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Social Security Rescue Plans Mean Government Ownership of Business*


George Reisman**

(January 11, 1997)

Earlier this week, a federal advisory panel advanced various proposals for rescuing the social security system by means of investing between $1.2 and $4.4 trillion of social-security-tax revenues in the stock market over the coming years. The purpose is supposed to be to earn a higher rate of return on the money than government bonds provide and thereby prevent the impending bankruptcy of the system around 2015. (Up to now government bonds have been the only legally allowed investment use of the funds.) The proposal for stock-market investment has met with widespread enthusiasm and virtually no criticism.

So far nobody seems to have noticed the fact that implementing such a proposal would almost certainly mean a major increase in the government's power over business. Unless the government were prepared to give full freedom to the individual to invest in any stocks of his choice, it would, as a minimum, have to draw up a list of stocks that it approved for purchase. The result of this would be that a very large number of publicly traded companies would be under pressure to convince the government to add their stock to the list and to keep it on the list. In order to do this, ofcourse, a company, and all the individuals prominently associated with it, would have to avoid doing anything that might displease government officials and thereby lead the government to shun the company's stock. Thus a major new avenue of arbitrary government power would be opened up.

Almost certainly, however, the government would not be content with merely drawing up a list of approved stocks and then leave the choice of the specific stocks within the list, and the timing of their purchase and sale, to the discretion of the individual taxpayers. Doing so would contradict a major underlying premise of the whole social security system. That premise is that the average person cannot be relied upon to provide adequately for his old age even under conditions in which all he would have to do is regularly deposit money in a savings account at a bank or pay the premiums on an endowment-insurance policy.

The truth, of course, is that the average person, and the great majority of people even of substantially below-average ability, certainly could do this much, provided that they could take the future buying power of their savings for granted. But the government long ago destroyed the gold standard, and the resulting chronic inflation has left such people in a situation in which they really are unable to cope with the requirements of saving and investing on their own. They are unable to cope precisely because investing in the stock market has been left as practically the only viable form of investment, since it at least offers hope of keeping up with the rise in prices. Such people--tens of millions of them--really do not possess the necessary knowledge or, indeed, the necessary time, to seriously follow the ever changing conditions of the stock market and of the individual companies and industries whose shares are traded. Alleged concern for these people must almost inevitably lead to the government taking full and direct charge of any stock-market investments that might be made under the auspices of the social security system.

The consequences of the government's necessary control over such stock-market investments would be extremely grave. It would mean that the government would come to acquire a substantial portion of the stock of most major corporations in the United States. As a further result, the government would come to appoint members of the boards of directors of those corporations, in the same way that other substantial stockholders do. Just imagine practically every major business in the United States having one or more government members of its board of directors! The distance between such an arrangement and the government's management of the economic system--i.e., socialism--is certainly not very great.

Amazingly, such obvious considerations seem to have escaped the politicians, the news media, and even "Wall Street," which reportedly looks forward to higher stock prices, more commissions, and more investment-management fees if social-security funds are invested in the stock market.

Social security is in trouble. A radical reform is needed. The only really proper reform is the gradual abolition of the whole system, accompanied by the restoration of conditions in which people can rely on the future buying power of their savings.

* * *

For further discussion of social security, including how to gradually abolish the system, see the index entry "Social security" in my newly published book Capitalism: A Treatise on Economics.

*Copyright © 1997 by George Reisman. All rights reserved.

**George Reisman, Ph.D., is professor of Economics at Pepperdine University’s Graziadio School of Business and Management and is the author of Capitalism: A Treatise on Economics (Ottawa, Illinois: Jameson Books, 1996). 

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