Yes, the article can be dense on first reading but is so for completeness sake. A short summary would be, "Privatize all federally sponsored pension accounts, fund them with broad common stock indexes, full 40-year accounting is only time frame of any use, the resulting assets belong 100% to each worker, all will likely retire far wealthier than they would under the present system, at less cost and at an earlier age."
Stocks only marginally better than bonds. Not true. You must read the first article referenced at the bottom of the current article--see the tables in www.advanced-stock-selection.com/SocialSecurityDraft.htm. The worst case on record since 1871 was the forty-year period ending 1941 when stocks outperformed bonds by giving the retiring worker 40% more wealth in stocks than he would have gotten in bonds (and, of course, he or she OWNS the stocks--under the present system the workers own nothing).
Early retirement due to disablement would be funded out of a contingency fund build up from a fractional allocation of collected payroll taxes.
It is true that the trust-fund accounting is a fictitious artifact because the tax collections go into the government's general funds and are proportionally allocated to the Social Security Trust Fund. Usually the cash is not there--it's been spent somewhere else--so the government issues IOU's to the Trust Fund in the form of special Treasury Bonds. Ultimately, we the general taxpayers are the guarantors of the those bonds.
"If one or more companies in a stock index fail, where does the money come from to pay the private account holder upon retirement?" Index member companies have been failing for decades, ever since indexes were conceived. They are replaced by other chosen companies. Every failure is accounted for in the price of index every day. There are so many successful companies, they far more than offset the losers. It is highly risky to try to do that on your own with individual stocks of individual companies.
Yes, market behavior will be affected by the startup and ongoing operation of SSII, but gradually. And the free capital-exchange markets will bring it ever back into ongoing stages of equilibrium. It's a self adjusting mechanism. The future markets will fluctuate from extended periods of overpricing to underpricing and back again--as they always have in the past (unless the capitalist system of economics becomes extinct).
Thank you and other Freepers for your inputs.
-'Copernicus'
On that we agree.
The problem with the whole "privatization" argument is that the history of returns on US stocks is a history of voluntary stock ownership. Remove that element and you change the entire character of the capital markets. It's astonishing to me how cavalierly that is dismissed, or even thought of. Voluntary ownership is precisely why the capital markets work as well as they do.
The trillions of SS funds are simply too big of an elephant. There is simply not enough room in the US stock market for what is there already and the SS funds. One of the self-adjustments will probably be a decline in ownership of US stocks outside of SS. Which is probably a bad thing, IMO.
Bottom line is that there is simply no feasible way to safely store for 40 years an amount of wealth comparable to one year's entire GDP.