WSJ: Stop Trying to Scare People out of a Good Deal

August 6, 2002

The Wall Street Journal editorializes Friday against those who would use recent stock market declines to fight individual retirement investment, particularly personal accounts for Social Security.

The Journal cites "those using the bear market to discredit Social Security reform: 'If you needed any understanding of why it's a bad idea,' intones House Minority Leader Dick Gephardt, 'I'm sure you got that from what you've seen happen in the stock market in the last year.' To which the best reply is: Stop trying to scare people out of a good deal. Stocks have long been, and will continue to be, essential to building a secure retirement -- and there's no reason to think that has changed."

Excerpts from the Journal editorial follow:

"As scary as some of the recent numbers look, it's worth putting today's stock market in perspective. It's true that the Dow Jones Industrial Average is down some 28% from its peak in 2000, but that was after several years of 20% returns. Even taking into account the past year's losses, the Dow is still trading at what it was as recently as 1998…"

"Which returns us to Mr. Gephardt and the attacks on Social Security reform. The case for voluntary private retirement accounts has never hinged on 20%-a-year annual returns. The core of the argument is about using stock-market investments to diversify Social Security assets and put the program on a more financially stable path for the long run.

"As for individuals, allocating a portion of their payroll taxes to personal accounts would give them more control over their own destinies. Social Security is currently little more than a political promise. The money that evaporates today from workers' checks isn't going into a future pot, but is financing current retirees, and the program is set to start running a deficit in just 14 years.

"Personal accounts would allow workers to build an asset that depended on more than some future political mood; they would have a legal property right to their retirement funds that they could, say, pass along to heirs. Americans who now die early in retirement never see any of the money they worked so hard to earn.

"If politicians and the media want to talk about "risk," they should talk about all kinds. One type is the market risk, in which investors control their own retirement funds, riding out short-term price fluctuations but with the expectation of solid long-term returns. Another type is political or government risk, in which taxpayers pay into a system that is slowly going broke and won't have enough money to pay them when they retire, unless the politicians cut benefits or raise taxes.

"That's the retirement debate we really ought to be having, bear market or bull."

For more information on Social Security and the recent stock market declines, see "Personal accounts in a down market," a memo from Cato Social Security analyst Andrew G. Biggs. Also see "Common Objections to a Market-Based Social Security System: A Response," by Melissa Hieger and William Shipman.

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