NCPA - National Center for Policy Analysis

Should Government Invest Social Security Funds?

January 11, 1999

President Clinton's apparent openness to the idea of investing some Social Security funds in the stock market has pleased reformers, but has raised a question: Who should invest the money, taxpayers or the government itself?

Private pension fund managers, experts point out, are mandated by the 1974 Employee Retirement Income Security Act to maximize the return on investment. But public pension plan managers and politicians aren't similarly constrained, and sometimes act for purely political reasons. For example:

  • In July, the Texas State Board of Education sold $46 million of Walt Disney Co. stock because board members disapproved of the "violence" and "explicitness" of some of the companies' adult-oriented films.
  • As of 1997, five public pension funds banned foreign investments, three restricted investment in South Africa, and several others prohibited investment in tobacco firms, Northern Ireland and firms involved in infant formula pricing in Third World countries.
  • Former Labor Secretary Robert Reich pushed the idea of investing pension funds in troubled companies and industries to stimulate local economies and create jobs.

Critics contend decisions about investments shouldn't be made for reasons other than maximizing workers' returns. Putting money at politicians' discretion -- as would happen if Social Security funds were publicly invested -- would tempt them to use funds to do what's politically advantageous.

Source: Merrill Matthews (National Center for Policy Analysis), "Government Investment is Fraught With Peril," Investor's Business Daily, January 11, 1999.


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