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Tuesday, February 22, 2005

Private accounts and the example of states 

I'm not really up to speed on either the merits or the politics of Social Security account privatization, other than to have observed that it is a massively bigger subject in the lefty 'sphere than among conservative blogs, which probably does not bode well for its prospects. It also seems that the establishment press is working against it.

This morning's edition of The Note links to a very dubious article in the Los Angeles Times about the failure of private accounts among government employees in the various states that have tried them.
The Los Angeles Times' Peter Gosselin looks at how well personal investment accounts have fared among public employees over the last decade in seven states that have offered them. Answer: not all that well, in terms of levels of participation and rates of return.

The Gosselin article cites Jeb Bush's Florida, for example:
Among the states, by far the biggest test of private accounts' popularity in recent years has come in Florida, where Gov. Jeb Bush, the president's brother, proposed replacing public employees' defined benefit pensions with a mandatory defined contribution plan.

Although the governor eventually compromised on a voluntary plan, state officials still predicted a stampede. Early surveys of Florida's 600,000-plus public employees suggested that more than half would go for accounts. But since the accounts' introduction in 2002, 43,000 employees, or about 7%, have enrolled.

"The stock market can't be trusted the majority of the time," said John Miller, a 44-year-old clerk with the state's Department of Highway Safety and Motor Vehicles in Tallahassee who chose not to take up the governor's offer.

The thrust of the piece is that private accounts have been a tough sell, notwithstanding President Bush's argument that Americans want to "own" their retirement security.

Actually, I would argue that the attitudes of state government employees tell us exactly nothing about the reception that private accounts would receive from Americans in general. In my experience, state government employees are -- not surprisingly -- the most statist Americans that there are, with an abiding and entirely unjustified faith in their own ability to manage our affairs.

I am very open to the idea that the Bush proposal is deeply flawed policy and dead-on-arrival politically. But the fact that state employees do not like their own state's program is evidence only that state governments can screw up any good idea.

7 Comments:

By Blogger Sluggo, at Tue Feb 22, 01:28:00 PM:

Very true. State employee pension funds are typically lavish enough that you might choose them over a time machine to pick your stocks.  

By Blogger Screwy Hoolie, at Tue Feb 22, 09:22:00 PM:

Jack,

This article comes via MyDD, and it's a very interesting idea:

Knight-Ridder: "One new proposal emerging from the national debate on how to overhaul Social Security could make every American a millionaire at age 65.

Paul O'Neill, President Bush's first treasury secretary and a former chief executive officer of aluminum giant Alcoa, proposes having the government stake every American baby at birth to an investment savings account. By the time the child retires, the account would contain $1 million or more. The idea is drawing attention from an unusual coalition of lawmakers from both parties, liberals as well as conservatives."
[...]
To move away from Social Security's chronic funding problems, O'Neill suggests that the government put $2,000 in a special investment account for every newborn American. The government would invest $2,000 more each year until the child reaches 18.

The money would be invested in a conservative index of stocks and bonds and couldn't be touched until retirement. The investment would grow at a compounded rate, meaning that as the value of assets in the account grows, profit would be reinvested so the account would grow even more. Without adding a single cent beyond compounding after the child turns 18, he or she would retire at age 65 with $1,013,326 in the account, O'Neill reckons.

"If you do the arithmetic, the $1 million would provide an annuity of $82,000 a year for 20 years," O'Neill said in an interview."

Anyhoo - Go read the whole thing. It's the first sensible idea I've heard on the matter.  

By Blogger TigerHawk, at Tue Feb 22, 10:29:00 PM:

Actually, this idea has been kicking around wonkish circles for a while. It has a certain appeal. The trick would be to make the funds genuinely untouchable by the beneficiary, and to have the money invested without political considerations.  

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