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sundin13 on 03 October 2019
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Baalzamon said:
sundin13 said:

Do you feel there are any negatives in regards to the expanded role of government in the stock market?

For example, by creating a government system of private investment, you are creating winners and losers in the stock market, by benefiting the companies and shareholders who are involved in the companies which SS feeds into. This is essentially the government putting a finger on the scale of the free market.

Second, how would Social Security react to contractions in the stock market? Volatility can do a lot of damage to retirement savings accounts if someone retires during a recession. Social Security is designed to be a low risk supplement to retirement savings. Do payouts under your system decrease during a recession under your system?

Further, what is the point of Social Security under this system? Should it be replaced by automatic payments into a retirement savings account?

There are absolutely impacts associated with the government investing like this. Some could argue these are negative. I'm not going to pretend to understand every impact, but I do know there are inherent issues with having too many people invested in index funds.

How would it react to contractions in the market? The entire point of investing in the market like this isn't to just create this pool of cash that is technically owned by a person. I'm not suggesting that people get a payout at the end of their lives. I'm still suggesting that social security is more like a pension system (similar to now).

That being said, despite large stock market corrections, the stock market still averages 8-9% per year. Regardless of market corrections, you will never be able to find me a situation where an investment in government bonds was worth more than an investment in the broad stock market over 30-40+ years. Ever. The situation does not exist. It never ceases to amaze me this huge scare people have about how "risky" the overall stock market is because they see it drop 50% in a year (and proceed to ignore that a couple years later it has usually recovered all of this and some).

So to suggest that a stock market crash would ruin a system like this doesn't make any sense.

Well, we have to realize that SS is inevitably a withdrawal system, not a deposit system. It is losing money basically now under the current system and it will lose money in the future under your proposed system (exactly when depends on the strength of the stock market).

The current average return is about 2.9% on $3trillion. While an 8% return on $3trillion is obviously a benefit, if a recession hits, we could suddenly lose half of the SS coffers giving us an 8% return on $1.5trillion and $1.5trillion in the hole. Thats only a $33billion dollar advantage under your system, which would take decades to recoup that lost $1.5trillion at 8% return. In a situation with higher outlays than inlays, we could end up accelerating bankruptcy by burning money faster than the rate of return can handle.

I would like to say, I am not an expert on SS so I could very well be misunderstanding some feature somewhere, but there certainly seem to be plenty of hypothetical scenarios which would result in a quicker bankruptcy through the markets.