In a previous post A Solution To The Social Security Crisis From An MIT Team, I mentioned a plan by an MIT professor and his coauthors to invest some of the Social Security Trust funds in the stock market. What I failed to mention is that in 2001, Oregon’s U.S. Representative Peter DeFazio introduced a bill that had some similarities to the MIT plan.
At the time, I was living in Oregon and had read some about the plan. In order to provide some details for this blog post, I have done a Google search to see if I could find the bill.
I found HR3315 – A BILL To improve the solvency of the Social Security Program, and for other purposes.
SEC. 2. INVESTMENT OF THE SOCIAL SECURITY TRUST FUNDS
‘‘(2)(A) The Independent Social Security Investment Oversight Board shall establish in the Federal Old-Age and Survivors Insurance Trust Fund—
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‘‘(iii) a Common Stock Index Investment Fund as provided in section 234(a); and
‘‘(iv) such other investment fund or funds as the Board may provide by regulation
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SEC. 3. RULES GOVERNING INVESTMENT OF FEDERAL OLD-AGE AND SURVIVORS INSURANCE TRUST FUND IN COMMON STOCK
(a) IN GENERAL.—Title II of the Social Security Act is amended by adding at the end the following new section:
‘‘INVESTMENT OF FEDERAL OLD-AGE AND SURVIVORS INSURANCE TRUST FUND IN COMMON STOCK
‘‘SEC. 234. (a) COMMON STOCK INDEX INVESTMENT FUND
You might also want to look at the March 2002 article Rep. DeFazio, citizens discuss social security in the Curry Coastal Pilot.
DeFazio said his plan would allow a portion of the Social Security Trust Fund to be collectively invested in stocks and bonds by a private board, similar to the Oregon Public Employees Retirement System.
In my Google search I also found an April 10, 2002 National Review article No More Secret Lip-Service: The Dems are mute on Social Security for good reason. Of course National Review, being a very conservative magazine, would look askance at DeFazio’s proposal for exactly the reasons why I like the proposal. I still find it worth quoting the article because it does explain some of the main points of the bill.
But one gusty personal account opponent, Rep. Peter DeFazio (D., Ore.), has put his cards on the table, proposing government investment in the stock market and the biggest tax increase ever to keep Social Security solvent. Those choices aren’t pretty, which is why election-minded Democrats like Gephardt and Matsui are so eager to keep their own plans under wraps. But DeFazio’s proposal could start exactly what Gephardt, Matsui, and account critics least want: an honest debate on Social Security reform.
Give DeFazio credit. Most personal account opponents start bobbing and weaving the minute they’re asked how to fix Social Security, but the veteran Oregon Democrat says exactly what he would do. Like personal account proponents, DeFazio wants Social Security to hold higher-returning private investments. But unlike personal accounts, which let each worker decide whether to invest in stocks, corporate bonds, or ultra-safe Treasury bills, DeFazio has the government itself invest 40% of Social Security’s funds privately, effectively pushing all workers into the stock market whether they like it or not.
Government investment risks political influence over the hundreds of U.S. corporations Washington would hold equity stakes in. While DeFazio attempts to keep investments independent, the investment board members would be appointed by the president and could even include sitting federal employees. Federal Reserve Board Chairman Alan Greenspan calls government investment “very dangerous,” warning Congress in 1998 that any firewalls against political influence would inevitably be breached: “I know there are those who believe it can be insulated from the political process, they go a long way to try to do that. I have been around long enough to realize that that is just not credible and not possible. Somewhere along the line, that breach will be broken.”
Even former Vice President Gore called the risks of government investment “quite serious,” saying, “The magnitude of the government’s stock ownership would be such that it would at least raise the question of whether or not we had begun to change the fundamental nature of our economy.”
National Review might have actually liked one of the provisions of DeFazio’s bill, if they had acknowledged its existence, but I found it not so likable. This clause does not let the government exercise voting rights in the companies whose stock it buys. This ought to alleviate the National Review‘s worry that “Government investment risks political influence over the hundreds of U.S. corporations Washington would hold equity stakes in.”
Actually, I think that the government’s exercising voting rights to introduce the concept of the holistic welfare of the entire country into the considerations of the company’s plans might put some balance back into the capitalist system. It might help to correct the overly generous shifting of the economy’s wealth to the very few at the top. Al Gore might have been correct that their might be an appearance of trying “to change the fundamental nature of our economy.” Unlike Al Gore, I think this might be a very good thing.
Even leaving out the exercise of voting rights normally given to stock holders, the DeFazio bill might have been a good first step to fixing the issues about Social Security’s future. Had this passed in its year of introduction, it might have coincidentally been an opportune time to start investing in stocks. Although, timing the market is not something a smart investor would try to do, still, it was a golden opportunity missed.
