Social Security - Savings and Retirement II

Ah, how sad - I spend so much time away from this post that the private accounts issue seems to have vanished for now. One does not wage an unpopular campaign of Social Security reform when one's approval ratings dip below 40%, especially with key Congressional allies having difficulties of their own.

Hmm, now what? I wasn't opposed to private accounts, especially since the most public case against them comprised arm-waving alarmism and grandstanding and there is an actuarial problem with Social Security as currently configured. I just wanted to point out the flaws in some of the unexamined economic assumptions.

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Okay, less ponderously then, a few more points, mainly drawn from various issues of The Economist:

• Ben Bernanke, while a Federal Reserve governor, talked about a global savings glut. postulating too much savings relative to what's needed for productive investment for the current level of consumption.
• Capital flows have tended to be from Japan, the oil producing nations, China and other developing countries toward America, financing the government deficit and American consumption.
• The high savings rate - liquid, not re-invested in capital - of American corporations indicates that they have more than adequate internally-generated capital; continued low long term interest rates as a result of the savings or liquidity glut make access to additional capital relatively inexpensive.
• Companies that have a high rate of capital spending average a lower rate of return on that spending. Law of Diminishing Returns.
• Keynes described how a higher investment rate economy-wide could actually lead to lower production, by suppressing demand. If a company cannot sell its products at a price that produces a good return on capital invested, it doesn't -- or shouldn't -- invest the capital.

So, if private accounts or other such proposals increase the rate of American savings and decrease current consumption, what might happen?