I want to put down some of my thoughts quickly this morning before I read a lot of other opinions. I thought it was a great speech, and I think the President, together with the recent Iraqi election, came out with a complete vindication of his case for the war against Saddam Hussein.
The scene of the Safia Taleb al-Souhail, whose father was killed by the Hussein regime, and Janet Norwood, whose son was killed in Iraq, hugging and crying together was moving, showing that our war was not against the people of Iraq, but rather against a tyrant who was denying them the liberty which is their right.
President Bush made his case for private retirement accounts clearly. The Democrats who booed him were pathetic. Several years ago, under President Clinton, it was undisputed that Social Security would need to be fixed. Now that we have a Republican President who actually has made a proposal to do just that, all of a sudden Social Security is solvent? No way. The Democrat's response to the President's proposal is pure partisan bickering. And those who think all the money is going to be invested in Enron are distorting the issue too. Enron is not representative of the investments which will be made with these private accounts, nor is it representative of the US stock market in general. A more accurate picture would be a mixture of investments in the Standard & Poors (S&P) 500 Index and investment grade bonds, balanced appropriately for one's age. The S&P 500 Index growth rate is overwhelmingly positive and consistent when looked at in the long term. Even the stock market crash of 1929 is a small blip in the constant growth of this index. To look at it another way, if something catastrophic were to happen to make the stock market go into an unrecoverable decline, it would have to be such an overpowering economic event, more severe than the Depression, that nothing in America would have any value. Basically, it would be the end of the American economic system. Social Security in its current state would not be a sustainable option in that scenario either.
My information on the S&P 500 and the benefits of long term investing are based on data presented by Jeremy Siegel in his book Stocks for the Long Run, which I recommend everyone read before calling the stock market a roulette wheel. And now the obligatory disclosure: I work in the financial services industry, however I am not a licensed financial advisor. I'm in IT.
Update: Joshua Claybourn notes that Paul Krugman quotes Jeremy Siegel, claiming he isn't as optimistic as before. Josh corrects the context of the quote, and I affirm it. I've heard Professor Siegel speak at an investing symposium, and I heard him answer a question about this quote. When he said, "returns on stocks over bonds won't be as large as in the past," he wasn't referring to a comparison to the long-term rate of return, which is consistently about 7% above inflation, but rather to the supersized returns of the 1990s.