Remember when George Bush suddenly decided to try to privatize Social Security after he was reelected? With all the turmoil in the stock markets lately I was wondering what would have happened had we not put a stop to this crazy idea. So I ran the numbers for the last 41 months to see where you would be if you had taken George Bush's advice.
Numbers after the jump...
So if you started putting your "private account" Social Security money into the stock market in May of 2005 where would you be now? Using monthly Dow Jones averages here are the results.
If you starting putting $300 a month into the stock market as of 5/1/2008 by 9/2/2008 you would have a grand total of $11,054.90 which actually sounds pretty good. However, if you simply saved that money without interest you would $12,300 so you would be behind $1,245.10 against simple savings. And if you count on simple interest even below 4% APR you would have $13,201.51 putting your private account $2,146.61 behind a very conservative approach. (This is also only through the beginning of this month and does not reflect the craziness of September.)
Now if George Bush's plan had been implemented the stock market would look very different today because a huge volume of money would have been channeled into the market artificially inflating it. Whether that means the crash would have been even worse it's (fortunately) impossible to say at this point. When it comes to framing "private accounts" remember that you are effectively borrowing money from the government at about 4% and you are stuck trying to beat the interest rate of your "borrowed money". It is important to remind people about this period of time whenever anyone tries to undermine Social Security.
The real point of George Bush's "privatization" plan was a two stage attack to help George's base and eliminate the Social Security program altogether. His privatization plan would have created a constant flow money into the markets every month artificially inflating the all the stock markets and hugely rewarding those already in the market. It also would have burdened the system with so much debt that it eventually would been much easier to scrap the system then to fund it.
=Hiredman
A note on methodology: I am not an economist or accountant but I took the monthly close delta of the Dow each month and calculated ((fund * Dow_change_percent)+fund)+new_money month over month. My interest calculations are .0035 monthly which (by my calculations) equals 3.92% APR.