Little Secret (First written in 2002, there are
updates in here -- Call it evolution. It had to be done because
you keep changing who's in control of Congress. Pay particular
attention to the text now highlighted in red and blue. There is also an
added comment just below in the main text: the Bernie Madoff
reference -- LL 11/26/10)
(There's nothing risky about putting money in a
(this text written sometime
in 2005) -- Let’s say that you aren’t a longshoreman
who makes $150,000 a year for keeping track of the numbers on the
unloaded or loaded by the big cranes at the docks. Let’s say,
that you work at a machine shop, running a lathe.
You started doing that
in 1963 when you finished your hitch in the Air Force.
Over the years,
salary has increased because you got raises for being more experienced
at what you do, and raises just to keep up with inflation. You
at four bucks an hour. Today, you make sixteen bucks an hour.
In April, you’ll
62 years old, and after forty years at the same job, you’d like a rest,
and a chance to look around to see what else you might like to
How much money do you have in your social security account after paying
into it all these years?
Every dime is gone. Spent by congress.
(They just dumped in another batch of I.O.U.s the other day, in
When you began your working life, the president was a Democrat and both
houses of congress were controlled by Democrats.
Since 1994, we’ve either had a Democrat president
with a veto that Republicans usually didn’t have the numbers to
(welfare reform being the sole exception), or a Republican president
party had a bare majority in (sometimes only half of) congress to work
with. But, in 2002, Bush won the Senate back. In 2004, he won
majorities on the Hill. He has frightened the American Left by
stating he wants to fix the mess the liberals began and have maintained
during all those years in power.
(10/26/2010: He didn't make it.
Half way into his second term, Democrats (Progressives) retook Congress
and the battle was lost.)
If you paid fifty bucks a month into your social
security account for forty years, your investment was $24,000.
with your employer contribution, you put in a hundred a month, $48,000
will have been paid in. In either case, the day before you
there wasn't a dime in that account. If you pass away two years
retiring, your heirs will lose perhaps half of what you paid in.
If you die the day you retire and your spouse has gone before you, your
adult children will get a small burial check, and nothing else.
If the fifty bucks had been deposited in a local,
government-guaranteed bank like the kind where you keep your checking
savings accounts (totally risk-free), at 2% simple interest compounded
annually on the ever-growing balance, the day before you retired, that
account would contain $37,489. At a hundred bucks a month, it
contain $74,815. At $150 a month? $111,781. Six
All yours. If your entire family was fed into a plastic
shredder by Saddam Hussein, you get to leave all of it to the flat
society or your cat. Whatever you want.
That's what G.W. means by an "ownership society."
Social Security fund, my friends, as it is presently
constructed, is a (in years to come known as a Bernie Madoff) Ponzi
scheme. A pyramid scam. Illegal if
done by private citizens. From the first day of its existence,
all such schemes, it was destined to collapse because such scams rely
a pyramiding growth of accessible funding. (More people paying in
than are taking out.) All you have to do to bring it down is to
a population rate decline – like after the Baby Boom.
There’s no money in the box, and the government
can’t just print lots of additional dollar bills because that causes
People on a fixed income (like Social Security) will be pissed if that
That leaves three possibilities as we approach the
retirement years of the Baby Boomers.. One, cut benefits.
the old folks howl!) Two, raise SS taxes on the now smaller
(Hear the young folks howl!) Three, cut other kinds of government
spending. (Hear the bureaucrats and special interest groups
Without dramatic growth in the private economy, rather difficult with
taxes and fewer people working, we’re done for. We’re boxed in
way we look.
It’s a mess, isn’t it?
Security is a decade or so from collapse.
The Baby Boomers will drive it off a cliff. The Democrats knew
well that something like this was bound to happen at the time they
the system, and know it full well to this day.
think your Social Security deductions are safer in the hands
of politicians than they are in the vault of your own, local, private
oppose Bush. If you like the idea of actually having that money
your own passbook, where the politicians can't get at it, support
text segments that follow come from a piece by Donald Luskin, the
chief investment officer of Trend Macrolytics LLC, an independent
and investment-research firm.
| December 27, 2004, 10:05
The Lesson of Thrift
already work (which might be why the critics are so
of the Bush administration plan to reform Social
Security with personal accounts have a seemingly endless supply of
why it can’t possibly work. You know the litany: It’s too risky. It’s
expensive. It’s too complicated. The critics never
that there’s already a government-administered retirement system that
shown for over 15 years that personal accounts are prudent,
and simple. It’s the
Thrift Savings Plan of the United
States federal government
currently serving 3.3 million
The years since Thrift was
first offered in 1987 couldn’t
make for a better laboratory to crash-test a personal-account
During this period there have been both bull and bear markets that were
among the most severe in history. Through year-end 2003,
in Thrift personal accounts have earned $44.4 billion in profits for
participants — an average of more than $13,000 per participant.
time and on average, 65 percent of the value of Thrift
participant accounts has been invested in a special money-market
operated by the U.S. Treasury.
That’s been responsible for about $20.3
billion of the total investment gains. But almost as much — $19.8
— came from an S&P 500 Index fund. That’s remarkable because, on
only 30 percent of the value of participant accounts has been invested
in the S&P 500 fund.
is a textbook lesson in why it makes sense to invest
in equities. Even though they are riskier in the
they have a higher expected return in the long-term -- if by your votes, you haven't allowed
Democrats and RINOs to ruin the private economy. That’s why the
500 fund has earned just about as much for Thrift participants
as the plan’s money-market account, with only half the money
And index funds are cheap to operate.
As I discussed in detail
in my column last week, investment management fees for index funds are
ruinously small for the managers. And speaking of cheap, Thrift is a
of efficiency. Its administrative costs are only about six
one-hundredths of 1 percent of invested assets. That compares
favorably to Social Security, which has administrative costs that are
than five-times greater, even though you’d think its vast scale would
to significant economies.
funds also have the advantage of being very resistant
to meddling by government bureaucrats. Critics of personal accounts
that any government-sponsored retirement system creates an irresistible
temptation for politicians to guide participant dollars toward favored
investments, or for politicians to grandstand by interfering with
Indeed, all those
things have happened in large pension plans sponsored
by state governments. But there’s never been a whiff of it at Thrift.
because investment in simple index funds is clearly mandated in the
that created it — it would take an act of congress to permit a
to funnel Thrift money into some pet investment.
The Thrift Savings
Plan proves that there’s nothing too risky, too expensive,
or too complicated about personal accounts for Social
"index fund" is a kind of mutual fund that buys the stocks offered
by an individual stock exchange. Say, shares from the DOW
on Wall Street in NYC. You see the DOW numbers on every network
news show, every weekday of the year that isn't a national
There are NASDAQ index mutual funds whose portfolio duplicates the
stocks on that exchange. The Thrift plan described above uses the
like a lot more growth potential than a bank, and doubt very
much that government employees are big gamblers with their retirement
tell your favorite politicians to use this Thrift method involving
funds as one of the options in the new approach to Social
George gets it through congress, and you are in your twenties or
thirties, the money you will have in that account the day before you
62 will put a smile on your face a mile wide. Seven figures is not
the reach of most middle-classers.
difference between "investing" in the present "fund," which
returns a minus interest rate (you read that correctly) and the
of private locations, all of which return positive interest rates and,
which in the case of your bank, offers not a whit of risk.
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