In his New York Times oped, Dr. Varian clearly distinguishes between the solvency issue facing the Trust Fund and the risk-return choices individuals might rationally make with their retirement portfolios. Alas, Donald Luskin mischaracterizes what Dr. Varian said in order to launch another pointless personal attack as Luskin shows how little he knows about financial economics:
On what stone tablet is it carved that “those with little income should invest in safe assets”? Virtually the entire voice of modern financial theory screams otherwise. Those with little income possess nothing but their human capital – they are precisely the ones most desperately in need of diversification through the addition of risky assets to their life portfolios. And even the most basic concept of equal opportunity screams just as loudly – don’t these people, among all people, deserve a chance at higher returns?
Notice how Luskin failed to explain his concept of diversification and how it somehow applies to the correlation between returns from human capital v. the returns from financial assets. But also note that Dr. Varian’s well written article that he does not advocate restricting people’s portfolio choices. The only shred of wisdom in Luskin’s rant may be this:
Those with little income can’t afford to contribute to their 401(k) plan, because the Social Security payroll tax has already sucked up 100% of their savings capacity.
Of course, investing Social Security funds in stocks was something that President Clinton favoved but the Club for Growth crowd opposed. And yes Mr. Roth – I do know your crowd favors choice over investing privately held funds (albeit Luskin is flip-flopping over that one).