Forced Savings vs. Social Security
By Arnold Kling
Brad DeLong endorses privatized Social Security, if what you mean by that is forced savings.
Too many households are myopic: they do not save enough. Households resist increases in Social Security taxes–they see no link between the taxes and their future benefits. But if Social Security were privatized so that households saw their Social Security contributions as their own, in the future there would be much less objection to upping the contribution rate–and so creating a real and more effective forced saving program to raise the national savings rate.
…privatization is a necessary first step to create the possibility of doing the moral thing–making the boomers build up the assets needed so that they can shoulder a greater share of the burden of financing their own retirement.
We need to raise our national savings rate. But if we just raise Social Security taxes, Congress will treat these taxes as general revenue and spend them.
He also agrees with my Ultimate Lockbox argument. Brad writes,
At present, your Social Security benefits are yours only by grace of Congress: Congress could cut them if it wished. But if your privatized Social Security account were *yours*, then it would be yours not by grace of Congress but by right of property: courts would stand ready to defend it against any casual attempt to cut or confiscate it.
Reflexively, Tyler Cowen disagrees.
I wish to privatize many things, but forced savings is not one of them.
Most of all, I am worried about the fiscal implications of this privatization. Current plans need not, in the long run, cost us any money, as Arnold Kling reminds us. But they do require a big tax increase in the short to medium run.
No they don’t. The government could borrow the money, and shift the burden into the future, just as it does now. I’m not saying that’s the right thing to do. I’m just saying that it can be done, if you don’t want a huge short-term tax increase.
Tyler goes on:
So let’s push for means-tested benefits, and hope that social security slowly but surely shrinks and evolves to a welfare system for the needy elderly. It should not be a stranglehold over every mainstream employment relationship.
I would argue for the forced savings. First, let me point out that from a purely libertarian point of view, we are arguing over second-best sorts of solutions. As Robert Barro once pointed out, second-best tends to be a rationale for “anything goes.”
I believe that the need for saving has grown tremendously over the past century, primarily because the lifespan has lengthened and more medical care for the elderly is available and desired. I don’t think that as individuals or as public policy advocates we have come to terms with this increased need for savings.
Also, we have very different propensities to save. Given the huge need for savings, what this could lead to is a world where the savers subsidize the spendthrifts. I don’t think it’s fair that if I consume temperately and save carefully for future contingencies that I should then be viewed as a “soft target” for soak-the-rich tax policies. I want to force other people to save, so that they do not come whining to me (or to the government) when they don’t have money to pay their health bills when they get older.
For Discussion. Which current government policies do the most to discourage thrift?