"Obama's question deserves an answer"

As Schiller's saying goes, "Against stupidity the gods themselves contend in vain." One example that especially bugs me is the refusal of my young liberal friends to SEE Social Security. They are working hard at low-paying jobs, and giving a lot of their paychecks to the government in exchange for a promise of some crummy future payments by the government. They are just clueless about what the same money could do if we had private SS accounts. They are being robbed of millions of dollars, but don't have the education and the imagination to see it. They can't see the lines extending on the graph to, say, the year 2050.

[That's just ignorance. What's vile and evil are the older liberals who are putting their own money in 401-k's and IRA's while doing all they can to deprive the little people of similar benefits.]

Now the current economic crisis will give lefties a chance to say, "See, we told you private accounts wouldn't work." But that's just wrong. (My guess is that they would have made sense even during the Great Depression.) Here's someone who has actually run the numbers...

Andrew G. Biggs, Retirement Math - Forbes.com: (Thanks to Orrin )

During the election campaign Barack Obama told prospective voters, "If my opponent had his way, millions of Americans would have had their Social Security tied to [the] stock market this week. Millions would have watched as the market tumbled and their nest egg disappeared before their eyes. ... Imagine if you had some of your Social Security money in the stock market right now. How would you be feeling about the prospects for your retirement?"

Obama's question deserves an answer. How would personal Social Security accounts have fared in the current market? Surprisingly, careful analysis shows that even individuals retiring today would have increased their total Social Security benefits by holding a personal account. Here's why...

...Of course, not every worker would hold an account his whole life. If President Bush's 2005 reform plan had passed, many workers would enter the markets precisely as they began to decline. Surely these workers would see big benefit reductions? Under the Bush plan, only workers under age 55 as of 2005 would have been eligible for accounts, so no current retirees would have held accounts. Nevertheless, I ran a third simulation: workers would retire today but begin accounts at different ages. What would have happened to the worker who started an account at age 62, then retired only three years later? At last, we find someone who lost money: Total benefits for such an individual would have declined by 0.1%.

The point here isn't that stocks are a free lunch. In an efficient market the higher returns paid to stocks are nothing more than compensation for their higher risk, and we don't know that future market returns will be as good as those in the past. But accounts do provide a valuable tool to prefund future retirement income and reduce cost burdens on tomorrow's workers. And these numbers put the lie to President Obama's exaggerations of the risks of investing retirement savings in the market....