Tonight, for the first time, I visited James Surowiecki's blog at the New Yorker online. The guy's good. His print columns are better, of course, but he offers a fresh and sometimes very personal take on developments in the economy. This entry from today poses an interesting move in Social Security, for example:
A couple of weeks ago, economist Brad DeLong suggested (at least semi-seriously, I think) that now might be a good time to “take the Social Security Trust Fund balance out of Treasuries and move it into equities.” As he put it, “Buy low, sell high after all. Just saying…”
This idea was proposed by the Clinton Administration, but didn’t get much traction, in part because Alan Greenspan opposed it for what, in retrospect, looks like largely ideological reasons, namely his disbelief that the government could own U.S. equities without interfering with corporate behavior. This isn’t entirely a red herring, but it’s hardly an insuperable obstacle, either. And given the massive government interventions we’ve seen in the past few months, having the government invest in index funds hardly seems like some intolerable transgression of free-market principles, either. (That’s not even to mention the fact that the sovereign wealth funds of myriad foreign governments have already bought major stakes in American companies, without any obvious disastrous effects.)
Given the market’s current turmoil, it is, of course, unlikely that you’re going to be able to convince members of Congress that now is the time to “gamble” our retirees’ future in the market. But any reasonable expected-value calculation would have to say that it would be sensible to put at least part of the fund into equities. The current yield on a five-year government note is just 2.5 per cent, while the dividend yield alone on the S. & P. 500 is well above three per cent. So even if the stock market goes nowhere for five years and companies keep their dividends flat over that time period (both of which are incredibly unlikely), the trust fund would still come out ahead. And in the more likely scenario, which is that the stock market eventually rebounds from these lows and reverts to its typical performance, the trust fund would come out way ahead. Some may have taken DeLong’s idea as a Swiftian modest proposal, but it’s sounding more sensible every day.