The apparent purpose of allowing the government to invest the trust fund is to take advantage of the higher returns from private capital markets. There is strong evidence,though,that the governments investment policy substantially could undercut the returns it otherwise might expect to receive.High capital market returns wholesale ugg boots in the U.S. are derived from the high productivity of capital and the efficiency of the markets.Investment of the Social Security trust fund in private capital markets will hurt both of these sources of American economic performance;capital will be less productive and markets will be less efficient.
A 1994 study by the World Bank of governmentmanaged pension fund investments around the world found that they generally earned lower annual returns than privately managed pension investments.It showed that governments generally pursued one of two policies for their invesments,both fundamentally flawed.
One was to invest heavily in government securities,which earn much lower returns than,for example,stocks.There are two reasons for this policy.First,there is a cautionary search for safe investments because governments fear the political reaction if a more aggressive investment policy were to lead to adverse results. Second,buying up government debt allows the government to defer the cosequesces of its own overspending.Indeed,there is evidence that the power to shift government debt into pension funds actually may induce them to spend and borrow more.Borrowing from the pension fund is less transparent than doing so from the open capital market.In many cases,such borrowing is not even reported as public debt, and the interest rate may be lower.
This already is occurring with the Social Security trust fund.The current surplus is used to purchase Federal Treasury obligations that are credited to the Social Security trust fund.The government then utilizes the money it has borrowed from the trust fund to meet current operating expenses.
The other investment policy pursued by governmentcontrolled pension funds is to invest in governmentsupported projects,such as stateowned enterprises or public housing.Again,the result often is extremely low rates of return.In fact,such investments frequently lose money. Moreover,government investment leads to greater government involvement in the economy ugg that could,in turn,lead to policies that slow economic growth and reduce the return on capital for all investors,including the government itself
A 1994 study by the World Bank of governmentmanaged pension fund investments around the world found that they generally earned lower annual returns than privately managed pension investments.It showed that governments generally pursued one of two policies for their invesments,both fundamentally flawed.
One was to invest heavily in government securities,which earn much lower returns than,for example,stocks.There are two reasons for this policy.First,there is a cautionary search for safe investments because governments fear the political reaction if a more aggressive investment policy were to lead to adverse results. Second,buying up government debt allows the government to defer the cosequesces of its own overspending.Indeed,there is evidence that the power to shift government debt into pension funds actually may induce them to spend and borrow more.Borrowing from the pension fund is less transparent than doing so from the open capital market.In many cases,such borrowing is not even reported as public debt, and the interest rate may be lower.
This already is occurring with the Social Security trust fund.The current surplus is used to purchase Federal Treasury obligations that are credited to the Social Security trust fund.The government then utilizes the money it has borrowed from the trust fund to meet current operating expenses.
The other investment policy pursued by governmentcontrolled pension funds is to invest in governmentsupported projects,such as stateowned enterprises or public housing.Again,the result often is extremely low rates of return.In fact,such investments frequently lose money. Moreover,government investment leads to greater government involvement in the economy ugg that could,in turn,lead to policies that slow economic growth and reduce the return on capital for all investors,including the government itself
No comments:
Post a Comment