Brad DeLong's Website
Brad DeLong's Website: Quoting the Dead Parrot Society: "If the government issues bonds to allow people to buy stocks with Social Security taxes, the private sector will have to buy bonds and sell stocks. In net, these effects likely offset dollar for dollar. "
Brad's own position is: "My position is that we really don't know what the impact of having the Treasury sell $4.5 trillion more of government bonds and then having individuals invest that $4.5 trillion in their private Social Security accounts will be. I would bet that there's at least a 50-50 chance that it will be a wash as far as national savings is concerned. I would also bet that there's at least a 20% chance that it will shrink national savings significantly--that people will regard their private accounts as relatively close substitutes for their 401(k)s and other assets, and so reduce the amounts they commit to funding their other retirement savings."
What you might call the optimistic salesman's view is that, if you borrow a $100 to invest in the stock market, you take a chance on ending up a good deal richer -- that the $100 in debt will remain, roughly a $100 in debt, but the $100 in equity ownership "might" grow into $200. [Of course, the pessimistic view would be that it might disappear altogether.]
Whether the Federal government's borrowing of $4.5 billion results in an increase in "national savings" would depend, critically, on who bought that debt.
The whole macroeconomic discussion of "savings" makes me slightly nuts at the best of times, because it is so likely to deteriorate into nonsense. In common language, "savings" can mean both refraining from spending (a flow, sort of) and the accumulation of financial wealth (a stock). Very often, analysis of savings has a further confusing element: a tendency to identify savings with investment.
Brad's own position is: "My position is that we really don't know what the impact of having the Treasury sell $4.5 trillion more of government bonds and then having individuals invest that $4.5 trillion in their private Social Security accounts will be. I would bet that there's at least a 50-50 chance that it will be a wash as far as national savings is concerned. I would also bet that there's at least a 20% chance that it will shrink national savings significantly--that people will regard their private accounts as relatively close substitutes for their 401(k)s and other assets, and so reduce the amounts they commit to funding their other retirement savings."
What you might call the optimistic salesman's view is that, if you borrow a $100 to invest in the stock market, you take a chance on ending up a good deal richer -- that the $100 in debt will remain, roughly a $100 in debt, but the $100 in equity ownership "might" grow into $200. [Of course, the pessimistic view would be that it might disappear altogether.]
Whether the Federal government's borrowing of $4.5 billion results in an increase in "national savings" would depend, critically, on who bought that debt.
The whole macroeconomic discussion of "savings" makes me slightly nuts at the best of times, because it is so likely to deteriorate into nonsense. In common language, "savings" can mean both refraining from spending (a flow, sort of) and the accumulation of financial wealth (a stock). Very often, analysis of savings has a further confusing element: a tendency to identify savings with investment.
posted by Bruce Wilder at 8:49 AM
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