Rescue Plans Mean Government Ownership of Business*
(January 11, 1997)
Earlier this week, a federal advisory panel advanced various proposals for rescuing the
social security system by means of investing between $1.2 and $4.4 trillion of
social-security-tax revenues in the stock market over the coming years. The purpose is
supposed to be to earn a higher rate of return on the money than government bonds provide
and thereby prevent the impending bankruptcy of the system around 2015. (Up to now
government bonds have been the only legally allowed investment use of the funds.) The
proposal for stock-market investment has met with widespread enthusiasm and virtually no
So far nobody seems to have noticed the fact that implementing such a proposal would
almost certainly mean a major increase in the government's power over business. Unless the
government were prepared to give full freedom to the individual to invest in any stocks of
his choice, it would, as a minimum, have to draw up a list of stocks that it approved for
purchase. The result of this would be that a very large number of publicly traded
companies would be under pressure to convince the government to add their stock to the
list and to keep it on the list. In order to do this, ofcourse, a company, and all the
individuals prominently associated with it, would have to avoid doing anything that might
displease government officials and thereby lead the government to shun the company's
stock. Thus a major new avenue of arbitrary government power would be opened up.
Almost certainly, however, the government would not be content with merely drawing up a
list of approved stocks and then leave the choice of the specific stocks within the list,
and the timing of their purchase and sale, to the discretion of the individual taxpayers.
Doing so would contradict a major underlying premise of the whole social security system.
That premise is that the average person cannot be relied upon to provide adequately for
his old age even under conditions in which all he would have to do is regularly deposit
money in a savings account at a bank or pay the premiums on an endowment-insurance policy.
The truth, of course, is that the average person, and the great majority of people even
of substantially below-average ability, certainly could do this much, provided that they
could take the future buying power of their savings for granted. But the government long
ago destroyed the gold standard, and the resulting chronic inflation has left such people
in a situation in which they really are unable to cope with the requirements of saving and
investing on their own. They are unable to cope precisely because investing in the stock
market has been left as practically the only viable form of investment, since it at least
offers hope of keeping up with the rise in prices. Such people--tens of millions of
them--really do not possess the necessary knowledge or, indeed, the necessary time, to
seriously follow the ever changing conditions of the stock market and of the individual
companies and industries whose shares are traded. Alleged concern for these people must
almost inevitably lead to the government taking full and direct charge of any stock-market
investments that might be made under the auspices of the social security system.
The consequences of the government's necessary control over such stock-market
investments would be extremely grave. It would mean that the government would come to
acquire a substantial portion of the stock of most major corporations in the United
States. As a further result, the government would come to appoint members of the
boards of directors of those corporations, in the same way that other substantial
stockholders do. Just imagine practically every major business in the United States
having one or more government members of its board of directors! The distance between
such an arrangement and the government's management of the economic system--i.e.,
socialism--is certainly not very great.
Amazingly, such obvious considerations seem to have escaped the politicians, the news
media, and even "Wall Street," which reportedly looks forward to higher stock
prices, more commissions, and more investment-management fees if social-security funds are
invested in the stock market.
Social security is in trouble. A radical reform is needed. The only really proper
reform is the gradual abolition of the whole system, accompanied by the restoration of
conditions in which people can rely on the future buying power of their savings.
* * *
For further discussion of social security, including how to gradually abolish the
system, see the index entry "Social security" in my newly published book
A Treatise on Economics.