Greenspan Blew Chance to Fix Social Security

OK, it's only an estimate. A ballpark figure.

But it's not even a particularly heroic one. Investments in other asset classes, like overseas stocks, emerging markets, high-yield bonds, managed timber and hedge funds, would have produced even greater returns.

Some people insist Social Security funds could never have invested in stocks because it would have "politicized" the investment policy. That's nonsense. Where there's a will, there's a way. The Massachusetts state pension system invests in a diversified portfolio, including everything from Wall Street to emerging markets to hedge funds to managed timber. How? Independent trustees pick outside investment companies that actually make the investments. Some other countries, such as New Zealand and Norway, also invest their government pensions in a diversified portfolio.

The simplest way Social Security could have invested on Wall Street would have been through a strict index fund approach. That would have avoided any qualitative decisions about one company over another.

As for "politicizing" Social Security: For the last 24 years it has been used to prop up massive Federal deficits, so successive governments could lie and say they were cutting taxes when they were merely deferring taxes. If that isn't political, I don't know what is.

This is more than just a theoretical exercise. Tens of millions of Americans are going to have to work longer before retiring, and will be poorer in old age, because Social Security funds were invested so conservatively.