Tag Archives: spending

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.

NATO and Mutual Defense Alliances

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Secretary of State Rex Tillerson was in Europe at the end of the week, and among other things, he pushed for NATO member states to honor their decades-old commitment to spend 2% of their GDP on defense.

Germany, among other members, insisted that honoring their commitment was “unrealistic.”

German Foreign Minister Sigmar Gabriel said demands for 2% of GDP spending were “totally unrealistic.” He said that to meet the US target, Germany would have to increase spending by some €35 billion ($37 billion).

After all, Gabriel has argued,

…a strong defense isn’t enough to ensure security.

That’s a cynically offered straw man, though; no one is arguing that a strong defense is sufficient, only that it’s necessary.  Gabriel will have to play with his dolly without me.

There are others who agree that the nations need to boost their own spending—Germany’s Chancellor Angela Merkel, for instance, and NATO Secretary-General Jens Stoltenberg.  But it isn’t sufficient.

We need to be developing a mutual defense alliance that includes eastern European nations, anyway.  Maybe the result of that development should be a separate alliance, not an expansion of NATO.  Perhaps even the result should replace NATO, or at least our role in the new alliance should replace our role in NATO, since so many of the nations of NATO have so little interest in their own treaty responsibilities.

Sanctuary Cities and Federal Funding

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San Francisco asked a federal judge Wednesday to block President Trump’s order threatening to strip federal funds from so-called sanctuary cities that bar police from enforcing immigration laws.

This suit has a good chance of succeeding.  In 1987’s South Dakota v Dole, the Supreme Court ruled (in a dispute over the State’s minimum drinking age and Federal highway funds transfers to the State) that the Federal government cannot withhold already agreed Federal funds from a State in order to coerce State acquiescence with Federal wishes.  Funds can be withheld to “persuade,” but the withheld funds must be related to the question at hand rather than a blanket withholding, and the amount withheld cannot be coercive in its size, but only persuasive.  Without naming a threshold for the amount, the Court held that the 5% withholding imposed by the Federal government was not coercive.

Right or wrong, that’s the law of the land as things stand.  Congress and the President will have to statutorily overrule the Supreme Court to enable such a broad withholding of Federal funds from San Francisco.

On the other hand, stopping sending all Federal funds to all cities altogether would bypass the Court’s ruling (although legislation still would be necessary to stop completely the funds transfers).  In the end, we have to ask why the citizens of Illinois, for instance, should have to pay any part of, let’s say, San Francisco’s expenses at all.

It’s true enough that we’re all in this republican democracy nation of ours together, and so we support each other.  But that mutual support includes cities like San Francisco not creating themselves as burdens on the rest of our nation with its irresponsible, profligate spending while demanding OPM to pay for that spending.

Another “Drop Dead” Moment for New York City?

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That was The New York Daily News‘ cynical characterization of President Gerald Ford’s refusal to waste taxpayer money on the city’s profligate irresponsibility with its own budget and spending habits.  Is Mayor Bill de Blasio (D) exposing New York City to another round of badly needed tough love from the Federal government?

One New York City Council member wants to expand a summer jobs program for youth.
Another is seeking millions to push the city’s bike-share program deeper into poor neighborhoods.
And another wants to increase funding to legal services for immigrants and adult literacy programs.
Such is budget season at City Hall, where the budget is expected to grow substantially for the fourth year in a row, to some $84.67 billion, up from about $70 billion for fiscal year 2014….

There is some pushback:

Councilwoman Julissa Ferreras-Copeland [D], who chairs the body’s finance committee, has said the city should be putting aside even more in the face of potential cuts under the new president.

And some pushback to the pushback.  Councilman Jumaane Williams (D):

I’m very concerned if we don’t expand these programs now what will happen in future years.  And we should do it while we have it.

[sigh]

We may get to see whether New York City not-so-favorite son President Donald Trump will have the same strength that Ford showed.

Funding Sanctuary Cities

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White House Chief of Staff Reince Priebus on Federal funds—your tax money—for “sanctuary” cities:

[I]f you defy the laws of this country, you shouldn’t receive federal tax payer dollars from the people of this country…in some cases, you have folks that have committed crimes…and in every other jurisdiction, they say “OK, you’ve committed a crime. You now have to leave the country.”

What the man said.