Innovative Thinking for Social Security Reform - The White House; oleantimesherald.com
Last week, Senators Bill Cassidy of Louisiana and Tim Kaine of Virginia went public with additional details on their bipartisan proposal to create a separate wealth-generating fund to address Social Security’s long-term funding problem. Their announcement led with this claim: “We propose creating an additional investment fund — in parallel to the trust fund, not replacing it — that would be invested in stocks, bonds, and other investments that generate a higher rate of return, helping keep the program from running dry,” The idea builds on an Executive Order from President Trump (see “A Plan For Establishing A United States Sovereign Wealth Fund”) and is seen as a way to achieve a rate of return greater than available from the present investment in special interest U.S. Treasury bonds.
While the Cassidy/Kaine concept is clearly the type of out-of-the-box thinking that would stimulate Congress to get serious about addressing a decades-old problem, there may be drawbacks. In a post yesterday on oleantimesherald.com, Manhattan Institute senior fellow and Bloomberg columnist Allison Schrager offers conjecture on the risks involved in this type of market-based financing plan, stressing that there is “…no guarantee that the market will replicate the returns of the last 20 years.” As a comparative analysis, she cites the shortfalls evident in many public-sector pension funds, and offers the Canadian Pension Plan (CPP) as a model that, based on its investment structure has produced favorable results.
The theme of Ms. Schrager’s post is one of caution and the need to fully assess the long-term risk/return equation associated with a debt-financed step this large–$1.5 trillion. She caps her post with this reminder: “The first rule of investing, after all, is that there is no such thing as a free lunch.”