Nationalizing 401(k) Plans: Down Argentine Way

Sounds like a great way to beat down the stock market some more.

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I posted yesterday about a loopy idea floating around Capitol Hill to shift people out of their 401(k) plans into a government plan. It would be like Social Security: the Sequel. It would also be a $100 billion-a-year tax increase that would hit people making as low as $75,000, according to the plan's author, a prof at the New School of Social Research. My guy Ed Morrissey over at Michelle Malkins's Hot Air site makes a great follow-up point:

I'd suggest that Pethokoukis vastly underestimates the effect this change will have on the stock market. The advent of private tax-deferred retirement accounts created a huge investor class in the U.S. By some estimations, more than 70% of American adults have money in the stock market in long-term investments for their eventual retirement. That's a revolutionary change in the relationship between labor and ownership, one that capitalism succeeded in creating where Marx and his followers only fantasized.

What happens when the tax deferral on this investment ends? Most people won't want to take the risks of the market without it, certainly not on the scale they do today (about $5 trillion in capital) and likely not after the Fannie Mae/Freddie Mac collapse. They'll start moving to savings accounts or gold and removing their money from the markets. The flight of capital will eliminate the necessary engine for recovery, but that's a minor point. The price of stock will utterly collapse as everyone looks to liquidate their holdings, crashing Wall Street and throwing tens of millions out of work as publicly-held companies disintegrate.