Welfare vs. Wall St.

Interesting article on Social Security

The idea of personal accounts is that Wall Street should triumph over the welfare state. Just the opposite might occur: The welfare state would triumph over Wall Street. The money flowing into personal accounts would not be invested according to the "free market." Individuals wouldn't have the freedom to invest in Microsoft, General Electric or eBay. Instead, it would be invested according to rules made by Congress, influenced by politics. There would be unrelenting pressure from interest groups, "experts" and public opinion.

The danger is that investment decisions would become unduly politicized and that the economy would consequently suffer. The rules governing which stocks could or couldn't be purchased for personal accounts might become irrational or counterproductive. The reason is that what personal accounts aim to accomplish is inherently difficult, perhaps impossible. The economic and social roles of Wall Street and the welfare state are fundamentally opposed. The attempt to blend them through personal accounts would create massive contradictions.

The role of Wall Street is to move investment funds to their most productive uses. If the process works well, the economy expands, living standards rise and the stock market advances. But inevitably there are losers, because Wall Street is an exercise in collective risk-taking. A free market means continuous trial and error.

By contrast, the welfare state is an exercise in collective risk reduction. It strives to provide some security -- aka the "safety net" -- against life's misfortunes and the economy's upsets. It aims to protect society's poorest and weakest members. We have many welfare programs. Social Security is the largest and most popular.