Why Private Accounts Won't Increase Private Investment

One of the arguments for setting up private accounts using SS payroll taxes is that it would make billions of dollars available for investment in the stock market. A new blog, The Cunning Realist (referenced in TPM), recounts a conversation in which an unnamed CEO offers one reason for supporting private accounts:

“He told me that he and many of his colleagues at other companies favor the creation of private accounts, because a new source of demand for his stock will help compensate for the increasing unattractiveness of his company from an investment perspective."

The fallacy of this argument lies in overlooking the diversion of private capital to U.S. government debt to finance Bush’s privatization scheme. No new investment dollars are created. One can go back and read Robert Rubin on how reducing debt enhanced investor confidence in U.S. markets and increased overall investment. Of course, the Bushies use the word “Rubinomics” as a pejorative.