Here's a sinfully simple explanation of inflation: at any given point, there are a certain number of dollars in the economy, and a certain amount of resources and actual material assets which those dollars can purchase. Between these two amounts there is a ratio. Right now, the ratio is such that one dollar can purchase roughly twelve minutes of minimum wage labor, or a third a tank of gas, or 1/75th of a traffic ticket, or whatever else. If the number of dollars increases faster than the amount of resources, then the buying power of every dollar decreases (and a single dollar can purchase less, sometimes much less). An increase in the amount of real resources is called economic growth, and the degree to which the increase in the number of dollars outpaces this growth is inflation.

Inflation comes from many places and can be difficult to understand, but one clear example is the tech bubble of the 1990s. The stock market raged forth as investors went wildly enthusiastic over the possibilities of the future. This mere enthusiasm created a higher demand for stocks—people were willing to pay much more money for a part of a company than it was actually worth, because they thought that it would become worth that much more in the future, enough more to pay off their investments many times over. There was not nearly as much economic growth. The increase in the value of these stocks was merely over the prospect of growth, and so investors were betting that these tech companies would grow. This betting created more dollars that did not reflect economic growth, and thus the increase in the number of dollars wildly outpaced the increase in real assets.

That's about enough of that.

What does this have to do with Social Security and private retirement accounts? Under a private accounts system, nearly a trillion dollars would be invested into the stock market every year, and undoubtedly a large portion of it will be invested in this gambling, or speculative, way. Speculation, as Federal Reserve Chairman Alan Greenspan—the Yoda of economics—warns, will invariably lead to significant inflation. This is a problem for concrete economic reasons.