Social Security Privatization: History of an Idea
By Bryan Caplan
Yesterday’s Washington Post had a fascinating history of proposals for Social Security privatization. Admittedly, it’s probably more fascinating to me than to most people, because I know most of the people mentioned in the article! Some highlights:
Twenty-five years ago, Peter J. Ferrara was a Harvard Law School student with what he called “the craziest idea in the world.” In a paper he wrote before graduating, he suggested converting the government-run Social Security program into a web of private investments.
The paper caught the eye of Edward H. Crane, a former head of the Libertarian Party who had recently started the Cato Institute, which has a stated mission of encouraging “limited government.” To him, Ferrara’s idea wasn’t crazy at all, but a way to challenge Washington’s largest and most revered social program.
Crane, Ferrara and the business interests that have become the effort’s primary financial supporters are at each other’s throats over how to structure and promote the accounts.
“Ed Crane and I don’t talk anymore,” Ferrara said. “Cato wants to get rid of the entire Social Security system, and I don’t.”
Cato’s privatization effort was aimed from the start not just at dismantling Social Security but also at making major inroads against what it considered an overweening central government. “Social Security,” said David Boaz, Cato’s executive vice president, “is the linchpin of the welfare state.”
To Cato critics like the Brookings Institution’s Henry J. Aaron, Cato’s goal was to “topple the great monument of 20th-century liberalism.”
[Ferrara] also scolded his former colleagues at Cato. “They are misreading public opinion if they think people want a laissez-faire, tear-it-down system.”
My take: Ferrara is right about public opinion, but Cato is right to want to topple Social Security. If you don’t have the common sense to save for your own retirement, you shouldn’t come crying to the taxpayers when your hair turns gray. (Like I said, unlike Arnold Kling, I’m no Bleeding-Heart Libertarian).
This does not mean, however, that the half-measure of letting tax-payers divert their funds to a private account is a bad idea. Not only does it expand our choice set; it may also push “the great monument of 20th-century liberalism” down the slippery slope to abolition.