The leap of faith

by Jim Renton

research

Our nation ensures social welfare through Social Security. However, the
United States cannot ensure the welfare of its own welfare system. To save
Social Security, Americans in general do not favor an increase in the
payroll tax, a cut in benefits or an increase in the retirement age.
Furthermore, Americans are relying upon Social Security as their sole source
of income at increasingly alarming rates. Social Security is intended to
supplement retiree income, not account for 100% of it. Through elimination
of the potential options, that leaves one necessary action: invest the
Social Security trust fund in the stock market as President Clinton
proposes.

According to the San Francisco Chronicle (Social Security, Sec. C, p 16),
many people are concerned that investing Social Security's trust fund in the
stock market will not only jeopardize their future income, but would result
in the federal government influencing economic decisions. These concerns
are uneducated assumptions.

Under the proposed plan to invest a portion of the Social Security trust
fund in the stock market, only new and previously unanticipated Social
Security money would be invested. Part of President Clinton's plan entails
allocating "more than $2.7 trillion in expected budget surpluses over the
next 15 years or 62% of the total to directly bolster Social Security's cash
reserves. Of that, nearly $700 billion or 25% would be invested in the
stock market." This plan would eliminate the risk of losing payroll tax
money because only budget surplus revenue would be invested. Many who
oppose Clinton's plan have lived through the Great Depression, one of the
bleakest times in American history. While the Great Depression was
triggered by a crash in the stock market, it is unlikely that any such crash
will ever occur again. Currently, the stock market has many new controls in
place, such as curbs and limits on margin accounts, which may prevent
another market crash. Examine the absolute worst case scenario: the market
crashes and the $700 billion investment is worth $0. In this event, there
would still be about $2 trillion in a trust fund. Furthermore, Clinton
proposes that beneficiaries have the so-called "safety net feature of a
basic, monthly retirement stipend, rather than leaving future retirees
entirely at the mercy of the stock market and their own investment savvy."
Investing the Social Security trust fund in the stock market only allows us,
as beneficiaries and future beneficiaries, the potential to receive benefits
from a social welfare system that would otherwise risk extinction, commonly
known as bankruptcy.

Of course there is the issue of who would make the actual investments.
Many people are concerned that their Social Security money will be
controlled by politicians who might have their own special interests or
political agendas. President Clinton proposes that the money be invested
"in broad-based stock indexes similar to the Standard & Poor‘s Index under
the control of a private Social Security Investment Board, as independent in
theory as the Federal Reserve." Currently the Federal Reserve regulates and
monitors the economy. To date, there have been no reports of conflict of
interest within the Federal Reserve. Therefore, an independent management
board for Social Security would ensure that wise investment decisions are
made which benefit all beneficiaries. Furthermore, "a central independent
board would have only 1 cent administrative overhead per $100 invested
compared to $1 per $100 invested if accounts are owned through private
individual brokerage accounts." Social Security beneficiaries and future
beneficiaries would benefit from this tremendous savings as a result of
having their money invested by a non-biased board.

Now is the time to act. Let us not wait until the system is closer to
bankruptcy. Let us explore what many have referred to as the unknown now,
with a small percentage of unanticipated funds before we need to consider
any more radical decisions such as reducing benefits. As Social Security is
the social welfare system for our nation, it belongs to us, the people.
Therefore the government, which holds the key to Social Security and in
essence, our future, needs to adjust the system to the needs of it's
beneficiaries. Don't cut benefits, as many Americans rely on Social
Security for a large portion of their income. Don't increase the retirement
age because more and more Americans are retiring in their 50's to play golf
in Florida or do whatever, wherever. And don't increase the tax we pay,
because it's already being grumbled about by many Americans. But do
increase our retirement income. It's time to accept some greater risk, just
as the founding fathers did when declaring the colonies the United States of
America and to take the leap of faith by investing in the stock market.

BIBLIOGRAPHY

"A look at the plan to save Social Security." San Francisco Examiner,
January 31, 1999,
Sec. C, p. 16.

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