Well, of course, you could also do that by investing in US corporations which themselves make investments outside the US. Or by taxing US corporations which generate profits outside the US.
So, basically, it’s as if your IRA is full of IOU’s from the grocery budget, fixing that leaky roof, re-paving the driveway, etc. Every month you carefully put the required amount into the IRA and then “borrow” it to buy groceries and pay the bills, because the mortgage and payments on that new Buick ate up the rest.
Posters have still not reacted to Lemur’s point which is critical. It is not about money; it is about goods. If, as some predict, by such and such date the number of 65+ people is 50% of the number in the range 25-65, say, then each working person will have to provide goods and services for a half of a retiree. Money is just a place holder for goods. This is just a demographic fact. The only way around it is to either raise the retirement age or substantially reduce the living standard of retirees. One way or another, we cannot consume more than we produce. These facts are compelling whether you are on the right or left of the political spectrum, although your response to them will differ.
Thank you.
There a several bits of good info in here.
I was surprised to hear that actuarially bankrupt is not a term of the art.
I did notice that when I Googled it, I did not find a reference to it outside of politico pieces referencing SS.
I was under the impression that the economy of a country which can pay its debt in the currency it controls is radically different from household economies.
Yes. This is why the money should have been spent to purchase those “goods”. Basically, “storing up” for this event. And, investments should have been made to reduce the primary costs to the government.
My idea regarding stocks - it’s basically just a fancier version of an Index Fund, the highest statistical yield for individual investors over a prolonged period of time. It’s been made slightly fancier by the Federal government using a math formula based on real assets and real profits so it is more likely to invest in companies that have real value that will be retained over time instead of companies that just have inflated stocks because of speculation. (so Tesla motors would be “tranche C” because it does not realistically own the assets and profits relative to it’s share value. Tesla isn’t junk, but it isn’t worth almost as much as Toyota which is what the stock market thinks. It does not own the hundreds of factories nor the massive revenues of Toyota)
So the Federal government would essentially own several trillion dollars worth of goods, of the most useful kind - factory machines, equipment and buildings and IP used to make money, and so forth. It isn’t socialism in that the government would only own a few percent of the “means of production” and would never exercise it’s voting rights as a stockholder.
It could then sell those investments to others when the time comes around to dip into the trust fund. So, these investments would have grown the economy, and then a massive pool of people, including foreigners, would be trading the goods to own shares of the stocks that the government formally owned. If you think about it, it’s another way of “taxing the billionaires”, but it’s a *trade *- billionaires are trading some of their assets in order to own some of these shares of stock. Billionaires would rather do this than pay taxes, and also will dip into their holdings, including offshore accounts, that are not currently subject to tax at all…
Also, regarding primary costs - one of the primary costs of taking care of millions of elderly people is the medical care. The government should have invested in training doctors so that there would be enough for this event, as well as nurses, hospital beds, and so forth…
Government investing in an index fund is called a sovereign wealth fund. Many countries and some US states have them. Norway has the biggest since they are saving up for when the oil runs out.
What Hari Seldon misses is that an investment is not just a way to store money, but is also a way to grow the money. You invest in a business who uses the money to buy a factory to produce goods. If you don’t invest the money, the business does not get built. Thus the investment increases the amount of goods available in the future.
I’m not sure that you’ve thought this through. So the government should be in the business of picking which businesses will be winners and losers? Do you think that might tend to push government policy to favor the businesses they have invested in? God help you if you want to start a company like Uber when the government is investing in taxi companies and has a vested interest in seeing that they succeed.
Which exchange? I think there are 18 of them now and they don’t all have the same listing standards.
Well, the entire value of the New York Stock Exchange is about $20 Trillion. If the Social Security Trust Fund were $2.8 Trillion, it would have to about 14% of all the securities listed on that exchange. Not all of those shares are freely traded. Some might be hard to buy in that quantity at any reasonable price.
Who exactly would do this grading? Do you think the government could hire the best financial analysts and investment managers to do this work? To get them, the government would have to pay salaries that compete with Wall Street. Can you imagine the public outcry when the President is making something like $600,000 per year but the highest paid investment manager for the government is making well north of $1 billion? Or could the government live with cheaper, second-rate talent? That should work out just fine. :dubious: Plus, professional investment managers have a very hard time when other people know their investment strategies and can trade ahead of their goals. If you tell everyone in the world how you plan to invest $2.8 trillion, every hedge fund in the world will exploit that knowledge and trade ahead of you. They will make it almost impossible to execute your strategy at any reasonable cost.
Finally, I agree with others who suggest that political meddling will make this nearly impossible. Do you think people will allow the government to invest in cigarette producers, oil companies, porn producers, and abortion providers? What if those happen to be the most profitable companies in the country?
As the GQ seems to be answered (no real definition, likely projected bankruptcy if current environment/behaviours continue), I’d like to point out it is possible to have an arms length government organization that invests.
I’m saying “Index fund + some basic quality grading to reduce the percentage of shares of companies that may have inflated values due to a bubble or speculation”.
See above, there are “Sovereign Wealth funds”.
There is little evidence that billion dollar analysts can do better on average than just buying into every stock evenly (an index fund), after you factor in the fees that they charge.
If you don’t like the idea of trying to even do some basic grade school arithmetic (that’s all I meant) to see what the companies real assets, real revenues, real debts, and real profits are, and calculate a score based on the ratios of all 4, then the Sovereign Wealth Fund can just invest evenly in stocks listed on major, credible exchanges, not all 14. The formula I had on mind would fit on a single page.
The formula would be public and wouldn’t be changed too frequently, basically, the investing decisions of the government would be a result of math and less subject to the political process. Or, you could do the investments at “arms length” like Grey mentioned above…
14% is more than I thought, but the government would be prohibited by law from exercising it’s voting rights, so it wouldn’t matter…
Of course, the “buy stuff to sell later” plan ignores the baby boom bulge, which is one of the bigger problems. All these people who have been saving for retirement are in the same boat as the government. they will want to “cash out” at the same time there is a shortage of wage-earners to buy back those assets and the government is sucking up spare cash as taxes to pay for elder care.
At this point there are millions of people frantically trying to buy the most productive assets they can. In a decade or two, many will be trying to sell for the best price.
Of course, another solution to the cost is to nationalize the health industry; set fees for what doctors are paid, mandate the cost of required pharmaceuticals like cancer drugs to be much lower, and so on. Watch for the AARP to chime in on this.
Yes, that does seem like a problem, but possibly a smaller problem because these assets would have grown in value - so even if they sell for less than they are worth, if the assets went up by 8 or 16 fold over the typical wage earner’s working lifespan (doubling every 10 years for 40 years), the government only has to sell them for a fraction of their “true” value to pay social security commitments…
Thanks for the clarification. The grading you proposed sounded very different than an index fund. I would agree that an index fund would probably be better than an actively managed portfolio. Even the “grade-school arithmetic” you mention might sufficiently differ from an index fund in ways that would make it less successful than a more passive portfolio.
You’d still have to pick which are “major, credible” exchanges. Any you picked would automatically have such a capital raising advantage that it would be hard for other exchanges to compete with them. You might accidentally create an exchange oligopoly that then starts to extract economic rent from their market power. Even picking the exchanges to include in your index composition, which I think you believe is simple, would be politically and economically perilous.
If we want the government to be able to profit from growth in stocks and assets, we have another way that doesn’t require the government to actually own the stocks and assets. This method is called “taxation”. If we stay out of the stock market and let the private sector do the investing, we don’t care what stocks are doing well, we don’t have to manage the companies, we don’t have to do anything. Then, whatever stocks make a profit for the people who own them, we just take ourselves a slice of those profits. It’s like the ultimate index fund.
What are “real assets, real revenues, real debts, and real profits” in an era when entire accounting firms seem to be devoted to the art of making the balance sheets say whatever they need to say to suit the executives of the day? (cf. Enron)
If the formula is public, then the strategies needed to game the system won’t be hard to figure out, and then you have the government investing in companies designed mostly to part the government from its money.
That’s why the FTC threatens to send execs to prison when they do this. This happens all the time now, just the government is not a direct victim. All you can do is try to enforce the law - what you are saying is equivalent to “why open a shopping mall? People will just steal everything from the stores via shoplifting and we won’t make money.” If police patrol the mall, though, it’s entirely possible to reduce shoplifting to a level where it *does *make money…
As for the government investing in scams - the stock picking is even. By a calculation above, the government is only a 14% investor at most. In order for the government to be defrauded in this way, the company also has to fool ordinary investors on a large scale. If it succeeds in doing so, well, again, see my point above.
How is having the Federal Government do this any different than the many states who already do this kind of thing on multiple levels? States manage pension funds, higher education funds, rainy day funds, etc… and in all of those, they do just the sort of prognostication and interaction in the stocks and securities markets that **Habeed ** is talking about.
The main problem is that the SS Trust fund has to, by law, be invested in non-marketable government securities. This effectively means that they don’t make any appreciable rate of return, but that in return, they’re very low risk.
**Habeed ** is essentially proposing that the SS Trust Fund (and SS in general, I suppose) become something more akin to CalPERS or the other public pension fund management agencies.
I think that investing in something that will most likely grow to many times it’s current value is lower risk, myself, than what the government is doing, which is like getting an IOU from the biggest warlord in town.
Many countries have sovereign funds. This would be no different.
I think the main problem not being considered here is the sheer size the sovereign wealth fund would have to be relative to the size of the national and world economy. A city or state or small country can have a small wealth fund. But a national one to pay for pensioners is going to be massive, such a huge chunk of the national economy that it would have massive distorting effects on the economy.
And again, it misses the point that pensioners don’t need money. If we could solve the problem with money the treasury can just create trillions of dollars out of thin air and hand it out like candy. The problem is that the pensioners only need money so they can exchange the money for goods and services. And there are only so many goods and services to go around, and if more people aren’t working that means annual production is even smaller. We have a certain amount of GDP, more retirees means a smaller GDP and more demand on that GDP. Which means, given a smaller economy and a larger population, an inevitable result of a lower standard of living.
Of course over in another thread we’re talking about the robot jobs holocaust, where automated production of goods and services is going to throw more and more and more people out of work. So we have the potential that all these retirees won’t need a job, and even if they were able bodied and hoping for work there wouldn’t be any jobs for them anyway.
To me it seems a similar situation whether the government owns 14% of the productive assets of the country, and therefore gets 14% of the profits as a share of ownership, or if it owns nothing and levies taxes of 14% on all profits. The economy is the same size, the same amount of goods and services are actually produced. And if we need more money we don’t have to somehow come up with the capital to buy an additional 1% of the economy for ourselves, we just raise taxes from 14% to 15%.
Note that most wealth funds come from mineral extraction–a government owns a bunch of oil, sells the oil/leases the oilfields, and puts the money into the wealth fund, which is then used to fund continuing operations rather than taxation. So how is the United States supposed to come up with the capital to buy 14% of the stock market? Taxes? Like, we raise taxes significantly, then use the money we taxed from the fatcat bankers to buy up the stock market from the fatcat bankers? How does the increased taxation and distorting effects of buying a significant fraction of the stock market affect the economy?
If we want to fund retirees, why not just tax the fatcat bankers and use the taxes to pay for current retirees? The national government has a few tricks up its sleeve that an individual retiree with a pension fund doesn’t have, such as the power to tax, the power to print money, the power to pass laws, and so on.
So what happens when the government no longer runs deficits and does not have to borrow? (I say this while trying to keep a straight face)
Essentially using the idea that the whole of the SS fund other than payouts is invested in government loans, means that the government will have to always make enough from taxes (give or take a small carry-over) to pay off the year’s social security obligations - either as that year’s contributions to the fund or as repayment of outstanding obligations coming due.
So in this case, the “actuarial bankrupt” claim means that at some point, those two sources will not be enough and the government will have to kick in even more, from general tax revenue or borrowed from non-SS sources.