government-controlled investment

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Some argue that personal retirement accounts would be a mistake and that the government instead should set up its own investment fund to help finance future benefit payments. The good news is that this indicates a growing awareness that ¡°pre-funding¡± (i.e., accumulating assets) is a necessary component of Social Security reform.
The bad news, however, is that government-controlled investment is the wrong answer to the wrong question. It assumes that policymakers should focus solely on balancing the program¡¯s revenues and expenditures. This ignores the other Social Security crisis¡ªthe fact that the tax burden on today¡¯s workers is extraordinarily high compared to the benefits received (often referred to as the rate-of-return crisis).
But even if balancing Social Security¡¯s long-term finances were the only goal, government-controlled investment would be the wrong answer. This is because a government-controlled pension fund would not face the competitive pressure and legal obligation to make investments solely for the economic benefit of future retirees. As one expert has explained:
Giving the federal government that power and control would create large risks for the economy and for the retirement security of today¡¯s workers. The Congressional Budget Office, for instance, has warned:
For example, evidence at the state and local levels with public employee pension funds¡ªas well as evidence from similar arrangements in other nations¡ªdemonstrates that politicians and their appointees often are tempted to steer the government-controlled pot of money toward special interests, political allies, or corporate contributors.
In addition, even well-intentioned policymakers are not qualified to invest funds and manage money. Simply stated, they do not face the bottom-line pressures that force private businesses and investors to allocate resources wisely. Yet poor investment decisions have serious consequences. Most important, workers would earn lower returns on their money, and even small differences in rates of return translate into less retirement income.
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