The Socialism/State Paradox

Matt Welch | December 17, 2004

Milton Friedman notes an interesting dichotomy:

After World War II, opinion was socialist while practice was free market; currently, opinion is free market while practice is heavily socialist. We have largely won the battle of ideas; we have succeeded in stalling the progress of socialism, but we have not succeeded in reversing its course. We are still far from bringing practice into conformity with opinion. That is the overriding non-defense task for the second Bush term. It will not be an easy task, particularly with Iraq threatening to consume Bush's political capital.

Link via Crooked Timber. Reason has interviewed Uncle Milty several times over the years, including by Brian Doherty in 1995.

Comments

The White Anglo Saxon Protesta|12.17.04 @ 11:42AM|#

Incidentally, today is my 43rd birthday, so I am assuming the birthday priviledge of plugging my funnier-than-hell first book: "The White Anglo-Saxon Protestant Bachelor's Survival Guide and Cookbook," available from my website, from Amazon.com, Barnes and Noble.com, Borders.com, or through your local bookseller.

I invite my friends and adversaries on H&R to download a sample chapter, and buy one or several for yourselves and for gifts. It would make me and my publisher very happy.

|12.17.04 @ 11:46AM|#

Small government conservatism is a quaint and increasingly marginal philosophy. Kind of reminds me of those "Mao More Than Ever" guys I see on C-Span now and then.

I dunno of Friedman is in denial or what. Bush is like some unholy spawn of LBJ and Nixon. Biggest spender in a generation. Does Friedman think Bush accidentally got himself into this position or something? Big spending and social conservatism - it's the worst aspects of both political parties in one.

gaius marius|12.17.04 @ 11:48AM|#

Small government conservatism is a quaint and increasingly marginal philosophy.

i would have to agree, messrs. joe and brian. perhaps mr friedman is in one of those "bubbles" we hear about from time to time. :)

drf|12.17.04 @ 11:57AM|#

before you all go off half cocked about friedman being "libertarian", check out this article about the origins of the chicago school.

lewrockwell.com/rothbard/rothbard43.html

while there are parts of this essay that are problematic, it's useful to remember that a knee-jerk reaction is not always the best. remember, bush is not a supply sider, so he has no claim to the mantle of reagan. yet how often are bush's policies described in this way? same for friedman. chicago might be more laissez faire than say, harvard or mit or stanford, but there's a ways to go.

cheers,
drf

drf|12.17.04 @ 11:58AM|#

oh - happy birthday waspy-b

|12.17.04 @ 12:23PM|#

I tried age 43 last year. So far its worked out well. I plan on trying age 44 in June.

|12.17.04 @ 12:35PM|#

There's a lag.

While it's quite obvious to most of us here on H&R that Bush has turned his back on deep budget cuts, deep cuts in marginal rates and free trade, there are a lot of people out there who voted for Bush in the last election specifically because they believe he is the champion of those three things.

...Really, the most controversial conversations I've had over the last year haven't been over foreign policy or torture or abortion. They've been with my former Republican friends and they've been about my charge that George W. Bush is a traitor to three of the core Republican causes since 1980: budget cuts, marginal rate tax cuts and free trade.

People who care about those things will wake up and smell the coffee eventually, but there's a lag.

P.S. And as thoreau always says, there are those who will always pipe up that Kerry would have been worse.

The White Anglo Saxon Protesta|12.17.04 @ 12:41PM|#

joe -

"Most of the populace (all of the populace, actually) had nevel lived under a system with a guaranteed retirement program, in 1931. Yet the idea of confiscating their money via payroll taxes and giving to other people was, and is, wildly popular."

I would be willing to bet that if you put it exactly that way, polls would refute your premise. The piece that IS popular is "guaranteed income for life." Why wouldn't it be?

People don't care where the money comes from until the facts are presented. I am amazed at how many individuals I meet still completely misunderstand how the program works, don't realize that they are paying for current recipients, not storing up treasure for themselves, and that the whole thing depends upon coercion and favorable demographics, both of which are very uncertain factors going forward.

gaius marius|12.17.04 @ 12:42PM|#

Yet the idea of confiscating their money via payroll taxes and giving to other people was, and is, wildly popular.

surely, however, we won't conflate this with

win(ning) a philosophical debate on the merits

modern americans are greedy selfish animals who love this idea for so long as they can credibly (or even somewhat incredibly) believe that they don't have to think about saving for their entire retirement or paying for prescriptions.

|12.17.04 @ 12:45PM|#

"Yet the idea of confiscating their money via payroll taxes and giving to other people was, and is, wildly popular.

Gettin' some of your stolen money back from the government is wildly popular. Not gettin' stuck holding an empty bag is wildly popular. Gettin' some form of income now that the Government has stolen what would have gone to pay off your mortgage and provide you with some interest income is wildly popular.

...But the idea of confiscating money via payroll taxes and giving it to other people is not wildly popular. If it was, there wouldn't be so many people clamoring to get out of the system now before they get sucked into the hole.

|12.17.04 @ 12:48PM|#

"Uh, no, you have won neither the battle ideas, nor of practice. "

North Korea vs South Korea.
E Germany vs W Germany.
Taiwan/Hong Kong vs Mainland.

joe, wrong again. Oh so delusional.

|12.17.04 @ 12:57PM|#

Happy birthday waspbach

|12.17.04 @ 1:02PM|#

Most of the populace (all of the populace, actually) had nevel lived under a system with a guaranteed retirement program, in 1931. Yet the idea of confiscating their money via payroll taxes and giving to other people was, and is, wildly popular.

Given the economic situation in 1931, I suspect people were ready to go for anything that promised financial security. Just like I'm sure polls conducted on 9/12/2001 would have shown wide support for increased govt powers to combat terrorism, even if it meant compromising civil liberties.

|12.17.04 @ 1:07PM|#

Ironchef-

In all fairness, your examples only show differences between extremes. For debates over the degree of regulation in an economy that is far more market-based than East Germany or North Korea, the more useful comparison is probably Switzerland vs. France or Germany vs. Sweden or something like that, comparing places that fall at close but distinct points along the market/regulation spectrum.

And Happy Birthday, WASP Bachelor!

|12.17.04 @ 1:18PM|#

"Given the economic situation in 1931, I suspect people were ready to go for anything that promised financial security."

I know the following statement reeks with the potential for hyperbole; nonetheless, America wasn't the only country where the financial crises of the '30s made enough people desperate enough to trade their freedom for false promises of security.

drf|12.17.04 @ 2:25PM|#

yes - one of many complexes we have. just use bart simpson's words of wisdom: "oooooh [shuddering] there's one more memory i have to repress"
:)

gaius marius|12.17.04 @ 2:41PM|#

What is it with you people?

mr joe, i fully concede the victory of american massive social welfare programs in the public opinion -- so long as they ostensibly benefit the majority. (food stamps? get a job, you bum!)

the difficulty with that is that the public opinion is idiocy. did we not just invade iraq with a vast majority of support? public opinion is a dupe to propaganda. and social security -- massive government outlays in excess of revenues generally, in fact -- are a resounding success in the public opinion because the public don't understand them well enough to see the ultimate implications: total american fiscal collapse.

if you told the mob the truth -- we need to raise taxes significantly to cover all this spending and avert an eventual financial collapse -- the support you ballyhoo might vanish in an instant.

|12.17.04 @ 2:42PM|#

The youngest workers are in line to collect nothing from SS in its present form.

drf|12.17.04 @ 2:44PM|#

um. joe - thanks for shooting at me when i was watching one part of your back.

and i appreciate being lumped into the "might makes right" those people.

is your knee jerk so strong here that you missed what i was saying? i was fucking agreeing with you that SS REALLY IS that popular, else we'da done something about it.

americans want bigger and bigger government, don't want to pay for it, and then they make up "starve the beast" arguments to justify it.

you get the NRO bitching about my college and its spelling of "womyn" and against re-wording of the bible now whining that the media are creating a false image in iraq with not calling the insurgents "islamofascists". they're calling for the same semiotic-wordsmithing that they used to decry.

now this.

plus, i'm in favor of allowing whatever consenting adults to marry - and to keeping the state out of "blessing" those unions.

well fuck me gently with a chainsaw.

and pass the inflatible noam chomsky doll while you're at it.

|12.17.04 @ 2:49PM|#

If you told the mob the truth, most would not believe you.

|12.17.04 @ 2:51PM|#

You can have my Tru Noam Inflatable Partner when you pry it from my warm, most fingers.

Ah yes, twrb and gaius, the impending fiscal doom facing Social Security. The one that will not happen for forty years (worst case scenario), and won't happen at all if productivity continues to increase at anything close to the rate that it has over the past fifty years. Flap, chicken littles, flap! There are still people who don't think the sky is falling!

|12.17.04 @ 2:53PM|#

If you told the mob the truth, most would not believe you.

This is quite true. It took many conversations over an extended period of time to make my group of non-lib friends to understand this. The first conversation was spent trying to make them understand that there is no "account on file" for them with the SSA. It finally came down to me openly taunting them to call and ask for a balance before they believed me.

|12.17.04 @ 2:54PM|#

Keep inflatable Noam and pass me whatever you're smoking. Forty years, hahahahahahahaha. It won't last that long. Here come the baby boomers rounding third and heading for home.

|12.17.04 @ 2:55PM|#

Ah yes, twrb and gaius, the impending fiscal doom facing Social Security. The one that will not happen for forty years (worst case scenario), and won't happen at all if productivity continues to increase at anything close to the rate that it has over the past fifty years. Flap, chicken littles, flap! There are still people who don't think the sky is falling!

Wow. I actually thought that Joe was presenting a cogent side to the discussion. Then we get this. Please tell me this is some sort of attempt at sarcasm joe?

|12.17.04 @ 3:00PM|#

Correct. There's probably no harder welfare program to kill than one everyone expects to get a good cut from, people being people.

And the two fastest ways to gain support for the execution is making people understand that there will be no cut. Beyond that, the program is preventing them all from retiring as millionaires.

Once these two points are driven home and understood (I actually have a spreadsheet printout that explains the millionaire claim) people come around.

|12.17.04 @ 3:02PM|#

Twba, the CBO's own reports put the date at which Social Security outlays surpass payroll taxes at 2041. And this relies upon an assumption that productivity will only increase by 1.5%/year - much lower than the historic average.

I can see by the mocking I've disturbed a cherished myth.

|12.17.04 @ 3:03PM|#

Isn't what Friedman is saying is that we need to be patient and look at trends by using decades as the absolute minimum unit of time for meaningful measurement?

drf|12.17.04 @ 3:07PM|#

awesome.

smoking is banned in this neighborhood, per comment # 69 below. somewhere between defending apartheid and decrying gun control.

(i think i double posted. sorry)

|12.17.04 @ 3:08PM|#

Other things that have "broad support among the public".

The Death Penalty.

The war in Iraq.

The War on Drugs.

Parental notification laws for minors wanting abortions.

Restrictions on abortion (though not outright banning).

Teaching Creation "Science".

That's just a few, but enough to make me reject the Popularity = Validity equation.

|12.17.04 @ 3:09PM|#

RE Soc Sec,
Is the third rail fear of saying it was set up as a Ponzi scheme from day 1.

Hell, I'd go back to the Income Tax of 1913. It should not have been progressive.

Can no politician at least be historically accurate?

Thomas Jefferson had the Embargo Act of 1808. I'm still hopping mad about that too.

drf|12.17.04 @ 3:11PM|#

wasn't it bork that said something like that when people are repulsed by something (e.g., torturing kittens) that doesn't harm others that's why we make it illegal?

you know, we get rid of militias because 99.78% of us don't get why they want to run around in woods with guns?

issac, i'll have a mai tai. and pour yourself one. agreement.

|12.17.04 @ 3:18PM|#

Isaac, I'm not claiming that popularity makes a program right. I'm just refuting the idea that Social Security is somehow unpopular.

Captain, I don't think the myth of a fully funded trust fund is any more widespread than the myth of the program's immiment fiscal collapse.

The White Anglo Saxon Protesta|12.17.04 @ 3:27PM|#

The thing that tends to disprove joe's thesis right now is that Bush is able to even talk about and seriously propose partial privatization of social security. I'd like to see it go through, if only to give my little niece and nephew some hope for keeping more of their future earnings, and not having to fork them over to fund Uncle WAPSBie's lazy ass in his retirement years.


BTW: Thanks for all the well-wishes. Is it just me, or is H&R becoming civilized?

|12.17.04 @ 3:28PM|#

"the Concord Coalition was kicking serious ass"

I don't think I've ever seen those words put together in that manner, and I doubt I'll ever see it again.

"Oh, shit, it's Tsongas! Run!"

|12.17.04 @ 3:29PM|#

If only Clinton hadn't lied about banging an intern.

|12.17.04 @ 3:36PM|#

"The thing that tends to disprove joe's thesis right now is that Bush is able to even talk about and seriously propose partial privatization of social security."

He can only do so by positting a fiscal crisis that will eliminate the program, and selling his proposal as a way to save it. This hardly dispoves the idea that people want to preserve Social Security.

Happy Birthday, old bean.

|12.17.04 @ 3:49PM|#

Has that Magnificent Bachelor, Wasp, said how old he is?

Happy Birthday! And it's Friday too!

|12.17.04 @ 3:52PM|#

"He can only do so by positting a fiscal crisis that will eliminate the program, and selling his proposal as a way to save it."

I'm not so sure about that. You may be right.

...but then again, positing a short term crisis in order to avert a long term crisis isn't unheard of. And who's to say that privatization won't help us some with that long term fiscal crisis?

A portion (I understand it's actually the lion's share) of people's retirement investments go to treasuries. Soaking up some of that government debt isn't the perfect solution, but it's much better long term than than the present system which will only cause more of that crushing debt to exist.

Is it not?

|12.17.04 @ 4:05PM|#

People want an old age pension. Let's scuttle the SS Ponzi and give people what they want and name it Social Security. We all win, until some codger spends his life savings on Enron shares. I guess I better let politicians make all the decisions, because I can't be trusted with the money I earned.

The White Anglo Saxon Protesta|12.17.04 @ 4:07PM|#

joe -

""Oh, shit, it's Tsongas! Run!""

LOL, I know exactly what you mean, but you gotta love an organization that just chugs along, mostly out of the limelight, positing a very unfamiliar and largely unpalatable premise, that the country ought not to live on a credit card, and actually getting people to listen. Particularly one that doesn't drag a lot of other ideological baggage along for the ride. Sometimes, ass-kicking doesn't make much of a noise, especially when the asses in question are too fat and sassy.

I miss Paul Tsongas. One of the few Republicans of the past quarter century I've been able to respect, and a helluva swimmer.

BTW: The WASPB is 43 today, Ruthless.

The White Anglo Saxon Protesta|12.17.04 @ 4:09PM|#

Whoa! Error! I meant to say Paul T. was one of the few DEMOCRATS I've been able to really respect. See, that fiscal responsibility stuff can fool ya.

gaius marius|12.17.04 @ 4:10PM|#

Ah yes, twrb and gaius, the impending fiscal doom facing Social Security. The one that will not happen for forty years (worst case scenario), and won't happen at all if productivity continues to increase at anything close to the rate that it has over the past fifty years.

Twba, the CBO's own reports put the date at which Social Security outlays surpass payroll taxes at 2041. And this relies upon an assumption that productivity will only increase by 1.5%/year - much lower than the historic average.

mr joe, you misrepresent my argument. i said

social security -- massive government outlays in excess of revenues generally, in fact -- are a resounding success in the public opinion because the public don't understand them well enough to see the ultimate implications: total american fiscal collapse.

note that i did not say the collapse of social security. i said "american fiscal collapse".

CBO's estimates are what they are -- but they insist on maintaining the accounting charade that SSA is owed money by the treasury because it holds interest-bearing bonds. the government, then, owing money to itself, paying interest.

i concur that the government can continue to keep SSA's cash flow positive as long as it likes simply by allocating general fund money to SSA.

the question is whether or not the government can continue its obscenely negative cash flow -- not for forty more years, but four -- without sparking a meltdown in the dollar, treasuries and mortgage-backed securities.

|12.17.04 @ 4:12PM|#

"Whoa! Error! I meant to say Paul T. was one of the few DEMOCRATS I've been able to really respect. See, that fiscal responsibility stuff can fool ya."

Memory's supposed to be the second thing to go, isn't it ol'-timer?

The White Anglo Saxon Protesta|12.17.04 @ 4:18PM|#

Truer words were never spoken, Ken. Must go punish my error-ridden brain with a few black-and-tans, and a shot or two of the Glenfiddich.

Good evening, all. Keep up the good fight, whichever side you're on.

|12.17.04 @ 4:22PM|#

...Flap, chicken littles, flap! There are still people who don't think the sky is falling!

<offtopic>
Thank you for that sentence, joe. I'll have to remember it next time a Global Warming® discussion comes up. :-)
</offtopic>

|12.17.04 @ 4:32PM|#

"Point out that privatized retirement accounts will do better than Social Security, and for less cost."

It isn't satsifactory to "point out" something that is controversial -- you need a cogent argument. That's hard in this case, since the claim is false. Privatized retirement accounts are a boondoggle that benefits fund managers to the detriment of everyone else.

|12.17.04 @ 4:33PM|#

"I don't think the myth of a fully funded trust fund is any more widespread than the myth of the program's immiment fiscal collapse."

I don't know of anyone talking about an "imminent" fiscal collapse, but I know a lot of people talking about the Social Security Program as it's presently constituted triggering an inevitable fiscal collpase.

There are some who argue that we might be able to keep Social Security as is if we were able to grow the economy at a rate sufficient to support it, but those are the same people calling for drastic cuts in marginal tax rates. You're not one of those, are you?

|12.17.04 @ 4:35PM|#

"I'll have to remember it next time a Global Warming� discussion comes up. :-)"

LOL

That's a good one!

|12.17.04 @ 4:53PM|#

joe

I think everybody's agreed that SS is popular.

Of course it's POPULAR it's FREE MONEY. It's paying the tax that's not popular. To make THAT palatable they had to create the "trust fund" myth and pretend it's not a tax it's a pension fund contribution.

And of course SS is not "insolvent" now or in the future. All we have to do is raise taxes or borrow or both. (to apply a respectable concept like solvency to a scam like SS is inappropriate).

As gaius has so ably pointed out this will eventually lead to a fiscal meldown. Well I think it could as the pressure of high taxes and/or high deficits impact credit and equity markets.But, I'm not really such a pessimist, I have past so many of the "end of time" landmarks in my lifetime that I think this one will work itself out also.

And just to make it clear, I think W's "privatization" scheme is about as dumb as some of the other "privatizations" we've gone thru. (Prisons anyone?)

WASPB, many happy returns.

|12.17.04 @ 4:57PM|#

"...Flap, chicken littles, flap! There are still people who don't think the sky is falling!


Thank you for that sentence, joe. I'll have to remember it next time a Global Warming� discussion comes up. :-)
"

There are such people, but very few climatologists are among them. Ma Nature doesn't respect ideologies -- she won't give women diseases from breast implants just because that would be the PC thing to do, and she won't keep the polar ice caps from melting out of respect for free market dogma. Either human industrial activity is producing rapid climate change or it isn't -- it's a strictly empirical matter -- but the mere possibility is enough to undermine fundumental ideological tenets.

|12.17.04 @ 5:24PM|#

I posted this in Matt Yglesias' comments:

Americans who are fond of the welfare state become very indignant when you call a welfare program a welfare program. We intuit that we are getting something for nothing, and it makes us uncomfortable. Ask your grandparents if prescription drugs paid for by someone else is a welfare program.

Small government types try to get people to listen to their uncomfortable intuitions about welfare by calling a spade a spade. Big government types try to make people feel entitled to free stuff. The latter is an easier sell."

|12.17.04 @ 5:26PM|#

"Privatized retirement accounts are a boondoggle that benefits fund managers to the detriment of everyone else."

When you say, "the detriment of everyone else", you're absolutely right if by that you except taxpayers who don't need to fund the borrowing of paid out benefits, the companies which make use of privately invested funds and the retirees who get more than a one percent return on their money.

|12.17.04 @ 5:29PM|#

Even if social security funds never dry up, the concept of mandated federal savings is flawed.

If you want Uncle Sam to manage your retirement funds for you, that should be an option (not a federal requirement).

If you want Merrill Lynch to manage your retirement funds for you, that should be an option (not a federal requirement).

If you want to spend your retirement funds on lap dances and Harry Potter books, that should be an option, too. Why not leave yourself the choice?

|12.17.04 @ 5:33PM|#

If you want to spend your retirement funds on lap dances and Harry Potter books, that should be an option, too. Why not leave yourself the choice?

Can you do this at the same time?

|12.17.04 @ 5:38PM|#

Thomas Paine's Goiter,

I think that's what's known as a covered call.

...Maybe Ruthless will confirm that for us.

|12.17.04 @ 5:49PM|#

If you want to spend your retirement funds on lap dances and Harry Potter books, that should be an option, too. Why not leave yourself the choice?

Don't miss the gymnastic pole dancing, but the VIP room is overrated.

|12.17.04 @ 5:52PM|#

Any redistributive program will be popular so long as its beneficiaries outnumber its check writers.

What I don't understand is why anyone in their 30s who understood the nature of the deal they were getting would still support the current system. Of course the people who benefit from being able to shift burden think it is a great program.

Anthony Gregory|12.17.04 @ 6:09PM|#

The idea that the barrier to Bush rolling back government is a lack of political capital is absurd on its face. Here we have the biggest spending president since LBJ's and Nixon's guns and butter; a president who deceived Congress into passing the largest expansion of socialized healthcare since Medicare's inception, and, arguably, even larger than that; a president who has imposed protectionist tariffs on steel and other goods that make Clinton look like Adam Smith; a president who cynically promotes a man who considers the Geneva Conventions "quaint" into the position of America's top law enforcer; a president who has increased federal education spending by 50%; who has shredded the Bill of Rights in four years more the War on Drugs managed to do in the twenty years before him; who has racked up the largest deficits in American history; who has put people in prison for selling bongs, playing chess in violation of international trade laws, and telling fibs while not under oath about victimless stock-market behavior; who has detained hundreds or even thousands without trial or due process; who has never vetoed a single spending bill; who has signed campaign finance restrictions he used to say he opposed, only to later say he thought the unconstitutional parts would be struck down by the courts ? only eventually to complain that the law didn't effectively ban 527 ads altogether; who has increased farm subsidies more than any other chief executive in modern times; who has waged two terrible wars, one on obviously false pretenses; who has expanded non-defense spending at twice the rate of Clinton, all in cooperation with a Congress dominated by his own party; who has conflated the issues of drugs and terrorism; and who is turning America into a corporate-social-democratic-police-state.

The notion that Bush would shrink government if he only had the political capital is more absurd than thinking Clinton would have been more abstinent had he only had the sex appeal. Thank goodness Bush has no more political capital than he does, lest free markets and liberty perish from our country forever.

|12.17.04 @ 7:34PM|#

By the way, I hope no one misconstrues my comment as being some hatred or disdain for Friedman. I've been accused of "disrespecting" him in the past because I disagreed with his assessment of Reagan. It's his preference for Republicans I find unfounded, not everything he's ever said or done.

|12.17.04 @ 9:01PM|#

One reason that privitization runs into opposition around the world is that, as difficult as it is for *Reason* readers to believe, *sometimes* state enterprises work better than privately owned ones: http://news.independent.co.uk/uk/transport/story.jsp?story=594086 (Yeah, I know, the Soviet Union failed, so state owned services can *never* wotrk well. Somehow I think there's a non sequitur there...)

Tim Higgins|12.17.04 @ 11:16PM|#

David T.,

Unfortunately, Social Security (the topic of discussion here) is not an example of such a program. Bear in mind that the benefits of our SS program can be beaten with the same contributions and a 1.5% annualized return, or half the contributions with a 6% annualized return. I can't speak for anyone else, but I wouldn't be complaining about SS if I thought I was getting my money's worth.

|12.17.04 @ 11:31PM|#

Here's what I'm tryin' to say...

Let's say that over the years, you've accumulated 10,000 shares in XYZ Corp., and it's just sittin' in your SSA bustin' Bush Account. You could sell a call, or the option, but not the obligation, to purchase 10,000 shares in XYZ from you at a strike price, say, five bucks above market. Whether the call buyer exercises his option or not is neither here nor there. If the buyer does, you get five bucks more than the stock was worth when you sold the call. If he doesn't, you still hold the stock. So your original substitute for SSA investment remains intact in the form of either stock or cash.

...However, and here's the kicker, in addition to the dividends, you get to keep the cash that the seller paid you for the option. So, you can spend half your call sale proceeds on Harry Potter books, the other half on lap dances and still have your original substitute for SSA investment intact, but you can't do that with the money you're sending off to the SSA now.

|12.18.04 @ 1:51PM|#

Yeah, I know, the Soviet Union failed, so state owned services can *never* wotrk well. Somehow I think there's a non sequitur there

David, it's a simple fact that Social Security doesn't pay off as well as the same money would if it were privately invested. It's not even close. On top of that, under most circumstances the government gets to keep the money you've "invested" when you die, whereas with private accounts your heirs can inherit it. This isn't a matter of believing that private solutions are always better than government ones. It's a matter of accepting the simple, proven fact that Social Security utterly sucks as an investment.

The only argument in Social Security's favor is that it is "guaranteed". But it isn't guaranteed at all -- it is dependent on the stability of the government and the will of future generations to fund it.

|12.18.04 @ 4:07PM|#

Social Security isn't that hot as an investment because it isn't intended as an investment.

How I look at it: it's security for the society, you pay your 6.2% and what you get is a more stable society - that is there are fewer people with next to nothing.

The weak financially are better off and thus less likely to cause problems for society.

It's easy (for some) to say "Hey, bum, get a job" or "your investments didn't pan out so now you eat Alpo" or "if you wanted to be able to afford treatment for cancer you should've worked harder in an industry that showed more growth" but none of that solves either present or future problems.

Private retirement accounts help those who make good/lucky decisions but their gain is necessarily someone else's loss.

And the fewer people there are eating Alpo and 40s the less likely they are to cause problems for those who can afford steak and cognac.

|12.18.04 @ 9:21PM|#

"The weak financially are better off and thus less likely to cause problems for society."/i>

No they aren't.

Let's not forget; everyone gets paid out of the system relative to how much they put in. That is, the payout is a function of what you earned. When you've worked ten years, they send you a notice telling you that you're eligible and how much you'd get paid relative to how much you've paid in over the last ten years, and then they itemize your last ten years of salary for you--it's eerie.

People with higher incomes get paid out more money relative to people with lower incomes. But everyone gets about the same return on what they put in. This is where the actuaries step in. What you get depends on how long you (and your spouce) are likely to live.

People at the age likely to benefit most are only likely to get a 1.5% return on their investment. If they were forced to put their money in inflation adjusted bonds, they would do better than that.

People at the age likely to benefit least are likely to get a negative return on their investment. If they were forced to keep their money in a checking account, they would do better than that.

"Private retirement accounts help those who make good/lucky decisions but their gain is necessarily someone else's loss."

Good/lucky decisions can be taken out of the deal completely. If we limited people's contributions so that they could only invest in bonds that are rated (or bond funds that are comprised of) BBB+ or higher, not only would people get a better return on their money, but also it would take all those unfunded liabilities off of the books.

Please note that, on its face, I reject the idea that the government can make better decisions about people's financial future than people can themselves. If people use the money to pay off their mortgage, for instance, is that not a better investment than what Social Security provides?

In what way are assets in a private account necessarily someone else's loss? Unfunded SSA liabilities are necessarily someone else's loss, but assets in private accounts are the exact opposite of unfunded liabilities.

"And the fewer people there are eating Alpo and 40s the less likely they are to cause problems for those who can afford steak and cognac."

You're right. It's sad that well intentioned government programs drive so many of the elderly into poverty. I've been in some of those elderly homes where they put people who only have Social Security as income. If only the government hadn't robbed them all their lives, ...?

|12.18.04 @ 10:48PM|#

Ken Shultz,
You've frightened Jennifer speechless by suggesting each of us could write covered calls against our Social Security stash.

It oughta happen, but... maybe after we've gotten past Y3K? You envision a government and a Dubya much jiggier than Jennifer and I do.

|12.18.04 @ 11:48PM|#

Jiggy?...yeah, but, selling covered calls is less risky than holding the underlying stock...and sellin' insurance to short sellers is historically a good business... ; )

Actually, the question was posed as to whether you could spend your retirement money on Harry Potter books and lap dances and still have a way to fund your retirement, and so, half-tongue-in-cheek, I suggested covered calls. I was really kinda-sorta kiddin'...

I expect any plan that passes (and I expect Bush's plan to go the way of Hillary Care), to place a limit on the kind of investments allowed. Also, I'd expect there to be some old fashioned net for the extremely low income elderly, just sufficient to pay for a stay at a board and care--I believe Medicare already covers that for sick people. (I wasn't kiddin' about havin' spent some time in those old folks warehouses; many of them are awful.)

I'd still argue that private accounts, while by no means perfect, are much better than Social Security as presently constituted for myriad reasons including, but not limited to, the possibility that one day, people might be allowed to make some rational choices about what is done with their own savings.

For some people, the most rational thing might be to pay off their mortgage, in a place like LA, rent out their house and move to a sun belt state with a low cost of living.

Eventually, they have to let people do what they want with the income from their account anyway, right Jennifer? In the system we have right now, there's nothing stopping retired people from using their Social Security checks to meet margin calls, is there?

|12.19.04 @ 2:57PM|#

With SS, you have current recipients and those wishing to politically exploit their fears, lobbying to maintain the status quo in an obviously unsound program.

|12.19.04 @ 4:14PM|#

Rick,

No worries. Joe told me that SS is fine for at least another 40 years. First thing Monday morning, I'm emptying my IRA and going crazy for Christmas. Santa's got a brand new bag.

|12.20.04 @ 9:11AM|#

"People with higher incomes get paid out more money relative to people with lower incomes. But everyone gets about the same return on what they put in."

Well that's not exactly true. Higher income people get paid more on an absolute basis but not a relative one. The SS benefit formulas are "progressive" in that those lower on the income scale get a higher payback relative to their FICA contibutions (and the employer match) than do those on the higher end of the income scale.

So from a return on investment perspective, those on the lower end get a higher return rate than those on the upper end.

Of course that would only hold over time if the lower income person lived as long as the higher income person and was able to collect benefits over the same time frame - as you pointed out.