Friday, January 21, 2005

Social Security is not a pension system

Economics professor David Tufte writes that Social Security is not a pension system:

Much of the criticism being leveled at social security revolves around the idea that - when compared to a pension system - social security performs poorly.

Duh! Everything performs poorly when compared to an inappropriate metric. A social security system is based around transfer payments, and should be compared to other transfer payments schemes like unemployment insurance - not against pension systems based on investment.

I think it's a very enlightening post. As an aside, David Tufte wonders if he might be a Libertarian. My message to him is to come to the light. You can begin by taking the Social Security post to the next step and pointing out that government shouldn't be allowed to steal from some to give to others with more voting power.

I have previously written in my blog that I am opposed to "privatizing" Social Security.


Joe said...

Social security doesn't steal from the rich to give to the poor. For the most part, you get back what you put into it. What it does do is force you to save for retirement. And while some would argue that the goverment should not touch any of your money, thay man is rational and can and should make all decisions for himself, I say okay, but in that Utopian/dystopian dream world, what happens when events that man cannot control leave him in danger of catastrophe? Depressions, recessions, inflation war,and natural and un-natural disasters of all kinds can leave the best laid plans in tatters. Are we better of without a saftey net then? No insurance plan is totally safe. Markets collapse, bussinesses fail and goverments default. But if I have to choose one of these to handle my insurance, the most secure is the US government. That's the one I choose, anyway.

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psuche said...

"What it does do is force you to save for retirement."

Force being the key word here. Thanks, but I don't need a nanny to save me from myself.

"what happens when events that man cannot control leave him in danger of catastrophe?"

Events happen all the time and are natural. Life is not freedom from risk. Do your best to avoid unnecessary risk (i.e. don't live at the bottom of an active volcano).

Your safety net should not be at the expense of others. What you speak of isn't freedom, it is called slavery.

Keep up the good work L.G.

A.R. - "Do not let your fire go out, spark by irreplaceable spark, in the hopeless swamps of the approximate, the not-quite, the not-yet, the not-at-all. Do not let the hero in your soul perish, in lonely frustration for the life you deserved, but have never been able to reach. Check your road and the nature of your battle. The world you desired can be won. It exists, it is real, it is possible, it is yours."

JG said...

The only problem with saying "Social Security is not a pension system" is that Social Security was explicitly set up as a pension system -- you can look up the actual words of FDR, Arthur Altmeyer (the first head of SS) and all the other founders. Or go to the SSA web site and read about how the retirement benefit (85% of SS) is a "defined benefit pension plan".

And none of its advocates ever said it wasn't a pension while it was performing *great* as a pension -- providing 10% annual returns on tax contributions to retirees through the 1980s.

To the contrary, they explicity bragged that it was the world's *greatest* pension system! Read Paul Samuelson, the Nobelist, in his old Newsweek columns claiming that back in those days.

Ah, but now Social Security is going to be providing *negative* returns for all the young in the future -- on current law up to 65%(!) negative, with some getting as little as 35% of their contributions back.

So now, suddenly, just as this happens, SS becomes not a pension plan any more! ;-)

Smileys aside, the situation is going to become less amusing to today's young workers around 2030, when in addition to seeing that they are never going to get their contributions back, they also get hit with a 35% increase in *income taxes* just to cover the operations of those "trust funds" (which will have all those federal bonds to pay off) which they had been told all their lives were going to cover the cost of SS for them, until at lest 2042.

They'll agree then that it's not *much* of a pension plan.

Surely not like the old, pre-2000 Social Security that made everyone *richer*.