All through the just-ended campaign season, Democrat attacks on
personal accounts for Social Security were blunted countrywide by brave
Republicans. But so far in the battle against the anti-personal-account
demagogues, a key point has been overlooked: Average, working-stiff, Main
Street, red-state Americans can manage their own money better than the
Look, for example, at the stock-market plunge of the last three
years. On balance, the broad-based S&P 500 has been down 30 percent, adding
fuel to liberal attacks on personal accounts. Who in their right mind, the
Democrats ask, would want to buy into such a catastrophic system? Well, one
strong but seldom-heard response is that not everyone owns stocks. And
non-stock investing did quite well in the last few years, believe it or not.
Treasury notes and bonds increased 32 percent since the market
began heading south in 2000. Corporate bonds rose 27 percent in this period.
Those in cash-safe money-market funds witnessed 15 percent gains. And those
who bought ordinary bank savings accounts -- government-guaranteed and
backed by the Federal Deposit Insurance Corporation -- watched their assets
grow 15 to 20 percent.
Homeowners also did well in this period. Today, 70 percent of
American families own homes, compared with 50 percent who own stocks. Home
prices have increased 5 percent a year on average during the down period on
Wall Street, while mortgage rates have dropped significantly. So, if you
owned Enron, you've been a very angry investor. But if you owned your own
home, and refinanced it two or three times since 2000, and invested your
surplus balances in Treasury notes and money-market funds, at least you
broke even, and in some cases, you came out ahead.
So, there are a lot of Americans who made good money in recent
years by not investing in stocks. But this fall, you probably didn't hear
Sens. Tom Daschle or Jon Corzine or economist Paul Krugman ever acknowledge
that a number of financial securities gained in value while the stock market
dropped. Their enthusiasm for discrediting the stock market blocked them
from recognizing the fundamental benefits of choice in investing. And
choice, coupled with balance, is how Social Security reform should be sold.
Personal-account opponents also never tell you that members of
Congress enjoy the exact kind of investment choices that are today denied
ordinary working stiffs. The Thrift Savings Plan, available to all
congressional members and their staffs, features a range of
personal-account-type choices. Maybe that's why Sen. Daschle didn't seem so
sad after losing his majority leader status on Election Day. If he's the
conservative investor he would have us believe, his retirement money is
tucked neatly away in appreciating bond funds in the Thrift Savings Plan.
How hypocritical is this?
At the end of the day, however, stocks are the best way to
create personal wealth over the long run. More than 90 percent of the time,
according to University of Pennsylvania professor Jeremy Siegel, stocks
outperform inflation, T-bills, and bonds when held for 20 years or longer.
Even if you include this wretched three-year stock period,
inflation-adjusted stock returns over the past 20 years have averaged 11.5
percent annually, while Treasury bills rose less than 3 percent and Treasury
bonds just over 9 percent. Ultimately, when constructing his or her
personal-account portfolio, the younger worker will compare all these gains
with the measly 1 to 2 percent return now being generated by choice-less
Of a number of promising pro-growth tax-cut options being
discussed today in Washington, in some sense the most significant would be
personal accounts for Social Security, a reform that's high on the Bush
administration's agenda. There isn't an economist out there who doesn't
agree that the nation needs more private saving and investment to spur
productivity, real incomes, jobs, technology advances and overall economic
growth. By transferring all or part of the 6.2 percent payroll tax into
private savings vehicles, that portion not given back to Treasury bills and
notes will be invested in private-sector growth.
Harvard economist Martin Feldstein estimates that personal
accounts will deliver a 5 percent permanent increase in the gross domestic
product, accumulating to a roughly $12 trillion future gain at present
value. By converting lower-return benefits into higher-return investments,
personal accounts will mean a whole lot more to wage earners than one-time
tax rebates or the other goofy plans heard on the campaign trail.
Does anyone seriously doubt that private wealth creation, driven
by individual choice and ownership, won't solve the vast majority of our
economic problems? No wonder pro-Social Security reform politicians did well
in the recent election.