Prescott on Social Security
By Arnold Kling
2004 Nobel Laureate Edward Prescott does not care for paternalism.
let’s begin by dismissing the notion that individual savings plans are somehow dangerous to U.S. citizens. Some politicians have vilified the idea of giving investment freedom to citizens, arguing that those citizens will be exposed to risks inherent in the market. But this is political scaremongering. U.S. citizens already utilize IRAs, 401Ks, PCOs, Keoghs, SEPs and other investment options just fine, thank you. If some people are conservative investors or managing for the short term, they direct their funds accordingly; if others are more inclined to take risks or looking at the long run, they make appropriate decisions. Consumers already know how to invest their money — why does the government feel the need to patronize them when it comes to Social Security?
…Further, about two dozen countries have reformed their state-run retirement programs, including Chile, Sweden, Australia, Peru, the U.K., Kazakhstan, China, Croatia and Poland. If citizens in these countries can handle individual savings accounts, especially citizens in countries without a history of financial freedom, then U.S. citizens should be equally adept. At a time when the rest of the world is dropping the vestiges of state control, the United States should be leading the way and not lagging behind.
Prescott argues that the benefits of private accounts would be that they reward work and thrift, while Social Security punishes work by taxing wages and punishes thrift by redistributing income from savers to those who do not save.
For Discussion. Which arguments against privatization do you find most persuasive?