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In other words, why support private accounts and not, say, increased Roth IRA limits? I'd rather be able to put more money in a Roth than have a so-called private account that I don't really control. And I'd certainly accept lower SS payments for the opportunity to control more of my own money tax free.
All types of liberals can support a social minimum. As Samuel Freeman makes clear in his article "Illiberal Libertarianism" (which you've referenced on this blog), classical liberals (Hayek, Friedman, etc) and high liberals (Rawls, Dworkin, etc) support a social minimum.
So what's the problem? Does it really matter if social security is or isn't an insurance program? As long as social security accomplishes the goal of creating a social minimum for the elderly, I see nothing fundamentally wrong with it.
The classical liberal counter is, of course, that family and civic associations should provide for the social minimum rather than the state. I can only say that I think this counter is rather implausible on empirical grounds, although this point is to complex for me to substantiate here.
An insurance scheme is a form of wealth transfer from the statistically typical to the statistically atypical. Social Security works the same way for disability, survivor benefits, and extreme longevity. Typically, what you get out of the program depends on what you put into it-- i.e., how long you worked and how much you earned. However, some statistical outliers get back far more than they put in. This isn't charity, this is insurance. People don't participate in insurance schemes because they want to help other people, they buy in because it's in their best interest to do so.
Private insurance operates on exactly the same principle. Most people with fire insurance never collect any benefits. They just keep paying premiums year after year to subsidize the handful of others whose houses burn down. But it's rational to buy a fire insurance policy, even if you know that you'll probably lose money for want of a fire. Insurance is valuable for beneficiaries and non-beneficiaries alike because it insulates against catastrophic risk.
Using the same annuity calculators that have been used to trash SS lately, at your age, you would have to make an investment of over $300,000 to get such an annuity from the private sector...how is this part of SS not insurance?
It seems to be only the pointy-headed academic types who can't see that SS is part insurance, part retirement account. Average Americans have no problems recognizing this fact.
Will someone explain to me why we can't just provide a social safety net for the elderly without all the retirement account pretense?
I understand that there is some moral hazard involved in discriminatory benefit allocation, but surely not enough that it worth forcing everyone to participate in this farce.
I must be missing something.
Forget social security. Forget government. Imagine an anarcho-capitalist utopia.
You have two options. One is to pay $X per month into a diversified mutual fund with an expected return at 65 of $5 million.
The other is to pay the same per month to a pension company with a guaranteed benefit equal to an annuity equal to what we expect $5 million will buy the year you turn 65. You can be confident about the solvency of the pension company during your lifetime.
A rational person would pick the second option. That is because the pension company takes on the risks Elizabeth Anderson mentions. These risks are ones normal people are averse to.
For that reason, it is rational to pay somewhat more than $X per month to get the second option. That increment is, in effect, an insurance premium. Social Security adds disability insurance and a death benefit.
So Anderson is right. The calculators, to make a fair comparison, would have to provide a market price for "defined benefit" insurance, disability and death insurance premiums from an entity with long-term financial stability comparable to the US Government.
And monkyboy is correct that the great American people understand this. There are lots of options if you want to invest for your retirement and are prepared to live with these risks. There is no other purveyor of equivalent insurance.
SS may have further redistributory effects, but this is not why it is broadly popular, although as a social democrat, I don't have a problem with them.
So the calculators are pointing out to people the sorts of expected returns they could get if they were willing to take a moderate degree of stock market risk. Not a very high degree, really, given the historical consistency of average stock market returns over 30-40 year periods. But perhaps a somewhat higher risk than SS, yes. So what? It's still pointing out the legitimate possibility of a benefit to people who might rationally prefer that benefit to what they can get now.
Besides which, you (and Lindsay) are missing a key point of Will's: Congress could abolish SS tomorrow without violating any enforceable contractual obligations to anyone. When you buy private insurance, you create a carefully specified contractual obligation on the part of the insurance provider in return for your premium payments. This obligation persists unchanged as long as you pay that premium; no majority vote can abrogate it. SS does not and cannot give you that.
Insurance companies frequently go bankrupt. Last year's four hurricanes was no picnic for them. As usual, it is the US government that steps in and covers the policies of these insurance companies that go out of business.
On a side note, only insurance companies are allowed to issue annuities. And the US govenment backs them, too...
Considering the name of your blog, what do you think Wittgenstein would say about these debates over rhetoric?
My mutual fund is a lot more like insurance than SS in that there there is a legally binding contract. And AS insurance, dollar for dollar, my well diversified 401k mutual fund would more reliably shield me against various kinds of risk than SS.
SS isn't remotely like insurance. And predicate nominalism is false. Calling a cat a lamp doesn't make it a lamp.
This is not clear at all. It is false. If the purpose of social security were to create a social minimum, it would be means tested. Only poor old people would be able to collect. This is not the case. Instead, all of us are forced to save in order to pay for our own retirement, regardless of whether we are poor or not.
If Social Security is valuable and in our best interest in the same that insurance is valuable and in our best interest, then why make it mandatory? Why not let those who wish to insure themselves purchase insurance, and those who don't , don't?
Social security does create a social minimum, although as you say it does other things besides this. And means tested programs are notoriously unviable from a political perspective, at least in American but I suspect in Europe as well. The reason that social security and other universal welfare programs survive is because they are in the interest of the middle class (or at least broad segments of the middle class percieve them to be in their interest). If social security were mean tested, it would probable lose massive political support and face severe budget constraints as the middle class would not longer have an interest in maintaining it. Thus is it necessary to make social security a univeral program in order to ensure that it maintains broad political support.
So my basic point is this: (1) social security has done a great deal to alleviate poverty among the elderly and has thus helped create a social minimum, (2) if social security were means tested, it would become much more politically insecure and probably a less effective program.
Not that this is my area of specialty, but I'd say that Friedman's negative income tax would be means tested, as the negative tax rate applies to people below a certain threshold of income, while the tax rate is positive for persons above that level of income.
Such an approach passes the "is Bill Gates receiving government money?" test. It's means tested, by Micha's definition of "only the poor collect."
Does it really matter how Social Security is defined? It doesn't look like any 'reforms' are gonna get passed this year. Maybe as a consolation prize, congress can hold a contest to rename Social Security...
Retirement insurance is both rivalrous and excludable and is provided all the time on the private market-- indeed it was provided to millions of people before SS was enacted. None of the excuses for having government provide defense apply to SS. (I agree with you, BTW, that we could be just as safe with 1/10 the defense spending).
Sure, some insurance companies fail. On the other hand
1. there are plenty that have stuck around longer than SS has existed, and some have lasted longer than most governments-- think of Lloyd's of London
2. there are many huge, stable reinsurers in the world
3. the risk of government default is low but not zero, and even without default Congress could legally abolish SS tomorrow.
So the risk of insurance company failure thus cannot be a sufficient justification for SS.
I think you need to make a distinction between having a legal entitlement which could be altered by Congressional legislation, and not having a legal entitlement at all. As a matter of positive law, they are different. And, as a matter of practice, they are different too, especially if it would be politically impossible for Congress to enact the legislation abolishing the entitlement.
Nicholas:
I don't deny that SS forces people to pay a premium to eliminate a risk they might prefer to take. That is why it is social insurance, not voluntary insurance. The question is whether you would rather see a little bit of paternalism or indigent old people.
I realize that you have firm philosophical commitments which mean you would rather see indigent old people. But the point here is really one of rhetorical hygiene. Your side has put forward these calculators as a fair comparison: our side is pointing out that you implicitly value the insurance aspects of a defined benefit at nothing, which is quite a bit less than the market would value them. I know you understand this, so who's engaging in the "noble lie" now?
Maybe, but I'm not sure. This is a tricky issue. I happen to believe that social security actually does benefit broad segments of the middle class in addition to the poor and it is for that reason that the program has such powerful support. While it might be misleading to view social security as insurance, I believe social security nonethless benefits most of the people covered by it and also benefits society more generally. Thus most citizens have reason to support social security for reasons independent of the issue of a social minimum.
However, I think we need to realize how important the idea of a social minimum is to the justification for social security. Social security has played a major role in reducing the poverty rate among the elderly from 65% to 10%. If doing away with social security would bring the poverty rate among the elderly to anywhere near its old level, then it is the case that social security functions as a social minimum for the majority of old people. So it seems to be in the interest of most elderly people to support social security on the grounds that it provides them with a social minimum on top of any other reasons they have for doing so.
I think it clearly is, since SS could be made a great deal less paternalistic (and more fiscally sustainable to boot!) without producing lots of indigent old people. For example, the current system pays more to people who need it less; Bill Gates not only will get SS benefits, he'll get *considerably higher* benefits than Joe Schmoe who worked menial service jobs his whole life. So if everybody's SS benefit were cut down to the level Joe Schmoe gets, you could cut taxes considerably without reducing the protections afforded to the Schmoes of the world. As far as I can see, the only social-minimum-ist excuse for not doing this is the "noble lie" argument.
So "social insurance" is an apt description of the Social Security program.
Defeined benefit pensions are both savings and insurance schemes.
All pensions -- defined benefit and defined contribution -- are savings schemes.
The difference is that the defined benefit scheme shifts certain risks from the recipient to the scheme. That is an insurance feature.
Social Security also has disability and death insurance features, as well.
Your Calculator is misleading because it compares a "rate of return" for a defined contribution scheme to a "rate of return" for Social Security without recognizing that the insurance features of Social Security would cost something if you tried to acquire them on the market.
The "Grace of Congress" point does not make SS any less insurance. In the UK, Parliament could, in principle, pass a law expropriating someone's house without compensation. Does that mean that UK citizens have no property rights? No, because, at least at present, it would be politically unthinkable for any Parliament to pass such a law.
Sure, property rights in the UK might be more secure if there was a justiciable constitutional right to them (although that would depend on whether the court system is more reliable in defence of property rights than political unthinkability, which is uncertain). So too, it would be better if Congress could not raid the trust fund for the general fund.
But how would you feel about a UK socialist who argued that there was nothing wrong with expropriating someone's house without compensation, since the right to the house only existed by Grace of Parliament? You would denounce the transparent rhetorical attempt to make thinkable what is properly unthinkable. Just because Parliament or Congress can do something immoral or stupid, does not mean it should.
I'm less convinced by your claim that casually referring to Social Security as "social insurance" massively dupes the public. Most Americans today understand that Social Security is a benefit program that could theoretically be revoked tomorrow, just like Medicare or unemployment protection. That's why it's easy to demogogue the issue: if the benefits really were fixed by contract, it'd be much tougher to claim that Republicans are going to send your granny to the poorhouse.
I don't see that. I would gladly support an SS program that means-tested benefits if it meant my payroll taxes would be substantially lowered, and I suspect this is true for a large percentage of those under 35 or so. (Obviously not among older workers, so it would have to be phased in very gradually).
To reiterate Will's point, it's insane that 20 years from now minimum wage workers will have 12% (at least) of their income taken and handed to Bill Gates, and I can't imagine that correcting that would make SS less popular. Sure, we don't like welfare, but we *really* don't like welfare for the rich.
social security
social justice
social insurance
social credit
- Josh
As for the argument that the retirement portion of social security is not insurance because everyone gets at least some retirement payment from it, well, not all of it is insurance. The redistributive component (Joe Poor gets a much higher return on his payments than Bill Gates does) is insurance though.
Property rights -- SS is a promise from the government that you will get money back in the future in exchange for your payments. If government breaks its promise, then you will lose your right. As others have pointed out above, if government breaks its promise to enforce contracts you will likewise lose your property rights in private contracts. Right now it is libertarians who are lobbying for government to break the SS promise after 70 years in which it was fulfilled, so its a bit rich to appeal to the insecurity of the promise as a reason to break it.