November 16, 1998
In today's Washington Post, the Chairman of the Securities and Exchange Commission,
Arthur Levitt, warned of the dangers of government investing the Social Security
trust fund. Following are observations on Levitt's column from Michael Tanner,
Cato's director of health and welfare studies:
"In today's Washington Post, SEC Chairman Arthur Levitt correctly
warns of the dangers of government entanglement in private investment markets,
including the explosive issue of social investing. The integrity of the American
securities markets would certainly be undermined by direct government investment.
"Levitt is also correct to point out the need to protect consumers
against fraud under any system of individual accounts. But it's important to
point out that nearly all privatization proposals call for protections against
consumer fraud and most plans would, at least initially, limit the range of
allowable investment options. No one envisions American workers gambling their
retirements on Singapore derivatives.
"Any privatized Social Security system would build on existing
regulation for such products as 401(k) plans. Although Levitt is quite correct
to say that many Americans need more financial knowledge, it's also true that
some 40 million people now enjoy participation in 401(k) without necessarily
having to know everything there is to know about load and no-load mutual funds.
It is also important to realize that, given Social Security's negative rate
of return for young workers, a privatized system is likely to be a better deal
for even the most inexperienced investor."
With the passing of the 1998 midterm elections, Social Security reform is
now emerging as the top priority issue for the coming year. A proposal from
President Clinton will most likely include individual savings and investment
accounts. In today's commentary, Peter Ferrara argues that Republications should
not only embrace these accounts as the centerpiece of Social Security reform
but push to expand them.
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