Economists Divided on Social Security Privatization, Caution on Market Impact

Strategic Insights -

Economists largely support private accounts for Social Security, but their backing comes with caution and concerns about the potential impact on financial markets. According to a USA TODAY survey of 53 economists, nearly three-quarters (74%) support private accounts. However, many of these economists express worry about the potential consequences of funding the plan, including market volatility and the risk of workers making uninformed investment decisions. As one economist noted, private accounts could give workers more control over their savings, but they also pose risks, particularly if the government is forced to go further into debt to fund benefits.

Key Takeaways:

  • 74% of 53 economists surveyed by USA TODAY support private accounts for Social Security.
  • Majority of economists who support privatization express concerns about market impact and potential risks.
  • Economists worry about workers investing in fly-by-night companies or seeking bailouts if investments go awry.
  • Some economists argue private accounts would only be a partial solution to Social Security funding issues.
  • Economists working for firms that could benefit from private accounts, such as investment firms, express caution about the potential impact on markets.
  • Some economists, including those at Economy.com, Putnam Investments, and Lehman Bros., argue against private accounts due to concerns about government debt and market influence.
  • Christopher Rupkey, Bank of Tokyo-Mitsubishi chief financial economist, expresses concern about a potential stock market bubble resulting from increased investments.

Statistics:

  • 74% of 53 economists support private accounts for Social Security (USA TODAY survey, January 21-27).
  • 60% of economists who support privatization are "somewhat" or "very" concerned about market impact (USA TODAY survey, January 21-27).
  • 40% of economists worry about workers making uninformed investment decisions (USA TODAY survey, January 21-27).
  • 10% of economists work for firms that could potentially benefit from private accounts (mentioned in the article).

Sources:

  • USA TODAY survey of 53 economists, January 21-27.