Letters

From the July 2005 issue

The Death of Social Security

I am a longtime fan of James Glassman and also a longtime fan of replacing the Social Security system, over time, with private investment options. But my thinking has changed dramatically as I have followed the current debate, and Glassman said nothing to swing my opinion toward the Bush option. I ended up agreeing almost down the line with Tyler Cowen ("The Death of Social Security," April).

Would private accounts offer more individual freedom to invest? Not possible. More freedom means more freedom to fail as well as to succeed. And the government cannot afford to reduce safety net benefits and then give people the freedom to fail to make sound investment choices.

Its only option is to tightly control how private accounts are invested and how they can be used. So instead of taking $100 out of my paycheck and using it to send checks to nonworking individuals, the government takes $100 out of my paycheck and puts it into a "safe" account I cannot touch. I fail to see how that gives me any more freedom.

Would private accounts provide larger returns and more money for nonworkers? Not likely. These tightly controlled, safe investment accounts would follow broad economic trends but would not offer the big gains experienced by stock funds in the 1990s, when the private account arguments gained support.

There are two big winners from private accounts. First, the financial markets and money managers: Their fees will be tightly regulated, but there will still be money to be made. The second big winner is the government bureaucracy called the Social Security Administration. It will have to be a much bigger organization since it will have to monitor millions of private accounts to make sure money is withheld from paychecks and deposited. All this overhead will have to be paid for somehow, either out of general tax revenues or by decreased returns for the private accounts.

Gary Meyer
Annapolis, MD

Tyler Cowen suggests that IRAs and 401ks are "(relatively) unregulated." This is not true. Both plans, particularly the latter, are highly regulated, with rules governing the nature of the investments permitted, the use of margin, the level of contributions permitted and their timing, the penalties for early withdrawal before a certain age, the penalties for failure to withdraw after a certain age, the required reporting by plan custodians to government agencies, the sometimes mandatory and sometimes prohibited contributions by employers, the permitted length and patterns of vesting schedules--you name it.

This suggests the government is inclined to overregulate everything it touches, a fact that might add weight to Cowen's argument. But it also suggests that government regulation of investment accounts does not necessarily mean nationalization--even after a couple decades pass.

Of course, the devil may be in the details of Bush's actual plan--and direct investment by government would certainly be a deal killer--but my bet is that while the regulation will be onerous, most libertarians will choose to participate, including Cowen.

Philip Blumel
Atlantis, FL

If, as James Glassman notes, Social Security "is a blight on liberty," a "Ponzi scheme" that "creates a vast moral hazard," then the only legitimate question is how to terminate it.

There is a very simple way: Just raise the age to collect benefits by, say, three months each year, indefinitely. Those already retired will still collect, although any increases should be held to the cost of living. People a few years from retirement will have to work only a little longer than they expected. People farther out will want to bridge the gap with savings. Young people will know that they are going to be responsible to save and invest for their own retirements, as is proper in a free society--and they will have money to do so, as the payroll tax is phased out.

Allan Walstad
Johnstown, PA

Homeschooling Alone

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