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Andy Stern Proposes Partial Investment of Social Security Trust Fund in Stock Market

Ryan Grim has a story about Andy Stern, one of the members of the fiscal commission, trying to broker a deal on Social Security. There are probably close to 14 votes, needed for the recommendations to pass out of the commission, for benefit cuts, so I’m assuming Stern is bargaining with the commission to hold those off. But I don’t know if this is the best policy:

Andy Stern, a key member of the deficit commission, is pushing to invest a significant portion of the Social Security trust fund in private companies through the stock market, the former labor leader told HuffPost.

Stern, taking a break from one of the few public meetings of the National Commission on Fiscal Responsibility and Reform, said that Social Security “needs to be, like any pension fund, brought back into balance.”

There were several ways to bring the fund into balance, he said, but one that he favors consists of “investing some percentage of government money in the stock market, as they do in Canada. Not individual taxpayer money, but government money.”

Stern said that Canada’s retirement system invests roughly 15 to 20 percent of its funds in the market, a range he thought reasonable. “There are lots of mechanisms for governments to be prudent investors,” he said.

Currently, the trust fund gets invested in Treasury bonds, which at the moment yield 3-4%. Lots of pension funds, including the nation’s largest like CalPERS, invest in stocks and other funds. Dean Baker, quoted in the article as a mild supporter of the proposal, expect a 6-7% yield from the stock market, higher than the safe T-bond investment.

But the market has been extremely volatile of late. An investment 10 years ago would have yielded almost no gains, and would have absorbed a giant loss in 2008. Too much of the stock market these days is ruled not by efficient capital flows, but high-frequency trading and other forms of gambling, none of which will be ameliorated by the financial reform bill. Putting 10-15% of the trust fund into that casino could result in lower returns or even losses from the safe investments in which it’s currently exposed.

Stern also supported another plank of the Ball-Altman proposal, named for the late Robert Ball (who worked the 1983 Social Security compromise) and Nancy Altman (the co-director of Social Security Works, the lead advocates against benefit cuts), which is lifting the cap so that the payroll tax would cover 90% of all salaries, as intended. I personally favor eliminating the payroll tax cap and increasing benefits, but any increase, so we don’t have the absurd spectacle of those with the most ability to pay into Social Security paying the least percentage of their income, is a positive. That would immediately reduce over a third of the long-term imbalance of the program. And it was one of the items the America Speaks conference chose, by a wide margin.

We’re fighting a losing battle on this commission, with its membership trending toward benefit cuts. If we can get out alive with some of the Ball-Altman plan, it would be something (though I don’t know if it, or anything, could pass Congress, even a lame duck Congress). There’s reason to be wary of the trust fund investing in the stock market, however, which is a hop, skip and a jump away from personal, private accounts.

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David Dayen

David Dayen