“Rather than investing in buildings, I want to invest in the people working in the buildings.” That’s a paraphrase of investor David Bahnsen.
Bahnsen’s comment comes to mind when thinking about retirement, and particularly the Social Security portion of retirement. Would readers prefer that their at least legally mythical (see Flemming v. Nestor) Social Security accounts funded with monthly paycheck withholdings be exposed to dollars, or people?
At first glance, the answer seems obvious. That’s because no one earns, pays, loans, or borrows dollars as much as they earn, pay, loan and borrow what dollars can be exchanged for. Which means it’s easy to see the superiority of exposure to the people and resources that dollars can be exchanged for rather than the dollars themselves. Equities trump money, particularly dollars that the U.S. Treasury has periodically seen fit to devalue.
Except that the answer isn’t as obvious when given a second glance. While U.S. stocks have long outperformed the dollars invested in them by individuals, it’s worth pointing out that U.S. Treasury securities paying out dollars are the most owned income streams in the world. It’s doubtful that anything else even comes close.
Which is a reminder that despite the dollar’s many demerits rooted in instability as a measure of value since 1971 (when President Nixon severed the currency’s link to the constant that is gold), there’s enormous market value in a currency that’s accepted anywhere in the world, and that’s positively coveted in substantial parts of it. The dollar’s coveted qualities can be found in its broad acceptance. The dollar is global money.
That the dollar is the world’s currency seemingly explains the willingness of investors to forego returns in return for the security that comes with owning global money. Just as well-diversified investors are known to buy wealth that already exists (commodities) over the creation of wealth that often doesn’t yet exist (equities), they also want title to what is in a sense the world’s greatest, surest symbol of wealth: U.S. dollars.
This presumed explanation for investor interest in dollars might give proponents of the security qualities of Social Security an argument in favor of what’s difficult to support in a policy sense. Much as equities have well outperformed the future dollar income streams implied in Social Security payments, maybe one driver of Social Security’s ongoing survival is that people find comfort in what is essentially coerced savings in dollars.
Which is fine, but it still doesn’t justify the error that is Social Security. Nor does it justify federal borrowing that provides the world with a trusted vehicle for savings: U.S. Treasuries. About Treasuries, never forget that they only have value as a trusted income stream insofar as the U.S. Treasury has taxable access to the production of the most productive people in the world. Just think how much more prosperous the U.S. would be if substantial under-taxation of the American people rendered Treasury debt much less trustworthy, and by extension, much less abundant as a form of wealth storage.
Same with Social Security. Assuming present and future recipients view it as an ultra-conservative path to future dollar earnings, Social Security is only a source of dollar income stream security because Americans have so much of their income taxed, and because their employment is so heavily taxed. Which means the federal government gets yet another source of income that funds its wasteful, politicized consumption so that in the future, Americans can enjoy a trusted income stream separate from their more intrepid efforts to fund retirement.
No thanks on this. Just as the federal government shouldn’t be in the business of retirement accounts, it similarly shouldn’t be on the hook for providing wealth security to Americans, or the rest of the world.
