We seem to return often to the subject of viral mendacity; perhaps, it's because we know all too up close and personal, the temptation to use words to cover up for unpleasant deeds.  But like moths to a flame, we are once again drawn by the mischievousness of an Administration that never ceases to amaze when it comes to juking around the truth.

No one's forgotten that just a few years ago as we reeled from the attack on the Twin Towers, the just promoted and present Secretary of State provided us with the refrain that the Administration didn't want "the next smoking gun to be a mushroom cloud" over one of our major cities.  When that threat turned out to be just one of a trio of manufactured legs of the WMD argument, the Administration responded: "Never mind, we got rid of Saddam Hussein, didn't we? We stand for freedom and democracy everywhere".

Never mind, that we have put hundreds of thousands of our fellow citizens in extreme  harm's way along with millions of Iraqis. Never mind, that the US's reputation around the world has been permanently stained. Never mind, that the true cost has already surpassed $300 billion, or $10,000 per Iraqi citizen. Never mind, that we have brought our military back to a post-Vietnam low....

Now, with all of the major domestic problems facing us -- from health care to private pensions, to education, to jobs, to historically high domestic and trade deficits -- the President has decided to use up what precious political capital he and his party have gained in the last decades to tinker with the most successful social program the government has ever carried out.  With the dollar teetering on the overhang of a mountain of debt, and Medicare's financial underpinning mushy, Bush decided to call the long-term problem of funding Social Security after 2042 his single most important domestic "crisis".

When the Social Security "crisis" story began to come undone and the revelation that in order to create personal accounts, several trillion -- that's with a "t": BTW, the entire US economy last year totaled out at $10.5 trillion-- additional dollars would have to be pumped into the system in order to make up for the diverted funds the new program would swallow, the Administration began to look for cover.

Never mind, the word crisis, they said, this is a matter of social justice. Social Security is unfair to minorities and immigrants. Poor people die young so therefore the present Social Security system is, they began to argue, racist. By implication, of course, they were arguing that come 2042 poor people will still be dying of bad medical care and inferior diets. so they need personal savings accounts.

Paul Krugman, writing in the NY Timess pointed out that, contrary to the benefit inequity argument, African Americans actually collect their proportional share (and Latinos do even better) through a combination of pension and Social Security disability payments as well as the progressive nature of the way payments are calculated. But Bush will also argue that SS is unfair to young people, banking on the known bias, that young people don't think too much about things that might happen to them, as the Beatle's song goes, "when [they're] 64."

But the  greatest danger of the personal-accounts-in-place-of-the-basic-SS guaranteed pension argument (and we have no problem with programs that subsidize additional private savings accounts or ones that deal realistically with funding the boomer retirement bulge) is that it's based on a market timing trap.  Might it just happen, that the
mid-term prospects for the US economy --and particularly for the US stock market-- are somewhere between anemic and dire, particularly, if you compare our
endemic and persistent across-the-board public and private debt levels to countries like Brazil and Argentina that collapsed during the 1990's.  By those terms, the US is a world basket case. Historically, we've seen numerous decade-long periods in which markets go sideways or down. These troughs always occur after stock markets bubbles while excesses in equity prices work their way back to traditional levels. By historical P/E levels, even after the drops that spanned mid-2000 to 2003, we have a long way down to go to get back to what has proved to be the norm. Further, there is no guarantee the drop (slow or gradual) will stop as it approaches the average.  Often, just as markets go
excessively up, they keep falling to a low extreme that goes far below the mean.

All this to point out that there couldn't be a worse time to be forcing millions of new investors to get into the market.  The kinds of investments that will be proposed, will be indexes of baskets of stocks and bonds.  In a long term bear market --where good single stock or single sector bets may abound-- there is no worse strategy than putting your money into a broad index.  And we are sure that any scheme for private accounts will be pigeon-holed into broad indexes that have the dual purpose of pumping up the
wider market and preventing the new and greater lumpeninvestoriat from getting taken right out of the gate.

But we suppose the answer to all this damage will be, "Never mind, we undermined the present system, never mind, we added a few trillion to the debt (off budget, of course), never mind, we made a lot of fund managers rich," the taxpayer will just have to pick up the tab.  BTW, that's what's happened in Chile and the U.K. where the private account experiment has some history.

But never mind, facts should never get in the way of greater (read, ideological), truths.

 

Written on a Mugwump

3:47:56 PM