Financial Literacy - Smart borrowing
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Consumers get mixed messages

q_v2.gif So it's an endless cycle then?

a_v2.gifNo, it creates a paradox and a schizophrenic and contradictory economic system.

q_v2.gif Do you think government input could help ease that?

a_v2.gifI think government input is the only way to resolve the paradox.

q_v2.gif Let's talk for a moment about our national debts. There are various estimates as to when Social Security will run out of money. Will it really run dry? How will that affect future retirees?

a_v2.gifThe (Social Security) trust fund is just an accounting device. Social Security cannot in fact run out of money because Social Security is not ultimately a financial system. It's ultimately a transfer program that transfers resources, not money, but actual economic resources from working people to nonworking retirees. Therefore, it only functions in the present time. So although we can talk about saving for Social Security and saving for the future, it's only in the present time that Social Security is actually operating. So although we can establish a trust fund and establish a savings pool, the savings pool is more of an accounting device that states what the future problem is going to be than it is a solution to any future problem.

q_v2.gif What do you mean when you say Social Security transfers resources, not money?

a_v2.gifYou can't actually save milk, bread and housing and things like that. Things that are going to be needed in the future have to actually be produced in the future. So in 20 years' time or 30 years' time or whenever it is that you retire, the question of whether there will be enough money for your retirement is really a question of whether there will be enough resources available. Will the generations who are working be able to produce enough to cover their own needs and cover your needs as a retiree? That can only really be decided 20 or 30 years from now when you retire. So in that sense, Social Security cannot go bankrupt and it's always going to be politically possible for retirees to have a public pension system. To talk about Social Security going bankrupt and not being available when your generation retires or my generation retires is really just scare tactics as far as I'm concerned.

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q_v2.gif Do you think Americans would be better off if Social Security funds were diverted into individual investment accounts and invested in the stock market?

a_v2.gifI think it is a bad idea. The reason it's a bad idea is clear from what happened in 2001-2002 when the stock market crashed. We saw that when the stock market crashed, small investors lost a tremendous amount of money. Small investors took a much larger hit, about two-thirds greater, than large investors, because small investors had less information and had much larger fees charged to their accounts.

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