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Gingrich’s Latest Social Security Scheme: Privatize The Program Then Bail Out Bad Investors
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Candidate
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| Contributor | RP |
| Last Edited | RP Nov 30, 2011 05:27pm |
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| Category | Analysis |
| Author | Pat Garofalo |
| News Date | Tuesday, November 22, 2011 12:35:00 AM UTC0:0 |
| Description | The government guarantees that all workers with personal accounts will receive at least as much in retirement as they would under the current Social Security system. If someone with a personal account retires with benefits lower than those offered by the current system, the Treasury will send them a check to make up the difference. Thus, there is a legal government obligation that in a worst case scenario a retiree will be able to enjoy benefits at least as good as they would under the traditional Social Security system.
As we pointed out when Sen. Rob Portman (R-OH) suggested a similar idea, promising to make investors whole again sets up a huge moral hazard problem. If investors know full well that the government is going to provide them with a minimum benefit, no matter what they do, then the incentive is to make risky investments and hope for a big payoff. After all, why not take the risk if the government has guaranteed that you can’t lose money? Investors have every incentive to bet big in the hopes of a large payout, because if they go bust, the government will bail them out. |
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