Apparently, various studies indicate that most Americans don't know how to invest wisely.
Here are a couple of excerpts:
One investment adviser who has seen many investors make costly mistakes says privatizing Social Security would have "catastrophic" consequences. "The general public tends to play up their investing success while ignoring the lessons of their losses," says Christopher Harriman Dann of the Olson Dann division of LaSalle St. Securities. He says nine times out of 10, investors' long-term performance lags behind the market by a wide margin.
A study released in April 2004 by Dalbar, a financial services market research firm, confirms Dann's theory. The research, which analyzed mutual fund money flows the past 20 years, found that the Standard & Poor's 500 index had annual gains close to 13% during that period; the average investor earned just 3.5%.
[. . .]
If so many people had not lost so much money when the bubble burst in 2000, Bush's push to create private accounts might be garnering more support.
"Timing is everything," says Bob Barbera, chief economist at ITG Hoenig. "There would have been more broad-based support back in 1997, 1998 and 1999, when everyone and his sister was watching TV to find out what Internet stocks to buy, and 30% was considered a good return for low risk."
Of course, had Bush's bold plan been enacted during the heady '90s, many new accounts likely would have slipped into the red once the stock market turned south in March 2000.
Therein lies the problem. The worst stock meltdown since the Depression era gave people a greater appreciation of the emotional and financial value of a safety net, a powerful concept that fostered the creation of Social Security back in the 1930s.
If you read the entire article, you'll see that many Americans realize that they don't know enough to make good investments. That's one source of their reluctance to support privatization.
Ten years ago Paul Guyer, Fred Rauscher, and I began work on volume 13 of The Cambridge Edition of the Works of Immanuel Kant. Our plan was to translate and annotate a generous selection of material that was published after Kant's death marginalia, sketches, drafts, and the like.
Our volume Notes and Fragments took a long time to finish, but today I finally received my advance copies, and the press tells me that the book will soon be available through the normal channels. This page contains all of the relevant information for anyone interested in purchasing the book.
Jonathan Chait's latest column identifies his chief reason for opposing the partial privatization of Social Security: the program is a form of social insurance. Consequently, he refuses to listen to arguments that would lead to reforms that would undo the program's ability to act as social insurance.
His column is only a column, of course; therefore, it's rather short. Chait recently wrote a much longer article "Blocking Move" for The New Republic. Unfortunately, it's available only to subscribers, but here's the part that talks about social insurance:
Privatizers portray Social Security as a kind of low-performing 401(k) plan. But the program was never intended as a personal retirement plan. It's a form of social insurance, designed to spread risks throughout the population. One such risk is that you get sick or hurt and can't work anymore; 11.5 percent of Social Security benefits go to disabled workers (which is another reason why retirees get a lower rate of return).
Another risk is that your income will decline, perhaps because economic changes make your skills less valuable. (Today, for example, steelworkers could be made redundant by productivity increases. Perhaps in 30 years it will be accountants or software engineers whose work was outsourced overseas.) That's why Social Security gives low-earning retirees a greater return on their taxes than high-income retirees. Still another risk is that you'll live a very long time and exhaust your savings, which is why old-age benefits are indexed to inflation and last for a lifetime.
A system of individual accounts would concentrate all these risks on the shoulders of the individual. The inherent risks of investing have captured the most attention. Obviously, if you invest poorly--or even retire at the end of a market slump--you may get a nasty surprise at retirement. (Gary Burtless of the Brookings Institution studied what would have happened historically if workers had invested two percentage points of their Social Security taxes in stocks. Those retiring at the end of a slump would have less than half the income of their more fortunate counterparts who cashed in a few years earlier.) But the risks of replacing social insurance pose an even harsher dilemma. If you suffer a career-ending disability before you've put aside enough in your account, if you find yourself at the low end of the income scale, or if you live longer than you had made contingencies for, you would be out of luck. Social Security doesn't make anybody a millionaire, but it offers everyone the assurance against suffering too much from outrageous fortune. A privatized system would invert that premise.
Privatization advocates insist that the changing economy has rendered social insurance obsolete. "The economy is changing, the world is changing," asserted Bush during last year's campaign. "In our parents' generation, moms usually stayed home while fathers worked for one company until retirement. The company provided health care and training and a pension."
Bush is right about the changes. As Yale political scientist Jacob S. Hacker has noted, this generation of workers faces much greater income variability than the previous generation. Rather than slow, steady pay increases and lifetime employment, workers change jobs and see their incomes fluctuate dramatically. One of the most potent changes has come in company pensions. Forty years ago, most pensions gave workers a fixed benefit. Today, most pension benefits are tied, at least in part, to stock-market performance.
But Bush has the implications of this change exactly backward. Because workers face higher risk in the economy today, social insurance that eliminates risk makes more sense, not less. Privatized Social Security might have made some sense 40 years ago for workers who stayed at one company their whole career and retired to a guaranteed pension. Why not let them take some risks with their public pension? But it utterly fails to meet the needs of the present day. The last thing you want is for your 401(k) and your Social Security to drop simultaneously during a market decline shortly before you retire. If workers are going to take on greater risk in a more dynamic economy, a risk-free bedrock of social insurance offers the perfect complement.
Notice how Republicans have studiously avoided these issues. They've omitted them, since they're trying to convince voters to think of Social Security as an investment plan that could be bettered through the addition of private accounts.
Here's a weak analogy, but it might prove helpful. Most states mandate that drivers at least carry collision insurance as a condition for legally operating an automobile. No one is advocating that such laws be overturned, and that we establish private collision accounts. Furthermore, no one objects to these laws on the grounds that the money spent on premiums is no longer in the hands of drivers, can't be inherited, and the like. Why? For the obvious reason: insurance is insurance, it's not an investment. We all understand the difference.
I've added a China category, since I've noticed that I'm blogging more frequently about the country's growing international importance. I don't claim to know very much about China, but at least I can pass along interesting stories that I come across.
According to Kahn, the Chinese government faces a difficulty posed by its growing power and influence, one that he characterizes as follows:
Rising China has two faces. Its leaders want - arguably need - to be viewed as managing a new kind of emerging superpower, one that will not threaten neighbors or the world. Only a gentle giant can attract $60 billion in foreign investment and rack up $160 billion annual trade surpluses with the United States, the thinking goes.
Yet the Communist Party has also concluded it would lose power if it cedes Taiwan. The bill introduced last Tuesday, and set for passage Monday, is just the latest attempt to prove that the party will pay any price, including a war that might well involve the United States, to preserve China's territorial integrity.
"Our elites know China will have difficulty rising if the world worries about a new military threat," says Jin Canrong, a foreign policy expert at People's University in Beijing. "But China also cannot rise if Taiwan breaks away. And Taiwan will break away unless the threat of force is very real."
Consequently, China speaks softly on many issues but pursues a hardline on Taiwan, one that isn't merely rhetorical, according to Kahn, who details some of the recent developments in China's military in the rest of the article.