Defined contribution Social Security: The time to do that was 40 years ago with the 1983 compromise which started the train rolling to have the Social Security Trust Fund. Things like stocks are 20 year duration assets, so a building trust fund is a great time to invest in stocks. A really bad time would be when the system is moving into an extended pay-as-you-go system when the trust fund has been used up. At that time the liability timeframe is about 1 year. It makes no sense then to match 1 year liabilities with 20 year duration assets.
The US could have invested the Social Security Trust Fund in stocks, but missed its chance. Now we have a 30 year grind in front of us basically matching taxes to pension payments, unless the politicians want to raise taxes as Baby Boomers are retiring in order to save more money than needed to cover the Baby Boomer liabilities to build a permanent trust fund.
Please define "normal interest rate". I did HS and university in 1970s and started working around 1980. A "normal interest rate" could be anything from 0% to 18% fed funds rate given that time frame. https://fred.stlouisfed.org/series/FEDFUNDS
Probably the closest period in that time frame I would define as "normal interest rates" would be 1990-2008. That was pretty stable interest rates. Not much else happened in the US during that time frame other than three significant wars, two 50% stock market crashes, near meltdown of the world financial system, annual US govt fiscal surplus, and increasing US deficits.
I think the concept of "normal" is flawed. Everything is always changing, even in people's personal lives, never mind geopolitics. A common fatal mistake has been for societies to enter a "normal" phase and then stop paying attention to what is bubbling under the surface. That is basically Minsky's paradox, that stability breeds instability. It is often applicable to much more than just the financial markets.
Feels like we are headed straight for a few years, if not some decades, of austerity. I don’t think anyone is prepared for that.
Defined contribution Social Security: The time to do that was 40 years ago with the 1983 compromise which started the train rolling to have the Social Security Trust Fund. Things like stocks are 20 year duration assets, so a building trust fund is a great time to invest in stocks. A really bad time would be when the system is moving into an extended pay-as-you-go system when the trust fund has been used up. At that time the liability timeframe is about 1 year. It makes no sense then to match 1 year liabilities with 20 year duration assets.
The US could have invested the Social Security Trust Fund in stocks, but missed its chance. Now we have a 30 year grind in front of us basically matching taxes to pension payments, unless the politicians want to raise taxes as Baby Boomers are retiring in order to save more money than needed to cover the Baby Boomer liabilities to build a permanent trust fund.
Please define "normal interest rate". I did HS and university in 1970s and started working around 1980. A "normal interest rate" could be anything from 0% to 18% fed funds rate given that time frame. https://fred.stlouisfed.org/series/FEDFUNDS
Probably the closest period in that time frame I would define as "normal interest rates" would be 1990-2008. That was pretty stable interest rates. Not much else happened in the US during that time frame other than three significant wars, two 50% stock market crashes, near meltdown of the world financial system, annual US govt fiscal surplus, and increasing US deficits.
I think the concept of "normal" is flawed. Everything is always changing, even in people's personal lives, never mind geopolitics. A common fatal mistake has been for societies to enter a "normal" phase and then stop paying attention to what is bubbling under the surface. That is basically Minsky's paradox, that stability breeds instability. It is often applicable to much more than just the financial markets.
You are awesome Allison. So insightful, not pedantic. Keep it up. Thank you.
I would be interested in reading more about why you say collective defined contribution schemes are incoherent.