the Department of Agriculture -you know, the same folks who brought you food stamps. As a libertarian, I'd like to see a plan with more choices. But compared with the current Social Security system, the FERS plan is a dream come true. Social Security reform would do well if it did no more than emulate this winning formula.
What about the "transition costs" of moving from the current system to private accounts?
As I wrote in my column yesterday, "transition costs" are a myth. There would be no transition costs. All costs associated with shutting down the existing system are costs that are already borne by maintaining it.
Why should private accounts make the stock market go up, as I have claimed? Stock prices are driven by corporate earnings, not the supply of fresh money in the markets.
True, stock prices are driven by earnings. But earnings are driven by the health of the economy, and nothing would promote the health of the economy more than solving the Social Security crisis, and at the same time creating a nation of savers and investors destined to earn higher rates of return over their lifetimes.
But beyond this, there are other factors that influence stock prices besides earnings - especially tax policies that enlarge or contract the fraction of those earnings that investors get to keep, after taxes. Private accounts would be, to some extent, a tax shelter. That would raise the after-tax value to investors of even a static earnings stream. And that would raise stock prices.
If private accounts actually happen someday, which stocks could benefit the most?
Fair question, but it's the wrong one to ask. If we can drive a stake through the heart of the vampire that is the existing Social Security system - and thus prevent it from sucking more blood from the neck of the body politic - and replace it with a system of private accounts that can be invested in stocks - and thus ignite a booming economy and a booming market - it won't even matter which stocks you buy. Just buy stocks.
