So what kind of SS program would you propose to the Congress?
If it operated like a real world defined benefit plan, including accounting properly for and fully funding future benefit obligations, SS wouldn't be such a problem. Of course, people could then see just how crappy a pension system it is, being restricted to Treasury IOUs. And people would be able to see the real size of the deficit in the government's annual operations, which might cause a little anger among voters.
I think, in the long run, we're all better off if we depend less on the government for things like this, not more. From an economic efficiency perspective, markets generally work better than government programs, particularly where the good or service involved is not a "public good" and markets exist for it. Of course, the equity question always arises - markets may be efficient, but not necessarily equitable in the allocation of resources, income or wealth. That's why we quite reasonably ask the government to get involved.
The moral hazard issue ("why save? the government won't let me starve" or "why not role the dice? the government won't let me starve") requires that there be some kind of mandatory plan, not a wholly optional one, and that regulations prevent imprudent risk-taking in the accounts.
But beyond that, in the long run, I think we'd do better without any government run pension fund. It would probably, however, be a good idea to have some kind of government backing, along the lines of FDIC, to protect investors from fraudulent behavior or insolvency of account trustees/fund managers.
In the short run, it is reasonable to allow people to opt to stay in the current program if they are in or fairly close to retirement. There will likely also be people, even younger ones, who are so risk averse that they will only invest in things guaranteed by the government (and perhaps wouldn't even trust a bank deposit or government bond mutual fund). Maybe, but only maybe, you could leave something like the current system, but operating like a true pension plan - fully funded and all - in place for those few nervous nellies.
So, what I'd propose is an eventual total privatization, with the types of regulation I mentioned. The hard part, however, is the transition, which drags in what should be unrelated issues of fiscal management of the rest of government.
But as I think I said in my earlier post, the so-called "transition costs" that increase the "official" deficit and in-market (as opposed to intergovernmental) borrowing requirements also put a like amount of money into investor hands, increasing the demand for financial assets by an amount comparable to the increased borrowing demand. Fears of increased government borrowing crowding out private borrowing are unfounded. The "transition costs" should be a wash.
Bob |
