Social Security and Morality

Jonathan Rauch, one of America’s finest substantive reporters, has a very interesting column in the January 14 issue of the National Journal: “The No. 1 Moral Issue Is…Abortion? No, Social Security.”

I agree with much of the thrust of the piece, but … it downplays some of the purely economic benefits of allowing people to put their payroll taxes into personal accounts rather than the Social Security black hole; long-term investments in diversified stock portfolios deliver both higher returns and are less risky than Social Security, especially when you consider the risk represented by the fact that the federal government can arbitrarily decrease or postpone benefits whenever they want, which is a far cry from a “guaranteed” return.

For more information on what to do to substitute ownership for dependency, I recommend downloading the Community Toolkit from the Cato Institute Project on Social Security Choice.

3 Responses to “Social Security and Morality”

  1. Brian Radzinsky

    I’m not sure about what Mr Rauch calls “conservative social engineering.”

    And does the president’s plan incorporate Chilean style ADPs? Or is he taking the “put more money in to make money” idea of slowly phasing out the new system in favor of private accounts? The fact is that to rollover the system, there needs to be a certain amount of money put into the system for startup costs.

  2. Tom G. Palmer

    Yes, I did wince a bit at the phrase “conservative social engineering,” for obvious reasons. But if you use the term to mean any change in incentives in the hope of getting different behavior, it could be used neutrally. What would differentiate this kind of “engineering” from the usual sort of “social engineering” that libertarians despise is that establishing ownership rights based on a set of stable rules governing property, contract, and tort changes behavior in the direction of greater independence and freedom; the usual statist social engineering is oriented toward creating greater dependence and less freedom and almost always is accompanied with a set of bureaucratic powers to change the incentives whenever the authorities choose, in order to tweak and fine-tune the incentives (which are sometimes merely threats of brute force), since the earlier attempts to generate the “right outcomes” almost always have unintended effects or simply fail altogether, requiring constant “tweaking.” Creating property, however, generates incentives for thrift, probity, honesty, and the like that require very little tweaking and which often evolve in piecemeal fashion through case law and contract, in any case.

    Could you expand on “Chilean style ADPs”?

    As to transitional financing, one way to roll over the system to one of individually owned and fully capitalized accounts would be to issue retirement bonds (or “recognition bonds,” in recognition of the payments already made by taxpayers) to those who have already been paying into the system. That makes the currently unfunded obligation (which is not considered part of the federal government’s general indebtedness but is an obligation nonetheless) explicit, does not mean a net increase in indebtedness, and would not flood the capital markets with additional government debt, because such bonds would be issued to taxpayers, rather than sold on the market. Further, increasing future benefits for those currently receiving benefits by the rate of inflation (rather than by the growth in wages) would diminish net indebtedness substantially. Finally, the shortfall between income and expenditure would be much less than the diminution in future obligations, entailing a net decrease (not an increase) in governmental indebtedness. (For a simple explanation, see Jagadeesh Gokhale and Kent Smetters at )

  3. Brian Radzinsky

    The Chilean system of having private, single-purpose companies (ADPs, from administradores de pensiones, pension administrators) seems like an exercise in public privatization. While the system is much more efficient and sustainable than ours, it does little more than offer choices to workers between heavily regulated companies that differentiate each other based on customer service. There is little choice; and while property rights are created, they are limited because one must work within the framework of the supervised ADP system.