Imagine the following deal: You could invest part or all of your
Social Security taxes in a personal retirement account. However,
your account could hold nothing but stocks and you would retire
during the biggest bear market since the Great Depression.

Would workers accept such a deal? I would. Even today, personal
accounts would increase retirement benefits while giving workers
greater ownership and control over their savings.

Slumping stock markets have opponents of personal accounts
claiming vindication. A falling stock market, they argue, shows that
only a traditional government-run, defined-benefit Social Security
program can provide adequate retirement security. As Senate Major-
ity Leader Tom Daschle (D-S.D.) put it on July 12, 2002:

After what's happened in the stock market the last few weeks,
we think it's a terrible idea.…Imagine if you were retiring
this week, with most major stock indexes hitting five-year
lows. ¹

Indeed, many Americans are sure to be concerned after hearing such
comments.

But in judging the risks of long-term market investment on the
basis of just a few months or years of returns, these opponents of
personal accounts are victims of the so-called law of small num-
bers—the propensity to believe that a small sample is representative
of the larger universe of outcomes. ² Like those who took a few years

Originally published as Cato Institute Briefing Paper no. 74, September 10, 2002, and
updated to reflect current information.

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