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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