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[tvoivozhd <tvoivozd AT infionline.net>]

December 27, 2004, 10:05 a.m.

The Lesson of Thrift

Personal accounts already work (which might be why the critics are so 
scared).

Critics of the Bush administration plan to reform Social Security with 
personal accounts have a seemingly endless supply of reasons why it 
can’t possibly work. You know the litany: It’s too risky. It’s too 
expensive. It’s too complicated.

The critics never mention that there’s already a government-administered 
retirement system that has shown for over 15 years that personal 
accounts are prudent, inexpensive, and simple. It’s the Thrift Savings 
Plan of the United States federal government, currently serving 3.3 
million government employees. (AHA, the truth will out---3.3 million 
GOVERNMENT EMPLOYEES---NOT the individual or collective sucker having 
wages withheld and sweet-talked into the illusion of all-gain, no-pain 
individual accounts shovelled into the clutches of those kindly, 
benevolent traders waving pieces of paper on the floor of a commodity 
exchange---and their accomplices in the back office of a Wall Street 
Stock Brokerage firm.

The years since Thrift was first offered in 1987 couldn’t make for a 
better laboratory to crash-test a personal-account system. During this 
period there have been both bull and bear markets that were among the 
most severe in history. Through year-end 2003, investments in Thrift 
personal accounts have earned $44.4 billion in profits for system 
participants — an average of more than $13,000 per participant.

Over time and on average, 65 percent of the value of Thrift participant 
accounts has been invested in a special money-market account operated by 
the U.S. Treasury. That’s been responsible for about $20.3 billion of 
the total investment gains. But almost as much — $19.8 billion — came 
from an S&P 500 Index fund. That’s remarkable because, on average, only 
30 percent of the value of participant accounts has been invested in the 
S&P 500 fund.


tvoivozhd---the above plan bears zero relationship to the Bush proposal 
which should be deep-sixed out of hand. The Bush proposal is NOT 
personal investment in a cheaply managed index fund----it envisions each 
individual account be managed (as an individual account) by a stock 
broker---20% being siphoned off annually as broker administrative cost. 
I have never seen a rational explanation of how you can bleed off 20% of 
your capital each year and make an investment account profit on the 80% 
remainder. The odds of doing so are about five percent better if you are 
yanking on the handle of a slot machine in Las Vegas.

A little truth in argument is always helpful---Bush is NOT advocating 
that the poor working stiff has access to the U.S. Thrift Savings Plan 
exclusively available to Federal Employees---now that would really panic 
the Cato Institute and everyone in The White House.