Saturday, September 20, 2008

Demagoguery and Seizing on Current Fears

Obama put out a bald faced lie today in Florida:

“If my opponent had his way, the millions of Floridians who rely on it would’ve had their Social Security tied up in the stock market this week,”

This is demagoguery of the worst sort, for two reasons. First, neither John McCain nor George Bush ever proposed putting all Social Security contributions into the stock market, only a portion. Second, even if someone had done been allowed to invest their Social Security taxes in the stock market over the past 30 years, they would still be receiving superior returns to those the government provides. Some facts:

At the beginning of 1975 the S&P 500 Index was at 68.56. Since that time the S&P 500 Index has experienced an impressive growth rate to its current level around 1500. During that time the S&P 500 Index has had 25 years of positive gains and 7 years of negative returns.

The S&P 500 closed at 1255 on Friday, despite a week of panic, so the historic rate of return from 1975 is 8.8%. (That article must have been written early this year.) This is what a diversified portfolio of stocks can be expected to earn over many years. It is scandalous that Obama is peddling the myth that this is somehow risky, the greater risk for most workers not near retirement would to not be in the market. Meanwhile Social Security is offering a rate of return of less than 2%.

Further, Social Security obligations can not be sustained without change. Obama has joined Pelosi and Reid in opposing any change to a system that we can state to a certainty is on a path to bankruptcy. From David Ignatius in the WaPo

Pelosi describes with relish her strategy for trouncing Bush's plan to privatize Social Security -- which was to blast it mercilessly, without offering an alternative. The implicit message is that negotiation and compromise are for losers. The reality that Social Security is facing bankruptcy seems not to interest either Pelosi or Reid.

Nor Obama for that matter. So much for hope and change. This is relevant to the current crisis; do we really need four or eight years of failing to deal with impending crises? Because the current financial mess, bad as it may seem, pales in comparison to the $44 trillion in unfunded liabilities in the Social Security system over the next 75 years. And for some reason, young people are the ones supporting The One. I guess there is some irony there, as they will be the ones to pay the bill.

P.S. If you want to determine the historical rate of return for the S&P 500 (or any other index) for any period of your choosing, use R=(ln(final value/initial value))/T, where R is the rate of return as a decimal (you need to multiply by 100 to get per cent) and T is the period of time in years that you are examining. I challenge the reader to find a 30 year period where the rate of return is less than the best we can expect of Social Security (2%).



K T Cat said...

Properly translated: "If my opponent had his way, Social Security taxes would go into private investments and would be off-limit to government borrowing and spending. We need those Social Security receipts so I can leave them IOUs and spend the money on hiring and army of new teachers and paying them well!"

B-Daddy said...

Thanks KT. It's true, the main reason for Democrat opposition to Social Security reform is that the money becomes off limits for their schemes to disguise the true cost of new government spending.

Dean said...

And how about the sick reality that (not all) but many liberal pols don't really give a damn about minorities and the elderly as a proverbial rising tide among these folks would trend them towards voting Republican?

It makes me chuckle when I hear the Democrats rail against the Republican using "fear" of terrorism as a campaign tactic when "fear" has been front and center in their domestic playbook for some 40 years now.