March 14, 2005

Pay No Attention To The Bushel of Money Behind The Curtain (tip to Kudlow)
Private-Account Critical Unions Have "Risky" Pensions

Shortly before the "CAT FOOD! CAT FOOD! CAT FOOD!" chicken-little style of criticizing private accounts for Social Security is the idea that the stock market is 'risky.' Comparing it to slots and casinos goes beyond hyperbole to skate the thin edge of flat-out dishonesty.

Yes, there is risk in the stock market - it might not pay out. But then, there's risk in the federal government as well - what if the currency collapsed or the government got stingy or, more likely, the government decides it has to tax you more or give you fewer benefits? These are all risks.

Unlike the stock market, the risk of a tax hike, benefit cut or both in the future of an unreformed-Social Security system is all but certain. Social Security WILL NOT WORK without a tax hike or a benefit cut. We do not have the money available to pay all the costs that are sure to come as people live longer and the massive boomer generation reaches full-retirement age. As it is now, the oldest boomers are 60 to 62 (depending on how you define them).

When the system goes into the deep-red, they're going to either cut benefits (giving them at a later age, giving them at a reduced rate, or both) or they're going to raise taxes (either on payroll, income or something else). Maybe both. That sounds pretty damned risky to me.

The stock market, in contrast, often makes some pretty awesome returns. Why, just ask public employees unions - THEY use stock market investments from Morgan Stanley, Goldman Sachs and the rest. As a result, these pension funds are fat and wealthy, ready to pay out to their members.

Public employee pension plans accounted for nearly $2 trillion in assets in September, 2004. Over half were in corporate equities and over a third were in fixed income instruments (like bonds). Public employee pension funds keep an average of 60% of their assets in stocks, and union pension funds in general average 57%. In fact, the federal employee Thrift Savings Plan allows government workers to use corporate-managed investment opportunities to plan their retirement.

What's funny is that the American Federation of State, County and Municipal Employees (AFSCME), a huge public employees' union, brags about opposing the diversion of Social Security payroll taxes into what it calls 'risky' investment accounts.

But when it comes to the well over $1 trillion dollars invested by public employee pension plans into stocks, apparently AFSCME doesn't think their own behavior is risky. Say it together: "hypocrites!"

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