Social Security Incrementalism
By Arnold Kling
Allowing private control over retirement money that would otherwise go to the Social Security bureaucrats in DC is no different than what we have long had with IRA, 401(k), 403(b) and other personally controlled savings plans. I have seen clients with well over a million dollars in real assets in these accounts. This growth, which is well beyond the value of all of their future Social Security benefits, was almost always through investments in assets that opponents of change are now equating with a pull of a slot machine handle. This is a far cry from the doom and gloom scenario that AARP and their Fellow Travelers on the Left are portraying over the “risky” future ahead for people who are allowed to earmark a small portion of their Social Security taxes.
So, while my ultimate goal is to allow people to control every dime of their own retirement money, I am supporting the current Bush administration proposal to allow workers to earmark a portion of their Social Security taxes for investments that they can decide on and have full ownership of, especially after they pass away. This would be a very positive first step in the right direction.
In my latest essay, I am willing to support an even weaker form of incrementalism.
A number of key former members of the Clinton economic team, including Gene Sperling, Laura D’Andrea Tyson, and J. Bradford DeLong, have come out in favor of personal accounts as an addition to, rather than a partial replacement for, Social Security. The term for these personal accounts is “Social Security Plus.”
If I were an adviser to President Bush, I would suggest that he embrace these Clinton wonks and say, “Sold!”
…if proponents are correct and personal accounts are a winner, it seems likely that happy personal account owners under The Plus would press for expanding personal accounts to replace some or all of their Social Security.
Another left-leaning wonk who likes Social Security Plus is Edward Gramlich. Although I do not agree with his views entirely, he emphasizes a number of points that I have been making. For example,
People in my grandfather’s generation who got to age 65 paid into Social Security for 40 years and got benefits for about 10. People in my grandson’s would collect benefits for more than 20 years. As life expectancy increases, the disparity gets increasingly unfair across generations. An easy way to restore fairness and to make a huge impact on the actuarial deficit of Social Security is to have the retirement age go up in line with overall life expectancy — in an automatic way so Congress wouldn’t have wrenching decisions every few years.
I recommend reading the entire Gramlich Q&A.
UPDATE: In case you were thinking, as I was, that Social Security Plus was a wonk-only proposal, with no support from elected Democrats, it seems that Senator Feinstein (Ca) has spoken in favor, stimulating some wary responses from Russ Roberts and from Don Luskin, the latter at the new Social Security Choice blog.
For Discussion. Would Social Security Plus (private accounts as an add-on rather than a carve-out of Social Security) be likely to increase national saving, as Gramlich believes, or would it be offset by other actions people take with their balance sheets?