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⁠The All-In Podcast
David Friedberg: How to Save Social Security Using Compound Interest

@friedberg with an incredible breakdown on E219:

"The US Social Security Program is meant to be kind of the retirement program for folks that don't have access to private retirement accounts."

"This program was set up in the 1930s after the Great Depression. There's a trust fund, the OASDI, which is the fund that they invest the capital (from)."

"So every year we all put money in with our social security taxes out of our paychecks, (which) goes in there."

"It gets invested in one thing: US Treasuries."

"Which have averaged about 4.8% return per year since the beginning of the program."

"Meanwhile, the S&P 500 has been averaging 11%."

"So here's the math: if in 1971, which was the year that we went off the gold standard in the US, if we invested the Social Security Trust Fund in the S&P, the balance of the social security trust fund today would be $15T."

"That would be roughly one-third of the value of the total S&P 500, which would be jointly owned by all Americans."

"Now here's what's f*cked up: the middle class people who had access to private retirement accounts benefited by buying the S&P 500 and the wealthy were able to access it."

"So all of the equity value that accrued from American enterprise and the prosperity of the American system accrued to the people that had access to the private accounts."

"Meanwhile, the people that only had access to the public accounts got stuck owning treasuries."

"Today, the Social Security Trust Fund has a $2.7T balance, and based on the outflows and inflows, it's going to go bankrupt in 2032."

"So I did the math: If you assume that the S&P 500 continues to grow at 10.5% per year on average, we could put about $500B in the trust fund today, and it will not go bankrupt again."

"And it will continue to grow every year. And then all Americans have participation in American enterprise."

"And importantly, this becomes the world's largest sovereign wealth fund ever. You don't need a separate sovereign wealth fund. We already have one."

"We've totally mismanaged it. And I went back to try and understand why this is the case. Why have we only ever bought treasuries? "

"Early on, the US needed someone to loan money. So they basically forced the citizens to loan the government money in the form of treasuries."

"But today, the social security trust fund owns less than 10%, about 8% of the total treasury bonds outstanding."

"So why are we forcing all the American citizens to participate?"

"Through the social security system, we've created the deep inequity we see in this country."

"If instead we had allowed the social security system to invest in the S&P 500 to buy American enterprises to fund American businesses, then every American would be wealthy and that middle class that uniquely participated by basically arbitraging the market where they forced the treasury bond yields on the poor and they got to take access to the equity yields would have not happened."
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