Monday, February 14, 2005

Social Security

Isn't it great when one discovers that there are actual terms for your ideas? It's like validating your existence--that others have confirmed your thoughts. When people complained about political parties, I explained that I founded the "Party of Me" and that its platform perfectly matched my opinions. The trouble was, I only got one vote (but I had my target minority vote locked out). So I decided to choose a political party whose views best matched my own. Thus I was trading perfect representation for political power. This, I have recently learned, is called "interest aggregation," and it is the means with which options are eliminated in the selection of policy alternatives.

In reference to the current debate over social security, I am quite surprised by how policy options have been eliminated. The choices we are given are either (a) extremely low risk government programs or (b) extremely high risk stock market investment. The best minds in the world are devoted to the spreading and reduction of risk, and yet this is the best we can come up with politically? How about, for example, we have an FDIC insured investment accounts (returning somewhere between a savings account and a certificate of deposit), or a mutual fund that guarantees an average balance of inflation adjusted or better? Why have we eliminated all of these other options so soon?

5 Comments:

Blogger Hamlette said...

"it is the means with which options are eliminated in the selection of policy alternatives."

How did we ever end up together? I couldn't come up with a sentence like that if my life depended on it! ;-)

10:31 PM  
Anonymous Noumenon said...

I couldn't come up with a sentence like that if my life depended on it! ;-)That's because you're a writer, and would work around the passive voice with something like "it is how parties decide which policy alternatives are on or off the menu."

The choices we are given are either (a) extremely low risk government programs or (b) extremely high risk stock market investment.Aren't these choices really subsidiary to the choice of whether to have private accounts or not? The elimation of alternatives has taken place at a higher level.

Anyway, Bush's State of the Union address mentioned modeling the private accounts after the federal Thrift Savings Program. That includes both bond and stock funds. The consensus on my financial discussion board is that you would normally invest in the bond fund because it is replacing a source of guaranteed income. Investing your SS money in stocks would suddenly make your portfolio a lot more risky.

2:10 AM  
Blogger Octavo Dia said...

You misunderstood, Noumenon, the choice is presented as either (a) keeping the current system, or (b) dumping money into the stock market. We're not given the option of (a) keeping the current system, or (b) creating private accounts that can take any of the following six forms....

4:26 AM  
Anonymous Anonymous said...

So you're saying that they did interest aggregation and found

55% who wanted the most conservative, low-cost, government-managed investment options available (TSP)
35% who wanted to be able to mail their SS contributions to Fidelity, Vanguard, et al
10% who wanted an online-access, low-commission day-trading account for speculating with their SS money

so they presented just option 1?

I still stick with my interpretation of the process, which is that they made a top-down leadership decision to push private accounts and an "ownership society" and then chose the least politically alarming option for what those accounts would look like. If private accounts were an easy sell, then the debate would be over what exactly the accounts should look like, but that's premature right now.

--Noumie, having a lot of trouble getting Blogger to post this comment

3:21 PM  
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4:52 PM  

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