CONSERVATIVE ECONOMICS….Today I find myself reading Brad DeLong’s blog and I am puzzled. He summarizes Martin Feldstein’s current thinking about Social Security privatization thusly:

Marty’s argument these days is much more likely to be the claim (with which I have a lot of sympathy) that the stock market does a lousy job of mobilizing society’s risk-bearing resources. Stocks appear to be priced as though the marginal investor is a rich 62-year old with some clogged arteries and a fifteen-year life expectancy who is not expecting to leave a fortune to his descendants. But if the stock market were working well, the marginal investor would be a 40-year old in his or her peak earning years looking out to retirement spending 40 years in the future–an investor much less averse to risk than the 62-year old.

Turning Social Security into a forced-equity-savings program would, Marty believes, not only produce huge profits for the system but also materially improve the efficiency of U.S. financial markets.

I’ll admit that I haven’t kept up with recent thinking about the equity premium, and I haven’t kept up with the recent thinking of Martin Feldstein either. But even so, here’s why I’m puzzled.

The United States is the biggest and most dynamic capitalist country in the world. Likewise, the U.S. stock market is the biggest and most dynamic stock market in the world. It is, in fact, practically a shrine to free market capitalism. And yet Brad would have me believe that conservative economist Martin Feldstein believes that:

  1. The U.S. stock market is the victim of a massive, persistent, and inexplicable market failure,


  2. The best cure for this is an immense government program that forces its citizens to invest in the stock market.

Either conservative economics has taken a turn I’m not aware of, or else Brad is misrepresenting Feldstein’s views. But which is it?

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