Social Security: Let Them Eat Stock

The debate on investing Social Security funds in the stock market neglects one simple fact: retirees can’t eat money.

At a town meeting in Kansas City, Missouri on April 7, President Clinton told the nation that the Social Security Trust Fund is projected to have enough funds to cover its obligations only through 2029. He called for a national dialogue on Social Security leading to corrective Congressional action.

It is a sad commentary on the state of both our political discourse and the media establishment that the numerous press reports and expert commentaries about the gathering largely embraced Wall Street's logic that investing Social Security funds in the stock market is the key to eliminating the deficit. Most did not even report, let alone comment on, statistics cited by President Clinton on the declining ratio of employed persons to retirees – a critical key to understanding the real nature of the problem.

In 1960, there were five working people per retiree. Because of longer life-spans and an increased number of people reaching retirement age, that ratio has now fallen to 3-to-1. By 2030, it will be down to only 2-to-1.

Focused on money, both press and politicians neglect a simple fact. Retirees cannot eat money. They need real food, shelter, medical care, clothing, recreation, and other goods and services – all of which must be produced and provided by working people at the time the needs are presented. Fewer working people per retired person means more of each working person's output must be devoted to meeting the retirees' needs. At some point those who are working are likely to say, “Enough, no more!” And at that point there is a real crisis – a breakdown in the social contract between struggling young workers and a dependent elderly population.

Meaningful solutions to this problem must center on reducing the dependence and burden of those who are not of working age on those who are. Appropriate measures include increasing the productive contributions of those over 65, investing in education and infrastructure to increase future worker productivity, and implementing policy reforms that equitably distribute the benefits of productivity increases – all measures our corporate-dominated political system studiously avoids.

Of course, privatization proponents maintain that putting Social Security savings into the stock market will provide specifically for such productivity enhancing investment and broaden participation in the benefits. They fail to understand the nature of the stock market.

Of all the money that flows into the stock market, only the purchase of new stock issues actually directs money into productive investment. All other stock purchases simply transfer money among those who are speculating on changes in share prices. Since corporations are now buying back their own shares faster than they are issuing new ones, even though new money is flowing into the market at record rates, the net flow of funds from the stock market into productive activity is actually negative.

Thus, while “investing” Social Security funds in the stock market will increase Wall Street commissions, further inflate the existing stock market bubble, and enhance the value of the stock options of corporate managers, it won't necessarily contribute a thing to future productivity.

Any purely financial approach to resolving a Social Security crisis created by changing demographics is certain to fail, especially one designed by Wall Street to serve its own narrow interests. Let's take seriously President Clinton's call to engage a national dialogue. But let us as well reclaim the debate from the politicians and pundits whose misguided approaches reveal their inability to distinguish between creating financial bubbles and creating real wealth. Let's turn it into a citizen-led dialog on the deeper issues of demographic change, economic reform, and the difference between productive and parasitic investment.

David Kortenis chair of the Positive Futures Network and president of the People Centered Forum, Web site: [See David Korten, “Money versus Wealth,” YES!#2, Spring 1997 for more on money.]

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