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Privatization and A Down Market
October 4, 2001
As the stock market tumbles in the wake of the tragic events of September 11,
some opponents of Social Security privatization have again raised the specter of market
risk. However, even in this uncertain investment climate, several things should be
remembered:
- The market will eventually come back. U.S. financial markets have weathered
catastrophic events before. Social Security privatization is not about short-term
market fluctuations, but long-term investment. Historically, long-term investment
has yielded average annual returns of nearly 8 percent. There is no reason
to believe that that will not continue in the future. (See, William Shipman
and Melissa Hieger, “Common
Objections to a Market-Based Social Security system: A Response,” Cato
Institute Social Security Paper no. 10, July 22, 1997.)
- The economic fallout from September 11 hurts the current Social Security
system too. Rising unemployment and declining tax revenue will worsen
Social Security's already severe financial problems.
- Social Security privatization does not mean investing only in stocks. Under
most privatization scenarios, workers would be able to invest in a wide
variety of instruments, including bonds, annuities, money market funds,
and various products that provide a guaranteed return.
- In the end, Social Security privatization is about ownership and control of
one's retirement money. Those advantages are not dependent on how the
market performs.
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