Selling Social Security Reform
By The MinuteMan
The Bush Administration is about to begin promoting Social Security privatization. The current informed speculation is that they will focus on the higher returns available in the stock market. Big Mistake!
Look, plenty of folks did not trust the stock market even before the recent debacle. Nor should they - those higher returns represent compensation for higher risk. And even if one thinks that the risk premium is "too high", sending trillions of Social Security dollars in pursuit of equities is probably going to lower it. My cocktail party soundbite - telling everyone they can get rich buying stocks makes as much sense as telling everyone they can get cheap drugs from Canada (Hmm, you would be surprised by how little resonance that soundbite has with most folks - I know I was last weekend).
Fortunately, I have a fallback soundbite, which is, the folks talking up the stock market returns are selling a free lunch, and people won't buy it.
If I were promoting Social Security privatization, I would offer different arguments, starting with a home-ownership analogy.
You own your home (or want to); you should own your nest egg.
One of the objections to privatization is that people are not ready for the complexity and responsibility of planning their own retirement. Please - people are smarter than that, and the US policy towards housing proves it.
For decades, the government has encouraged (OK, subsidized) home ownership. In addition to creating great wealth for a broad swath of the middle class, this has some useful social consequences, since it is generally believed that owners behave differently from renters. In fact, recognition of this behavioral difference has crept into such common phrases as "take ownership of your problem".
Well, privatizers want folks to take ownership of their retirement problem by giving them ownership of a part of their Social Security nest egg. Can people handle it? I have rented homes, and owned them, and I promise you - owning a home involves more responsibility and greater financial risk. However, it is part of the American dream; owning one's nest egg ought to be part of the dream too.
And response of privatization opponents is what - Don't worry about your retirement, the government has you covered? In the battle of public relations soundbites, "It's your home, your nest egg, and your dream - make them grow" ought to trump "Hakuna Matata" (For those few folks who have escaped "The Lion King", substiturte "Don't Worry, be Happy")
Proponents have also noted a racial angle to this. Twenty year old black males, about to commence a lifetime of payroll taxes, have a life expectancy of about 65. This makes Social Security an unattractive proposition. However, if these workers owned a portion of their retirement contributions, they would have something to leave as a legacy to their children. Ahh! Wealth creation and, since staying on dad's good side pays off when the will is read, stronger families. Well, maybe. But if I were a sinister Rep trying to create a wedge issue, I would quietly note this issue and see how Dems respond.
This demographic tidbit is not a secret, BTW - I think it is mentioned in the Bush Commission final report, and certainly I have seen it noted at some lefty websites (and various commenters have wacked me with it).
My final selling point would be, you can't trust Washington to save your tax dollars. The institutional imperative of government is, you send it, they spend it. Economist Kent Smetters has a substantially more detailed explanation of the same phenomenon, as described by Jim Glass.
My hope is that the Bush team will do a serious job of selling privatization; my fear is that they will promote it as a cure for everything up to and including male pattern baldness. For example, nothing I am talking about above addresses the ten trillion funding shortfall which has created the current sense of urgency.
That said, so far we have seen neither a Bush proposal nor a sales pitch. Developing...
MORE: Privatization and the effect on national savings was kicked around in this post. Brad DeLong points out that visible private accounts may prompt people to save less through other mechanisms; this would be the obverse of the Smetters effect, where the absence of the Social Security surpluses would prompt the government to save more. |
