Babbling Brooks
My goodness, this is the
"conservative" voice at the Times?
Under one version of KidSave, the government would open tax-deferred savings accounts for each American child, making a $1,000 deposit at birth, and $500 deposits in each of the next five years. That money could be invested in a limited number of mutual funds, but it couldn't be withdrawn until retirement.
Over decades, it would grow and grow, thanks to the wonders of compound interest, so that by the time workers retired, they would each have a substantial nest egg, over $100,000, waiting for them.
This is, of course, a variation on the proposal offered in
The Stakeholder Society, a book which got a lot of attention in the lefty media outlets briefly, although the authors proposed to give $80,000 to everybody on the occasion of their 21st birthday.
Look, people who first become acquainted with compound interest invariably make the mistake of assuming that it's something miraculous. And inevitably they make these ridiculous proposals that involve putting away a pittance now, in return for mucho dinero in the future. And you can see that Brooks really hasn't though this through:
We'd have to take care of today's 20-somethings, who are already too old to benefit from the new accounts, but this proposal would lead to less red ink than the president's current plan.
Why don't the 20-somethings benefit from those accounts? The answer, of course, is that they do, but they have 20 fewer years left for the compound interest to do their "magic".
Update:
Alright, I'm an idiot. I should have done the numbers. Looking at Brooks' proposal after running it through the spreadsheet, it appears that he's projecting a 5.5% return. Which is certainly not agressive, although he does not explain if these are inflation adjusted dollars. But supposing he is (which would surely horrify Krugman), if $100,000 is the pot of gold at the end of the rainbow, I'm a little under-impressed. So the notion that this proposal would somehow move us away from Social Security is absurd.
I rebuke the NY Times' most partisan Democrat pundit
over at Lifelike.
