MIT Professor Franco Modigliani deserves his Nobel Prize, but his proposal for the U.S. government to invest Social Security's trust fund in the stock market is based less on economics than on faith: the faith that Congress and President, now and in the future, will resist the temptation to shape Social Security's investment practices to political purposes.
Federal Reserve Board Chairman Alan Greenspan argues that politicized investment is inevitable, and even former Vice President Gore called the risks "quite serious," saying that, "The magnitude of the government's stock ownership would be such that it would at least raise the question of whether or not we had begun to change the fundamental nature of our economy."
Personal retirement accounts would avoid politicized investing, as well as preventing the government from using Social Security reserves to cover budget deficits, the ordinary practice since the 1980s. Moreover, personal accounts give workers a true legal right to their savings, including the right to pass them on to their heirs.
Professor Modigliani's proposal deserves full consideration, as do individual accounts. But given the option, there is little doubt which plan the American public would choose.