From the desk of Jane Galt:
janegalt.net
Well, it looks like I may have been wrong in thinking that George Bush wasn't serious about Social Security; he's made it, and tax reform, the top priorities of his campaign, God bless him. Anti-war libertarians who voted Kerry should be feeling a little better about the outcome; George Bush seems to be getting serious about shrinking government. Importantly, he 's getting serious about long term structural change to reduce the size of government, rather than expending his political capital to whack 3% off the Department of Education's budget for the next two years.
That's not to say that privatising social security is some sort of blessed panacea. Tyler Cowen, who is about a million times smarter than I am, and a professional economist, and a libertarian, writes against it in the Wall Street Journal (subscription required). While privatisation advocates are right to say that there is no long term cost to social security privatisation (we're paying up front to get rid of a long term liability), there's a whacking great short term cost that will have to be dealt with. Mr Cowen is also not happy with the forced savings aspect, which offers the unsightly prospect of the state getting involved in investment decisions.
But Ed Prescott, who is also about a million times smarter than I am, and has a Nobel prize to boot, writes
Mr Prescott neatly avoids this question by ignoring the returns to pensioners, and looking at the economic effects of social security reform. I wrote about this a while back:
For a minute, let's ignore cash flows -- hard though your payroll taxes may seem to ignore -- and just think about the limited supply of goods and services we, as a society, can produce. If we think about consumption, rather than cash, it doesn't matter whether wealthy retirees get their retirement money from a government check, or a dividend payment. Either way, they are expecting to live off the efforts of an ever-shrinking pool of workers. Just bouncing rich seniors off Social Security doesn't change the fact that they are consuming considerable quantities of goods and services, without producing any.
The main benefit of social security reform, economically speaking, is not that it finds some previously untapped well of cash from which we can pay for our oldsters' retirements. As I see it, the primary potential benefit is that we're diverting resources from an unproductive use--the government--to productive investments that will make it easier for a smaller number of workers to support us all in the style to which we'd like to become accustomed. Mr Prescott adds another good economic effect I hadn't thought of--the increase in the labor supply. As Mr Prescott puts it:
. . . any system that taxes people when they are young and gives it back when they are old will have a negative impact on labor supply. People will simply work less. Put another way: If people are in control of their own savings, and if their retirement is funded by savings rather than transfers, they will work more. And everyone is better off. These are the type of win-win situations that politicians and policy makers should be falling over themselves to accomplish.
But what about the cost! privatisation opponents scream.
Several answers to that. First of all, it is true that over the long run, there's no cost . . . and most of my newly budget-deficit-hating interlocutors are ostensibly concerned with the long run, not the next five years.
Second of all, it makes a currently invisible long-run cost tangible, and that's important. It encourages people who are young now to save for their retirement, by taking away the illusion of benefits the system won't be able to afford. And it removes the social security surpluses from our budget, allowing us to see the true, dire, picture. If you look at the most recent report of the Social Security trustees, you'll see that Medicare and Medicaid are providing a net subsidy to the budget of $164.7 billion dollars a year. If the government had been properly accruing the liabilities for social security along with the assets, Bill Clinton would never have run a budget surplus. A crutch that allows the government to spend more than it earns, while running up invisible liabilities to its retirees, is a crutch we don't need.
But should the government be getting involved in forcing us to save? What kind of libertarian am I?
Well, I'm a moderate one, trying to work within the framework of the government we actually have, rather than imagining my perfect state and then pushing the current government to adopt the policies that would work well in my Neverland. And the fact is, that within the governing framework that we have, and are likely to have during my lifetime, moral hazard is an enormous problem with retirement savings.
Saving is, after all, no fun. And in saving for retirement, each of us faces the risk that we will be delaying all that fun for nothing -- we could get hit by a truck at 45 and lose the lot. Inheritance mitigates this somewhat, but not entirely, as we're all pretty selfish, at bottom. So if your fellow citizens are willing to provide some minimum level of subsistence for you in retirement, the temptation grows to risk bankruptcy in retirment, either by blowing all your money on wine, women and song, or by making extra-risk investments in the hope of extra-juicy returns.
Also, many people aren't good at planning. A look at the current state of boomer finances, or my 401(k), would scare the hell out of you.
Given that we live in a society which will not let retirees starve, and given that retirees need a lot of moola to stay alive, forced savings is inevitable. I am worried about getting the government involved in the market. But not as worried as I am that I'll have to eat cat food if we do nothing, and the system blows up just as I'm hitting my golden years. |
