New at Reason

Julian Sanchez | February 4, 2005

Democrats are right, says Jacob Sullum: We don't need private accounts to save Social Security—they're just a good idea.

Comments

|2.4.05 @ 11:39AM|#

[Social Security] may not be financially bankrupt, but it is morally so.

Succinct and spot-on.

dude|2.4.05 @ 11:43AM|#

how is borrowing billions to finance these private accounts a "good idea" or even a libertarian one?

|2.4.05 @ 11:52AM|#

Reason was flogging the "Impending Doom for Social Security" crisis as hard as anyone up until about a month ago. What happened?

Seriously. As a Democrat, I don't have a great deal of experience in seeing my side actually win an argument, and I'm not sure how such a thing actually works. Did the Reasonoids' understanding of the program's fiscal position actually change as a result of the dialogue that's going on, or were you aware that your doom and gloom was phoney all along, and just recently decide that the window had closed on that gambit?

|2.4.05 @ 11:54AM|#

How is government investing 2 trillion dollars in the financial markets a libertarian Idea?

Though the accounts will have an individuals name associated with it, that individual gets no meaningful say in where that money is invested or how it is managed. At best he will be given a choice of collumn A or B or options the government considers "safe". The opportunity for fraud and corruption in such a system boggles the mind. Essentially this plan makes government the largest player in the market they themselves regulate.

The truly Libertarian way of doing this is to lower taxes and allow people to voluntarily save for retirement themselves. Bush's plan actually expands the role of government into the private sector

MP|2.4.05 @ 11:59AM|#

Jacob's article restates the same "doom and gloom" point that us reasonoids have been stating all along. I don't see the inconsistency.

|2.4.05 @ 12:13PM|#

Maybe the point needs to beaten and beaten and then whipped some as well...
Just what the hell is private about "investing" in government regulated funds?
This not a deduction of SS taxes to stimulate true private investing. This simply a system that allows the government to continue TAKE our money and then allow THEM to play the stock market with it!
Its insane!
Im not an economist but I cant see this a being ANYTHING but a HUGE expansion of the role of the Feds. I mean HUGE, people!
Seriously, raise your hand if you think having washington manage TRILLIONS of dollars in private markets is a good idea.
yikes.

|2.4.05 @ 12:26PM|#

Joshua is right on...

And, as someone who actually works with elderly and disabled living mostly on SS I hate to think where most of these people would be if SS were not there. It was created in the first place so there wouldn't be destitute elderly people.

If we were a society in which mutual aid was a more of a reality maybe I wouldn'thave to fear the prospect of millions of elderly people without help or resources.
Unfortunately, at this point, that's not the case.

|2.4.05 @ 12:27PM|#

Joe - the blogosphere showed up the MSM for the fraudent bunch of hacks they are, unquestioningly repackaging Bush's talking points, by digging up the real truth about SS and this phony "crisis".

(In a parallel universe Bizarro Instapundit just posted that).

What problems SS has (from an accounting standpoint) seem rather easily fixed. I'm puzzled why Bush picked SS as The Big Issue for 2005.

|2.4.05 @ 12:31PM|#

Jacob brings us back to asking which is the better stratagy for ending a bad policy: 1. incrementalism or 2. Screaming that "this just ain't right!"
Put me down for 2.

Mike|2.4.05 @ 12:34PM|#

I'm puzzled why Bush picked SS as The Big Issue for 2005.

So the GOP can continue running on the same things they've been running on for 20 years: flag waving and fornication.

|2.4.05 @ 12:52PM|#

Not sure of the final form of the reform (is anybody at this point?), but having the Fed divert it into funds of their choosing seems like a bad idea. If we get to divert some percentage of FICA into 'private' accounts, I think it should be something like x% is diverted into your current work or personal retirement plan - not invested by the Fed.
-K

|2.4.05 @ 12:56PM|#

In the important field of security for our old people, it seems necessary to adopt three principles: First, non-contributory old-age pensions for those who are now too old to build up their own insurance. It is, of course, clear that for perhaps thirty years to come funds will have to be provided by the States and the Federal Government to meet these pensions. Second, compulsory contributory annuities which in time will establish a self-supporting system for those now young and for future generations. Third, voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age. It is proposed that the Federal Government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans.

A direct quote from FDR address on January 17, 1935. I interpret this statement to mean that St. Roosevelt assumed that the old age pension component of Social Security would have been privatized decades ago.

|2.4.05 @ 1:00PM|#

This is probably the right time to bring up the fact that Libertarian philosophy tends to embrace a false theory of human nature. Humans are not fully-rational utility-optimizing machines. We're not homo economicus. Instead our psychology operates on certain heuristics that were adaptive in the environment of human evolution, but which lead us astray in contemporary environments. For example, people have an "irrational" tendency to spend rather than save. This makes sense for a primate that doesn't know what the next day will bring. But it also makes it very unlikely that people will save for their own retirement if we merely leave them alone. In the context of this understanding, limited paternalism--to correct for deficits in human reasonability--doesn't seem like such a bad idea to me.

|2.4.05 @ 1:01PM|#

it's also an excellent reason not to engorge gov't further - since they seem to be run by homo economicus thievius maximus.

|2.4.05 @ 1:17PM|#

Rikurzhen, Limited paternalism is what the system already is. I can accept that many people will not save for themselves, and will throw themselves at the mercy of the SS system when they retire, even though saving now is in their best interest.

The welfare state will always exist to help these people out. Society accepts a certain degree of paternalism as a necessary evil. This is besides the point however, and says nothing about whether Bush's "private" savings accounts are actually reform.

b-psycho|2.4.05 @ 1:30PM|#

Figures. The one issue other than tax reform which I could even remotely find common ground with Bush on, and he throws a huge monkey wrench in it. If this Pseudo-privatization statist appropriation of our money batted about turns out to be the actual "reform" plan then even I will oppose it. The government having control over our "accounts" defeats the entire damn purpose of adding personal accounts at all, their involvement is the problem with the entire system.

The willingness of the GOP to toss out true free-market principles in favor of corporatism grates at me like hoochie fingernails scratching against a chalkboard...combined with the sound of a jackhammer, an air raid siren, and pots & pans being smacked against each other...behind microphones all hooked up to the sound system of Madison Square Garden....egads.

|2.4.05 @ 1:32PM|#

Joshua, granted, but it does address the assertion that:

There is no getting around the fact that requiring people to save also involves the use of force, but this sort of paternalism seems preferable to the predation at the heart of the current system.

Here "force" and "paternalism" are buzz words and are intended to be a bad thing for society.

Likewise above, the commentary is about 1. incrementalism or 2. Screaming that "this just ain't right!"

My claim is that these POVs are misguided, and that the goal of eliminating forced savings is a bad idea.

Private accounts will live or die on their own merits in that context.

|2.4.05 @ 1:33PM|#

it's also an excellent reason not to engorge gov't further - since they seem to be run by homo economicus thievius maximus.

rock and a hard place? maybe, better of two evils?

|2.4.05 @ 1:36PM|#

"...homo economicus thievius maximus."

Haha...Is that latin for "politician?"

b-psycho|2.4.05 @ 1:41PM|#

rock and a hard place? maybe, better of two evils?

Which one is better: each person who is not homo economicus being free to screw up on their own, or having a select few humans who are also not homo economicus entrusted w/ a degree of power that only homo economicus could possibly use properly & screw up for millions, even for generations who aren't born yet?

Sounds like an easy choice to me...

|2.4.05 @ 1:44PM|#

"The willingness of the GOP to toss out true free-market principles in favor of corporatism"

I'm going to make my pitch for the Whorf-Sapir hypothesis, which states that the language one uses determines how one perceives the world.

Let's say there are four inputs into the economy - capital, labor, technology, and natural resources. If I spoke about "labor-ism," you'd all immediately recognize that I was talking about a politics designed around protecting the interests of labor. Ditto with "techologyism," and especially "natural resource-ism.

But somehow, you've allowed yourselves to be hoodwinked into believing that "capitalism" is not a politics devoted to protecting the interests of capital (and its posessors), but a studied neutrality among the various interests in the markt, a politics built around freeing the market. Hence, again and again and again, economic libertarians are fooled into believing that the Republicans support free market economics, rather than supporting the interests of capital.

I'm sure there have been similar dynamics on the left side of the fence, perhaps explaining mid-century liberals' flirtation with communism. But at this time in history, it seems to be the capitalists who are taking liberals (in the old, broad sense) along for a ride.

b-psycho|2.4.05 @ 2:01PM|#

somehow, you've allowed yourselves to be hoodwinked into believing that "capitalism" is not a politics devoted to protecting the interests of capital (and its posessors), but a studied neutrality among the various interests in the markt, a politics built around freeing the market. Hence, again and again and again, economic libertarians are fooled into believing that the Republicans support free market economics, rather than supporting the interests of capital.

Because they've hijacked the term and redefined it. If capitalism is what the GOP tends to say it is, then I'd assume that most of us here are against it.

They campaign as if they support a free-market but really just support whatever keeps money in the hands of people they like. It's a clever bait&switch if I do say so myself, to attribute any gains to the market no matter how big a lump of neo-tribalism is really responsible.

Now, how to do anything about it...that's the problem.

b-psycho|2.4.05 @ 2:06PM|#

BTW: I never believed that the GOP's reason behind social security reform was actual reform, only that by a fluke it could be a first step towards making the system irrelevant enough to end in the long run. I posted about that here.

|2.4.05 @ 2:27PM|#

"you've allowed yourselves to be hoodwinked into believing that "capitalism" is not a politics devoted to protecting the interests of capital (and its posessors), but a studied neutrality among the various interests in the markt, a politics built around freeing the market. Hence, again and again and again, economic libertarians are fooled into believing that the Republicans support free market economics, rather than supporting the interests of capital."

That's why I like the term "free-market" much better than "capitalism." It's been less-corrupted than the word capitalism has been. What the republicans preach is state capitalism not "pure" or "radical capitalism" (to steal a phrase from David Friedman).

PintofStout|2.4.05 @ 2:34PM|#

SS should be called what it is: another form of Government Security. The more the government makes people reliant on it (through that "limited paternalism"), the harder it is to live without it (so we are meant to believe).

And by saying that people don't save, which didn't seem like too big a problem before SS, is like burning someone's house down and then accusing them of not being fire-safety conscious.

It's so much easier to identify the problem when you created it in the first place!

|2.4.05 @ 2:36PM|#

I will try to respond to Joe's earlier point about whether libertarians have changed our tune or not:

We really don't think it's fair that the baby boomers are going to suck the life out of everyone currently under the age of 40 in order to pay for their retirements. We still don't think it's fair. And we really believe that private investment in the stock market is better than current social security investments, which more or less equates to investing in a democratic Iraq.

What is happening, and this is a horse you've been flogging for a while, is that system we envisioned when we imagined "social security reform" is so radically different than the picture that is currently emerging than now it seems that the current draconian system is better.

Thought process, for me at least, was something like: Social security is horrible, and needs reform. Then, after seeing ideas for reforms: maybe it's not so bad after all.

|2.4.05 @ 2:41PM|#

"Seriously. As a Democrat, I don't have a great deal of experience in seeing my side actually win an argument, and I'm not sure how such a thing actually works."

Yeah - and your side hasn't won this one either.




" Did the Reasonoids' understanding of the program's fiscal position actually change as a result of the dialogue that's going on, or were you aware that your doom and gloom was phoney all along, and just recently decide that the window had closed on that gambit?"

The only thing that's phoney is the social security "trust fund". The SS sytem fiscal problems are real.

|2.4.05 @ 2:43PM|#

I got my Doom & Gloom back in 1998 from Bill Clinton, thank you very much.

|2.4.05 @ 2:45PM|#

PintofStout, what was the average lifespan of an American before SS? What is the average lifespan today?

Unless the problem you're referring to is longevity, then I think you're barking up the wrong tree. The evidence that people tend not to save--i.e. plan for long term futures--comes not from the example of SS, but from psychology research.

|2.4.05 @ 2:52PM|#

From my perspective,
I can't really tell you the big math, or the full political ramifications. But from my perspective social security as it is now is bull shit.

I havent looked at my pay stub lately, but back when I made very little, a huge chunck was taken out, and labeled as a social security payment, which it wasn't. It was a tax, because it was used at will by polititians, and if I died the next day it would not go to any relative of mine. So it was basically a huge payroll tax.

Those who collect social security are on welfare, they are not collecting on something that they have paid into. If someone comes from china and gets his citizenship, he can recieve social security without having paid a dime into the trust fund.

social security payments are welfare, and they go to everyone regardless of how much they make.

So there I was making less than 20,000 a year and I was paying welfare on some rich guy. I make a lot more now, but I am still paying for someone a lot richer than myself. Though it is still bullshit even if I pay for someone poorer than myself, because it is my damned money.

So I have to support the president on this. We are still forcing people to pay for their retirement, ok. But at least it is going to be THEIR retirement now. If I am correct they get to pass the balance not spent to their relatives.

Maybe his idea isn't perfect. Maybe what your money isn't being invested in aint perfect. But it is your money for christ sake. God bless him for trying at least to recognize that.

PintofStout|2.4.05 @ 2:54PM|#

psychology that probably stems from a false sense of security provided by the government. "Why do I need to save? The government will give me my check when I retire."

Was there a minimum or impsoed retirement age before social security? If there was, life span would be relevant.

PintofStout|2.4.05 @ 2:56PM|#

*imposed*

sorry.

|2.4.05 @ 3:22PM|#

Economists tend to think people don't save as much as they should, because they see people save less than economic theory predicts they would, if they were rational. Market failure theorists often point to examples like sub-optimal saving as evidence that people are irrational.

But irrationality implies that a person will do something that is not in his best interest. Putting aside the question of addiction, I really have a hard time believing people act this way. The fact that economists (or polititians, or whoever) can't figure out why people do certain things, only proves that our predictions were based on bad assumptions. For example, if someone thinks he'd be better off working until he's 85, he'll end up saving much less than economists would predict if they assumed retirement at 65.

BUT. Even if we take as given that people will act rationally, what do you think would happen if the Social Security system was scrapped? I would guess that a rational person, in today's United States, would believe that a future government would gladly bail them out in thirty years, if they didn't save enough and could no longer work. Taking this into account, people would rationally save less than they would if the government could somehow make a credible promise to let them starve, later on in life -and I just don't see that as a possibility, nowadays.

|2.4.05 @ 3:31PM|#

kwais,
I think most people are fine with the principle of reform SS, but the problem is all indications (even if you skip WaPos incorrect article yesterday) is that the solution will be worse than the problem. The best we can hope for is to trim it down into a mere welfare program for the poor instead of an immorally taxed welfare program for senators (by this I mean it helps them cover their asses for going way overbudget) and crappy redistribution of cash. Ideally you'd means test the hell out of it and let people invest their own money. The proposals I've heard are going to be very expensive and will end up putting another level of beauracracy on top of the current one, which will make things worse.

I agree with b-psychos assertion that this is a means to kill SS in the long run, which is a laudatory goal. However, as we all know, government programs don't die, they usually grow. Especially ones that benefit the elderly.

|2.4.05 @ 3:33PM|#

If someone comes from china and gets his citizenship, he can recieve social security without having paid a dime into the trust fund.

Actually, kwais, you have pay the payroll tax for forty quarters (ten years) to collect SS. Jennifer commented on this yeaterday. Forty quarters minus one pay period and you get nothing.

Not disagreeing with anything else you said, just straightening out one of your facts.

The only people I know of who qualify for SS without making FICA payments are WWII veterans who do not qualify for a military pension. And they get a very small payment, and there are not very many.

|2.4.05 @ 3:50PM|#

The evidence that people tend not to save--i.e. plan for long term futures--comes not from the example of SS, but from psychology research.

It seems an awful lot of people put an awfwul lot of money into 401ks and IRAs. Is that not saving? True, not everyone has access to 401ks, but the participation rates among those who do is quite high.

Most people will save, if there is a good reason to do so.

|2.4.05 @ 3:53PM|#

I started stashing moolah in an IRA when I first got the opportunity. I knew way back then that SS would crash and burn.

|2.4.05 @ 4:04PM|#

Guess I should have posted this here instead of emailing Jacob Sullum:

Mr. Sullum,

I am generally impressed with the candor and independent thought which mark the pages of Reason, but was discouraged by your article "Saving Graces" today, February 4. While I agree with your view that Social Security, as an entitlement program, is an unacceptable use of
government's power over the citizen, I am troubled by the suggestion that the Democrats' "complaint about the president's description does not get them far".

That the ends of dismantling Social Security are worth the means of baldly misstating the facts of its current situation is absurd; to see on the pages of a magazine which praises the free market the suggestion that not only this dissembling is acceptable, but that forced "personal accounts" are a better way to go, was quite a surprise. One cannot help but wonder how the idea of a forced
retirement account is more palatable when the money is still under the government's lock and key.

Further, if the underlying problem with Social Security is the "trust fund" (the idea of a gerontocracy notwithstanding), then that underlines a problem with our fiscal discipline in general, not just with Social Security.

Just thought I'd pass along my two cents.

Rich Ard

|2.4.05 @ 4:55PM|#

Honestly, I think you're better off arguing for privatization on the philosophical merits.

Although it puts you on the wrong side of public opinion (for now, anway), at least it is not demonstrably at odds with the facts, like the "social security crisis" argument.

So...are any Bush supporters starting to realize why it wasn't a good idea to deliberately mislead the public on the WMD threat?

|2.4.05 @ 5:15PM|#

Right joe, hold on tight to those paradigms.

|2.4.05 @ 5:51PM|#

Honestly, I think you're better off arguing for privatization on the philosophical merits. Although it puts you on the wrong side of public opinion (for now, anway), at least it is not demonstrably at odds with the facts, like the "social security crisis" argument.

Public opinion thinks I have a guarantied account containing all SS tax confiscated from my paychecks.

SuperPresident Clinton warned seven years ago about "the looming fiscal crisis in Social Security." On Feb. 9, 1998, Mr. Clinton delivered a speech at Georgetown University devoted to "sav[ing] Social Security for the 21st century."

Who are going to believe, Bush or Clinton?

gaius marius|2.4.05 @ 7:17PM|#

ideology aside -- which is to say the entire notion of privatization aside -- i haven't seen anyone mention the numbers behind this.

we're all aware, are we, that the privatization plan detailed by the white house through wapo means a 27% reduction in benefits for a 1970 baby -- and that's if their private account actually accrues at a real 4.6% annualized? and a 50% reduction for a 2000 baby?

and god help you if you make some unfortunate decisions with your account....

i can't help but think this looks to me like a program designed to phase out SSA, not save it -- and give wall street a way to collect billions in transaction and administrative fees in the process.

|2.4.05 @ 8:48PM|#

Ya think?

|2.4.05 @ 8:57PM|#

Hear Hear, gaius marius; what we are being presented with is a proposal for another step towards corporate oligarchy, not something which would either benefit the citizens of this country or "save Social Security".

A quick take from Paul Krugman:

"While it's true that you can improve Social Security's finances with privatization, as long as you also slash benefits - just as you can kill a flock of sheep with witchcraft, provided you also feed them arsenic."

b-psycho|2.5.05 @ 1:22PM|#

Ummmm...Gaius? Of course it's a plan for phasing out Social Security, that's why many of us initially liked the idea (before the completely retarded details came out).

I wish that politicians told the truth, but they don't. If anyone running for office or re-election were to come out & directly say "Social Security is an utter fraud that mainly exists so that we can paper over holes in the budget from our ridiculous spending, and despite the conventional wisdom you will all be better off in the long run when it does not exist for Congress to steal from", they would be lucky to even get 15% of the vote. Why? Because no one looks at the numbers that prove it, and people vote based on emotional appeals -- "they want to do away with social security? What an evil, EEEEEEVIL man! He wants Grandma to starve to death so that he can buy another Porsche!"