Protecting Social Security: The Case Against Privatization

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Ed Lane

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Jul 10, 2025, 8:19:42 AMJul 10
to Modern Monetary Theory

Warren Mosler

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Jul 10, 2025, 11:59:14 AMJul 10
to Ed Lane, Modern Monetary Theory
You haven't read chapter 4 and my Steve Moore story?


 Steve Moore Now you are ready to read about the conversation I had several years back with Steve Moore, then head of economics at the CATO institute, now a CNBC regular and a longtime supporter of privatizing Social Security. Steve came down to Florida to speak about Social Security at one of my conferences. He gave a talk that called for letting people put their money in the stock market rather than making Social Security payments, contending that they will be better off over time when they retire. Also, he argued that a one-time increase in the government budget deficit will be both well worth it and probably “paid down” over time in the expansion to follow, as all that money going into stocks will help the economy grow and prosper. At that point I led off the question and answer session. 
 Warren: “Steve, giving the government your money now in the form of Social Security taxes and getting it back later, is functionally the same as buying a government bond, where you give the government money now, and it gives it back to you later. The only difference is the return that seniors will get.” 

Steve: “OK, but with government bonds, you get a higher return than with Social Security, which only pays your money back at 2% interest. Social Security is a bad investment for individuals.” 

 Warren: “OK, I’ll get to the investment aspect later, but let me continue. Under your privatization proposal, the government would reduce Social Security payments and the employees would put that money into the stock market.” 

 Steve: “Yes, about $100 per month, and only into approved, high quality stocks.” 

 Warren: “OK and the U.S. Treasury would have to issue and sell additional securities to cover the reduced revenues.” 

 Steve: “Yes, and it would also be reducing Social Security payments down the road.” 

 Warren: “Right. So to continue with my point, the employees buying the stock buy them from someone else, so all the stocks do is change hands. No new money goes into the economy.” 

 Steve: “Right.” 

 Warren: “And the people who sold the stock then have the money from the sale which is the money that buys the government bonds.” 

 Steve: “Yes, you can think of it that way.” 

 Warren: “So what has happened is that the employees stopped buying into Social Security, which we agree was functionally the same as buying a government bond, and instead they bought stocks. And other people sold their stocks and bought the newly issued government bonds. So looking at it from the macro level, all that happened is that some stocks changed hands and some bonds changed hands. Total stocks outstanding and total bonds outstanding, if you count Social Security as a bond, remained about the same. And so this should have no influence on the economy or total savings, or anything else apart from generating transactions costs?” 

Steve: “Yes, I suppose you can look at it that way, but I look at it as privatizing, and I believe people can invest their money better than government can.” 

 Warren: “Ok, but you agree that the amount of stocks held by the public hasn’t changed, so with this proposal, nothing changes for the economy as a whole.” 

 Steve: “But it does change things for Social Security participants.” 

 Warren: “Yes, with exactly the opposite change for others. And none of this has even been discussed by Congress or any mainstream economist? It seems you have an ideological bias toward privatization rhetoric, rather than the substance of the proposal.” 

 Steve: “I like it because I believe in privatization. I believe that you can invest your money better than government can.” 

With that I’ll let Steve have the last word here. The proposal in no way changes the number of shares of stock or which stocks the American public would hold for investment. So at the macro level, it is not the case of allowing the nation to “invest better than the government can.” And Steve knows that, but it doesn’t matter—he continues to peddle the same illogical story he knows is illogical. And he gets no criticism from the media apart from the misguided discussion as to whether stocks are a better investment than Social Security, will the bonds the government has to sell take away savings that could be used for investment, if the government risks its solvency by going even deeper into debt and all the other such nonsense we’re calling innocent frauds.



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