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Wednesday, January 05, 2005


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Dave Schuler

I understand the benefits of the plan. The problem that I have with it is one of political calculus. I can't imagine circumstances under which future Washington politicians will have the will power to refuse to insure these private accounts in which case the government will be financing something that approximates the current Social Security system without the revenues of the current Social Security system.

There's another problem I have with the plan. Equities are a commodity just as peanut butter or automobiles are. A substantial influx of money into mutual funds investing in equities will mean a lot more money chasing the same stocks so it's reasonable to expect that it will result in a sharp short term increase in stock prices especially for Fortune 500 stocks. Since a lot of the compensation of CEO's of such companies is in the form of stock options their compensation will rise without their having done a single thing to earn it.

I don't have any problem whatsoever with Fortune 500 CEO's making a lot of money. I do have a problem with Fortune 500 CEO's (and financial managers) making a lot of money through rent-seeking. So there really should be a wind-fall profits tax for the start up of a plan of the sort that's being proposed.

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