Is it just me, or does anyone else see the idea of taking a big chunk of the money currently going into Social Security and putting it in government-run retirement accounts is one of the stupidest ideas of all time? If the Republicans want to reduce contributions to Social Security, they should lower the contributions made by employees and employers and then let people make their own decisions about retirement. Setting up a big government-run 401k (an idea supposedly anti-big-government Republicans seem to love) offers a staggering number of pitfalls.

• First of all, it would provide whatever investment instruments they chose to offer with the biggest government subsidy of all time. There are millions of investment options available around the world. Whichever subset of those options the government chooses as options for this plan would make out like bandits.
• Because of the first effect, this whole program would most likely turn out to be incredibly corrupt. How much money would an investment bank pay to get their mutual funds included in this program, or even to be listed first among the investment options on the signup form? I’m thinking they’d pay a lot.
• This program would require incredible amounts of money to get off the ground and to administer. Again, we’re talking new horizons in big government here.
• What happens if the stock market tanks in a big way? A government-backed investment program would, by default, be assumed to be non-risky. And yet investing in the stock market is very risky, especially if you’re not far from retiring. Making everyone in the country an investor in the stock market would only aggravate the big problems we already have with dumb investors incompetently investing their money and then freaking out when they lose it.

There are definitely problems with Social Security, but its biggest problem is that for a long time we stole all of its surplus to reduce the budget deficit. The private retirement account proposal won’t fix any of that.