Remember what the pig with the brick house did after the wolf huffed & puffed? He invited his brothers to come live with him. Clearly he didn't read enough Ayn Rand.
Hendrick Hertzberg tires me.
But making the well-being of the old dependent on the luck or skill of their stock picks or mutual-fund choices is not so good.
Yeah, 'cause that's *exactly* what private accouts are about. Subjecting the elderly to the vagueries of chance!
Look, the current SS system is just weird. I defy anyone to suggest why, if we were creating an old age pension anew, we would come up with a bizzaro hybrid of forced savings + redistribution which doesn't create an asset. pay in for 30 years, get hit by a bus at 45: the dollars can go away. There's no logic for this.
I like the redistribution, I can live with the forced savings. But I'm unclear why everyone doesn't want private accounts, and doesn't want the stronger guarantee of return ow. Sure, evil men can hijack the plan and screw it up. But it seems like there just a prima facie assumption that this is the only thing going on here. This seems to me almost like reverse-Rand. Privatization just replaces government as the bugaboo that means "corruption and evil."
See, I hate myself for writing this. It's such a picked over issue. Anyone who cares about SS issues should be reading responses from anyone-but-me. And now you;ve gone and got me to rant by cited hertzberg. Curse you ogged!
Maybe this question is simple-minded, but, setting aside objections to the current system, wouldn't private accounts increase the chance that some people would collect little or no money in their old age?
baa,
I point you to this (http://tinyurl.com/7xbx7) post by mark scmitt in which he outlines the reasons for keeping something very close to the current social security.
"Here's my answer: If I were designing government's role in a retirement system today, my goals would be to ensure that no working Americans dropped into poverty in old age, and that all working Americans had an opportunity to build retirement savings sufficient to ensure a generally prosperous retirement. I would also want to make sure that the system would work within a dynamic economy in which workers would have many jobs in a lifetime and in which the barriers to entrepreneurship and hiring were low. Here's what I would do:
[details of portable retirement accounts]
To ensure that no one fell into poverty as a result of poor investment decisions or inability to save, however, a base of the system would provide a kind of insurance, in which both workers and employers would be required to contribute a percentage of income, up to a limit, into a pooled fund that would be invested very conservatively (Treasury securities) and paid out as a fixed monthly benefit after retirement, possibly based on need. This would allow people to take more risks in the rest of their account, knowing that the most basic cost of living in old age was secured through this insurance system.
And yes, this basic insurance level of retirement would look a lot like Social Security. The biggest difference in my approach would be that I might add a means-test to make it even more like insurance, so that it would go only to seniors who needed it. This would enable the secure set-aside to be much lower."
The reason why it doesn't turn into assets if you die before retirement is that it is, essentially an insurance plan. If you buy car insurance and sell the car before anything bad happens you don't get money back.
See also the post by angrybear (http://tinyurl.com/56rkv) on the economic utility of such an insurance plan.
Ogged,
If private accounts allow a person to invest everything in Jet Electro, then yes, they would run a greater risk of big time negaive return. However, it would be easy to structure individual accounts so that choice was substantially limited (X% in treasuries, Y% in index funds with passive management, etc). Given that there's a moral hazard problem (people will take on more risk if they know no one will let them starve), this restriction on choice seems a fair compromise.
Nick S: if we think the purpose of social security is "insurance against destitute old age" then I guess it's ok that people who die young, and their heirs get screwed. This is the true negative return ogged dicusses. You pay in for forty years, die early, and get very little back. That, I contend, is a screw job. If someone wnat to buy such a kooky financial instrument on their own dime, fine (although I have never seen any financial product with this structure). But right now we are forcing people into this plan. That doesn't seem right to me. You are paying in, you should get an asset back.
baa,
A fair enough response, and it clarifies your position. Two questions:
1) Do you believe that having a "insurance against destitute old age" separate from private retirement money is a good idea?
2) How would you design an insurance scheme that won't have some conditions under which it won't pay out?
SS currently includes disability benefits and some spousal survivor benefits, I'm open to including other categories of insurance in the program, but do you accept that you will always be able to construct situations in which there is no payout?
We can disagree about whether we think such a social insurance scheme is desirable, but do you at least understand why I would think that the argument that it will not pay out in all circumstances is not a counter-argument?
You asked in your original comment why anyone would want to design a system that looks like the current Social security system. I tried to answer that question. You may not find the answer convincing but would you agree that it is an answer?
baa,
I hope you agree one of the functions of government is to enforce a fair and just marketplace.
Today the government, through SS, takes my money and gives it to old people, widows, orphans, and the disabled to spend as they see fit.
Instead, you would like the government to take my money and give it to a corporation they select? The watchdogs of the marketplace are now in charge of investing in it? The rulemakers are now playing the game?
That situation is simply begging for corruption. How could corruption NOT happen?
Remember, we are dealing with actual human people here, not some idealized economic model.
Oh, sure, you may say we can build in oversight and checks and balances and reviews. We could do that, I suppose. And what is the overhead cost of all that? Who pays that overhead cost? Who watches the watchers? The cost would eat up any profits faster than you can imagine.
baa,
if we think the purpose of social security is "insurance against destitute old age"
I think you misunderstand. SS is not simply insurance against my personal destitute old age. It is also insurance against me having to deal with other destititute old people right now.
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