Comments on: Misunderstanding Social Security

By: Marcus Stanley

Marcus Stanley — Sat, 12 Feb 2005 23:38:00 +0000

Just because you don’t like pay-as-you-go social insurance schemes doesn’t mean that you get to unilaterally define them as not being insurance. In exchange for my payment to *currently* retired, disabled, etc. people, I get a promise that the government will pay me such-and-such in the future when I retire, if I become disabled, etc. Not so different from putting money in a bank, really — the bank uses my money immediately for *current* investments and promises to pay it back to me in the future when I need it. (Yes, there can be a macroeconomic difference in that the money goes to national investment instead of consumption with a bank, but that is not the point you were making).

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.

By: Timothy Waligore

Timothy Waligore — Fri, 11 Feb 2005 21:38:00 +0000

And Hayek was wrong.

By: Wild Pegasus

Wild Pegasus — Fri, 11 Feb 2005 18:33:00 +0000

I think it was Hayek who said that putting “social” before a word completely destroyed its meaning:

social security
social justice
social insurance
social credit

- Josh

By: Brian

Brian — Fri, 11 Feb 2005 18:00:00 +0000

“if social security were means tested, it would become much more politically insecure and probably a less effective program”

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.

By: Will Wilkinson

Will Wilkinson — Fri, 11 Feb 2005 17:57:00 +0000

Peter, The name is only part of it. The things that really dupe the public are the special payroll tax, the “trust fund”, and the faux earning statements we receive from ths SSA (in the fine print it notes that benefits are contingent on congressional grace).

By: Peter Caress

Peter Caress — Fri, 11 Feb 2005 17:42:00 +0000

I see your point: it would be more precise to refer to Social Security as a universal pension or a universal entitlement, or better yet, “a transfer scheme that effectively acts as ‘social insurance’ for impoverished old folk by providing steady payments to all retired people, rich and poor, because we can’t do anything for poor people in this country without bribing the middle class into going along with it.” But that’s a mouthful.

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.

By: Gareth

Gareth — Fri, 11 Feb 2005 17:26:00 +0000

Will,

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.

By: Will Wilkinson

Will Wilkinson — Fri, 11 Feb 2005 15:53:00 +0000

Peter, It remains that the system isn’t structured like one that is set up primarily to protect against economic hazards, since it pays even more money to people who do not need protection against than it pays to those who do. And, just let me repeat for emphasis, that the courts have determined that there is no legally binding right to benefits. So SS protects against hazards only to the extend that the Grace of Congress obtains, and there is no formal instrument to shield citizens against the risk that it won’t. If my rich sister promises to pay my hospital bills if I fall ill, I am not therefore insured, even if she has a good record of keeping her promises.

By: Peter Caress

Peter Caress — Fri, 11 Feb 2005 15:12:00 +0000

I’ve got bad news for Will Wilkinson, but the phrase “social insurance” is generally understood to have a different meaning from the word “insurance”. Merriam-Webster’s definition of “social insurance” ( http://www.m-w.com/cgi-bin/dictionary?book=Dictionary&va;=social+insurance ): “protection of the individual against economic hazards (as unemployment, old age, or disability) in which the government participates or enforces the participation of employers and affected individuals”

So “social insurance” is an apt description of the Social Security program.

By: Nicholas Weininger

Nicholas Weininger — Fri, 11 Feb 2005 13:22:00 +0000

No, the question is not *just* whether I’d prefer to see a little bit of paternalism or indigent old people, although you are correct that I prefer the latter. Even if you believe that some level of paternalism is justified, it doesn’t answer the question of whether the level we have now is way too high.

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.