And now, more deep thoughts on Social Security

Check out Rob's good but belated comments to this discussion (just scroll down to the comments button and click it).

Plus, he had this intersting statement which is worth of some long thought:

In my view, there are important differences to socializing unavoidable risks (aging and illness), as opposed to socializing variable risks (e.g., employment and prosperity). ...

I'm intersted to hear what those differences are.  But back to social security.  I see a three part solution:

1. Gradually raise the retirement age to 70.
2. Intorduce Medical Savings Accounts.
3. Privitization, voluntary up to a limit guaranteed to provide the bare minimum.

Next?

Comments

[Rob Salkowitz]

re: socializing risks. One thing conservatives have absolutely correct is that incentives matter. Socialism is at its worst when it focuses exclusively on how wealth is distributed and forgets how wealth is created (by people who are so interested in getting rich and making a better life for themselves and their families that they take risks, come up with new ideas, borrow money, hire people, and shout from the rooftops about their great new ideas). When you confiscate money earned through this legitimate process, you discourage people from innovating and taking risks, and you cut society off from the manifest benefits of prosperity. I assume I'm preaching to the choir here, but I've heard there is some doubt that liberals actually understand and believe this stuff, so I figured it was worth saying.

The problem is, it's hard to give people incentives to not become old or sick. These are mostly beyond people's control, and the costs associated with these conditions are often too high for individuals to bear. Of course people should save for retirement and buy private insurance, but the plain economics are that many, many people can't afford to. No matter how much incentive you try to provide for good behavior by increasing the risks associated with poor planning, it's beyond the abilities of the majority of people to do what you want them to.

The question then becomes, what's the social benefit of offsetting these particular kinds of risks so that we don't have old and sick people dying in the streets or bankrupting themselves and their families, as opposed to the drawbacks of creating perverse incentives that cause people to abdicate personal responsibility to the government?

It's not an ideological question - it's a calculation. Most of the time, the benefits favor individual initiative and risk-taking, despite the downside of unequal outcomes. For stuff like aging and illness, my calaculation is that it's better to mitigate these risks even if it means forcing those who behave well (e.g., work, save, plan ahead) to subsidize those who don't. There are simply too many people who would behave well if they could, but can't.

[Rob Salkowitz]

By the way, we already have voluntary privatization. It's called a 401(k) or SEP-IRA, and it's a great thing!

[pedro]

That's actually rather enticing. Lash me to the mast!

But the SEP-IRA line being voluntary privitization, no. If one could put one's own mandatory FICA contribution into one's own account, that's voluntary. Not many can or want to kick 15% into the community pot and then start putting into their own.

Remember, social security is a very bad deal, Return on Investment wise, even for the schlub who works all his life at minimum wage. Privitization would be far better for almost everyone. I mean, way, WAY better, like eliminate-poverty-in-one-generation better.

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