October 7, 2004


The Powerful Positives of Privatization: It will be the gift to Americans that keeps on giving. (John E. Tamny, 10/07/04, National Review)

[I]f some form of privatization is passed, it will be a sure signal to the markets that the U.S. government is dealing responsibly with its unfunded debt problems. This should pay dividends to homeowners, who are arguably paying higher long mortgage rates given the realistic fear that a future government will follow Galbraith’s advice.

As for stocks and bonds, private Social Security accounts are expected to include exposure to both. The lowering of long-term inflation expectations promises that each asset class will perform better. Economist Arthur Laffer has repeatedly stated over the years that inflation is one of the four “prosperity-killers.” Reducing the likelihood of it revealing itself will necessarily lower the risk premium on stocks and bonds, leading to higher prices for both.

Laffer’s other three prosperity-killers are tax-rate spikes, trade protectionism, and government over-regulation. Importantly, privatization protects stocks, bonds, and economic growth from the other three given the almost certain behavior modification that will result from all workers owning a piece of the capitalist system.

Doubters about the above assumptions need only refer to the Chilean privatization experience. In speeches around the world, Jose Pinera (Chile’s former secretary of labor and architect of that country’s privatization program) has stressed the cultural impact of privatization on Chilean citizens. It turns out that as their ownership of stocks and bonds grew, Chileans were less likely to agitate for the very income, capital gains, and corporate taxes that are known to harm stocks to begin with. Indeed, what sane person would ask for something that would shrink his net worth?

The same applies to trade protectionism and regulation.

Those who believe in the general efficacy of the State should hate George W. Bush, for he spells their doom.

Posted by Orrin Judd at October 7, 2004 3:56 PM
"[W]hat sane person would ask for something that would shrink his net worth?"

A Democrat? Oh yeah, the sanity bit.

Posted by: Uncle Bill at October 7, 2004 6:28 PM
« CHILD'S PLAY (via The Other Brother): | Main | STUPID POPULACE: »