Saturday, August 14, 2010

New fallacy

From an op-ed in TheLos Angeles Times there comes a common but flawed argument:

Americans view Social Security as a central component of the nation's social contract. It is probably the most popular federal government program. Not surprisingly, when President George W. Bush tried to privatize Social Security — essentially asking Americans to put the security of their future in the stock market — the people considered it a preposterous idea, especially after they had watched thousands of Enron investors lose their savings and saw the stock market lose 38% of its value between January 2000 and October 2002. (emphasis added).

I call it the argumentem ad Enronem—any debate over privatization of Social Security ends up with someone referring to Enron. No one on the pro-privatization side suggested or suggests people invest all of their money in one stock. I'm not advocating privatization; there are legitimate arguments against it. I would argue, though, that using Enron as a debate stopper is unfair.

The rest of the article was awful as well—name calling "zealots", motive hunting, etc..

1 comment:

Anonymous said...

The use of Enron as an example of the dangers of investing in the stock market is neither about investing in one stock nor is it overblown. There is a very lively debate going on right now _on Wall Street_, among sell-side equity professionals, about the fear that retail investors have about investing in the market. The numbers of these investors are dramatically down, and it’s not just because they don’t have money (lots of them are piling into fixed income), but because of the long-term state of corporate balance sheets and the potential effects of things like dark markets and machine trading/flash crash technology. Basing retirement security for a whole country on this is foolish, and actually indicates we need to take a closer look at the entire 401(k) and Erisa models.