Yale University professor Robert J. Shiller gave President Bush a "D" on his proposal to partially privatize Social Security.
"What is the president proposing? The president is proposing that Americans don't buy stock on margin enough," even though federal policy has restricted margin purchases since Depression-era Regulation T was adopted, Mr. Shiller told the graduating class of masters in financial engineering at the University of California at Berkeley's Haas School of business last month.
Here's why. Americans who opt to invest 4% of their Social Security-eligible earnings will have two new accounts created: the investment account, and an offset account of the same size that will be assumed to earn a 3% real interest rate. At retirement, the individual will receive the traditional Social Security benefit plus the value of the individual account minus the value of the offset account. In effect, the 3% real rate serves as a hurdle rate or a margin rate.
"I am skeptical of his (the president's) financial engineering," Mr. Shiller, who wrote "Irrational Exuberance," said in his commencement address.
John O'Brien, executive director of the program and a former money manager and consultant, thanked Mr. Shiller "for pointing out how much better the Social Security proposals could have been if President Bush had gone to Berkeley rather than Yale. Maybe we can offer him a scholarship."