Mr. Shipman
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Can I give an answer before somebody asks me a question?
If you think investing in the private market is risky, try investing in Social Security. On the average you're going to be lucky if you get 70 percent back of what you and your employer put in.
(Off mike question)
I am not sure that I understand the question, but let me give it a chance.
Well, if they have private investment, let's say that it's a lot. In fact let's say that it's a whole market, it's at the margin, that is 341 billion. That is, if you will, under an extraordinary assumption all new. In other words, there would be no substitution.
But if $341 billion goes into the market because of this reform today, it's roughly 24 minutes today, under the constraints that I gave you, and next year it's less than 24 minutes, and the year after that it's less than 24 minutes. And the question becomes when they take it out -- and I haven't done the numbers on that, you have to make all sorts of assumptions as to where the market would be then, and what year they take it out and so on and so forth. But I suspect it would be relatively minor.
Especially keep in mind that to think that it would all go in the US market is really nonsense, so I set those constraints up that way. And even if it were to go just into US equities, it's nonsense to think it would just be equities in the New York Stock Exchange. The NASD is a huge market. There are also other markets such as Posit (ph), Instanet, the Arizona Stock Exchange. These are electronic exchanges that are not on the floor of the New York Stock Exchange, where computers match trades. So it's really a non issue in terms of the impact on markets if you use either reasonable assumptions or if you use unreasonable assumptions, as best I can tell.
MR. MATTHEWS: Other questions. Any more? Yes.
(Off mike) -- wondering if you would have any estimates on what it would do to stop prices and yields and what it would do to the interest rate on government bonds, how it would affect the government -- (inaudible)?
MR. SHIPMAN: My best guess -- actually it's a bit more than a guess. In terms of the money going into the market, from that point of view, the impact on stock prices, I would estimate, would be zero. None whatsoever, not even an eighth of a point.
Now having said that, if we were to go to a privatized system, I think the effect on stock prices would be very, very positive, but not for the reason of the flow of the capital. The reason would be that the distortion in the system from the labor tax, which has a suboptimal return, would be gone. The level of output would go up. Growth rates would increase. The present value of a more rapidly growing corporation in terms of earnings is a higher stock price. So from that point of view this would be extraordinarily positive to markets, equity markets, but not because of the flow of funds.
As it pertains to interest rates, I think that's an entirely different issue and may have no effect on interest rates one way or the other.
MR. MATTHEWS: We're at 6:00 is there another question? We can take one more.
No more?
Then I want to thank you for participating and joining us here. Some of the members will be up here for a few minutes if you want to come up and talk to them personally. Thank you very much.
END
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