Tag Archives: economics

Social Security Trust Fund Investing in the Stock Market

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The Wall Street Journal held one of its aperiodic debates last Sunday, this time on whether the Social Security Trust Fund should be allowed to invest in stocks.  One debater argued that such investing would reduce the need for dependence on benefit cuts or tax increases; the other claimed that government should stay out of the market.

It’s certainly true that investing in the stock market could produce better returns than the Trust Fund’s current requirement to invest wholly in (unmarketable) Federal debt instruments.

Stocks are riskier than bonds, so shifting some Social Security assets from low-risk, low-return Treasury bonds to high-risk, high-expected-return stocks would expose the program to greater financial risk. This risk, however, has to be balanced against the likelihood of a larger trust fund and thereby less need for benefit cuts or tax increases to shore it up down the road. Economists also make a theoretical argument that the plan would especially benefit the young—who haven’t yet accumulated much financial wealth—by enabling them to invest in high-yielding financial assets without direct exposure to market risk.

The problem with this, though, is that a realized loss risk in those stock investments would negatively impact everyone so invested: every person with a present or future claim on the Trust Fund were Social Security to take such a chance, rather than only those individuals who make the choice for themselves.  I’m one of those confident in the long-term profitability of stock investing, but that’s my choice.  No one else should be dragooned into the outcomes of my choice were I to turn out wrong and wind up eating cat food inside my cardboard box under a bridge abutment.

[N]o one wants the Social Security trust fund to control the stock market. Even if the entire trust fund was plowed into stocks, it would account for only a fraction of the market.

This is disingenuous.  It’s the government doing the investing; of course, it will move to protect its investment with laws attempting to bar losses, laws attempting to dictate the kinds of risks companies in the market should be permitted to take, laws demanding taxpayers make the Trust Fund whole from market downturns, laws….  Politics cannot be divorced from the Trust Fund’s investments or the outcomes of those investments.  Especially since, as is currently the case, so much of the Trust Fund’s contents finds its way into the general treasury through “borrowing.”  All for the welfare of our seniors, of course.

Better to duck the question altogether, and make an even more radical change to our retirement safety net: privatize Social Security, as I’ve suggested before.  Let individuals invest their monies (including those, if any, by law earmarked) for their own future retirement in the stock market—if they wish—and be responsible for their own outcomes only and not, as taxpayers, for the government’s, and so everyone else’s, outcomes also.

Democrats and Tax Reform

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They’re plainly not interested in real tax reform, and so they’ll move to block all attempts to achieve reform that would benefit all Americans and so our economy.  This is illustrated by Senator Ben Cardin’s (D, MD) position on the matter.

Tax reform’s got to be responsible and it’s got to be progressive[.]

Pick one; these are mutually exclusive goals.  Punishing particular Democrat-disfavored groups of Americans for their success is the height of irresponsibility in a taxing venue.

On the other hand, a responsible tax reform package would lower corporate tax rates sharply enroute to an eventual elimination of corporate taxes, lower income taxes to the neighborhood of 10%-15% on all income, regardless of type or source, and eliminate most or all subsidies, credits, transfers, and other loopholes—which would have little value to the beneficiary of such distortions anyway at the lower rates.

Here’s the IRS’ (Internal Revenue Bureau then) Form 1040 from 1913, the first year of an income tax exaction after ratification of the 16th Amendment.  Not quite a post card, but it’s still pretty simple, and it’s the level of complexity we could expect for the form necessary to collect income taxes after a responsible tax reform today.

Until Democrats agree to stop using our tax code for their social engineering goals, though, don’t expect any serious effort toward bipartisanship to originate from them.

Obamacare

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As The Wall Street Journal rightly pointed out, regarding the failed Obamacare repeal and replacement effort and the failing renewed discussions between the House Republican Conference and the Freedom Caucus of No,

The fury…suggests that some Freedom Caucus opposition is more cynical than sincere. Do its members want to appear to negotiate in good faith but insist on changes that centrists can’t accept, so they can then accuse centrists of killing the reform revival?

And

…perhaps there’s still hope for health-care reform. But first Republicans have to decide if they can accept progress that is short of perfection. If they can’t, then they’ll blow their best, and maybe only, shot at repealing and replacing a failing entitlement.

Here’s the problem, though: the Freedom Caucus of No already has betrayed their constituents once through that first failure by inflicting on them continued Obamacare instead of an improved system because the improvements weren’t perfection.

For how long will the No-ers continue to betray their employers? The No-ers are carefully eliding the back half of Reagan’s remark about half a loaf: come back tomorrow for the rest. Of course, that requires accepting the first half first….

Trade Barriers

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Since the meeting between PRC President Xi Jinping and President Donald Trump is a matter of concern these days, and the trade negotiations that are part of that meeting also are a matter of concern, herewith a concern of my own.

Maybe this is the right time for the two leaders to cut a deal to slash Chinese trade barriers.

The three biggest PRC trade barriers are these:

  • the PRC’s demand for government backdoors into American foundational software used by companies wanting to do business in the PRC
  • the PRC’s demand that American companies “partner” with PRC companies as a condition of doing business in the PRC
  • the PRC’s parallel demand that American companies transfer American technology to those “partners”

Absent removal of these barriers, no other barrier removal matters.  Absent removal of these barriers, no deal with the PRC should be concluded.

Robot Employment Acts

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That’s what Andy Puzder, the ex-CEO of CKE Restaurants, calls minimum wage laws.

In a survey released last month, the publication Nation’s Restaurant News asked 319 restaurant operators to name their biggest challenge for 2017. Nearly a quarter of them, 24%, said rising minimum wages.

And so we get:

McDonald’s said last November that it would install self-order kiosks in all 14,000 of its US restaurants. Wendy’s announced in February it would add kiosks at about 1,000 locations to “appeal to younger customers and reduce labor costs.”

The trend toward automation is particularly pronounced in areas where the local minimum wage is high. Eatsa, a 21st-century version of the automat, now lists seven locations in four cities, each of which will be subject to a $15 minimum wage within the next 36 months.

And

Taking automation to the next step, Miso Robotics and the owner of CaliBurger announced in March they have developed a robotic arm, called Flippy, that can turn burgers and place them on buns. CaliBurger plans to install them over the next two years in 50 restaurants world-wide.

And so we get the Americans over whom the Progressive-Democratic Party cries such copious crocodile tears and about whom this Party pretends to care so much—our youth, our first-time job seekers, our single moms trying to augment their incomes, our two-earner families trying to augment family income, in short, the poorest and the least among us—as the ones the most and the most immediately harmed by their precious minimum wage laws.

I haven’t even gotten to the fundamentally racist nature of minimum wage laws, born as they were as a Democratic Party Depression-era naked ploy to trap black Americans on the plantation so they couldn’t compete with white unions for jobs in the American industrial heartland.  Or the plain racist nature of today’s outcomes: the disproportionate impact on black and Hispanic teenagers who are denied entry-level jobs by the same pricing mechanism, an outcome well known to these Progressive-Democrats.  But: more welfare handout voters, they hope, raised in government dependency from their childhood.

I don’t agree that the Progressive-Democrats pushing these laws don’t understand this.  They know full well the outcomes, just as they know full well what follows from those outcomes: unemployed government dependents trapped in the Progressive-Democrats’ welfare cages, and so Progressive-Democrat (they hope) voters.

Our poor are just pawns in a cynical play for political power.