actuarially expected to achieve 80 pension income replacement could be invested in ways that the taxpayer chooses. Perhaps the investment choices could be vetted to ensure legitimacy, although such a review likely would have passed Enron and Worldcom with flying colors. Perhaps investors might be permitted to change investment direction only once every five years and not be permitted to make interfund transfers. There's a bit of nanny state in this, but eliminating centralized control through privatization will provide better choice.
The usefulness of a Social Security trust fund is doubtful. If you had invested $4,000 at six percent interest from 1979 until today, you would have $619,000. That would buy an annuity of over $40,000 at today's rates. In other words, it's far from clear that Social Security is a good deal. Taking investment policy out of politicians' hands would help the economy and help investors.
Perhaps retirement policy might be downloaded to each state, allowing the states to determine preferences that differ locally. New York or California, for instance, would probably prefer a higher welfare component while Idaho, Utah, or Georgia would probably prefer a lower welfare component. Rather than one region's imposing its preferences on another, a decentralized approach would allow expression of local preferences.
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