This is from a now very old Barry Schwartz column about why people are too stupid to manage their own finances, especially if their finances involve a Social Security personal retirement account, in the NYT. Old, but so bad I can’t help talking about it.
This brings me to the final defense of privatization: the payroll taxes you pay are your money, and you ought to be able to do what you like with your money. This, I suspect, is the real justification behind the move to privatize, and it is the worst reason of all. The payroll tax is not “your” money; it’s our money. Social Security was created as an insurance scheme, not a pension scheme. It was meant to provide a safety net, to protect the unlucky from immiseration in old age. The benefits we get are not payouts from accounts in which we have accumulated our own private stash. What we get is largely determined by what we earned, but we keep getting it even after we’ve taken out every penny we put in. And if we happen to die early, someone else reaps the benefits of our contributions.
That’s refreshingly frank: it’s not your money! OK. So, it’s “ours.” Let’s just skip over the fact that the entire Social Security system and the disinformation one regularly gets from the SSA is specifically designed to encourage the sense that there is some kind of property-like nexus of entitlement between the payroll tax and retirement benefits. (And that social insurance systems like ours are commonly called pensions systems around the world.) Perhaps Schwartz will forgive American voters for having the wrong idea here, and not realizing that they do not in fact have any right to their benefits.
Anyway, what is it that we’re doing with “our” money? Well, we’re sending over 90% of it back to the same income bracket from whence it came, that’s what! Now why would we be doing that if what we wanted to be doing was “protecting the unlucky against immiseration in old age”? (Not to sustain the illusion that our payroll taxes do in fact belong to us as individuals, for sure!) I mean, wouldn’t it be silly to pretend to “insure” people by taking money away from them (thereby increasing their exposure to risk!), and then simply replacing it later? That sure would be silly! Schwartz gestures toward the redistributive function of the program, but . . . there is almost no redistribution! And . . . it isn’t progressive!
An authentic government old-age insurance program might look like government disability insurance. You pay taxes into the program and then you get money back if and when you need it–sort of like the way actual insurance works!
Hey liberals! Since you insist on talking about social insurance, why not stop dissembling and plump for a system that is actually sort of like insurance? Why not not defend a disability insurance model of old-age insurance, where you get it only there is some actual threat of immiseration? We can fund it with a dedicated payroll tax and everything. It really will not function like a pension at all. It will be a safety net for people who need it funded by people who don’t. Isn’t this exactly what liberals should want? TPM Cafe? Left2Right? Somebody? Why don’t you love this idea? Really, I want to know.
C’mon Will. You already know the answer to your question. If everyone wasn’t dependent on SS, our lefty friends believe the voters wouldn’t fund the safety net at a level high enough to guarantee the indigent the proper amount of “dignity” that egalitarian dogma dictates.
Schwartz gestures toward the redistributive function of the program, but . . . there is almost no redistribution! And . . . it isn’t progressive!
How do you figure that? Someone paying less than 10% of the maximum contribution can get about a quarter of the maximum benefits. Is this cancelled out by shorter lifespans among the poor?
Brandon,
Lifespan has a a good deal to do with it, but not everything.
From Harvard’s Jeffrey Liebman:
See here.
Coronado, Fullerton, and Glass (NBER Working Paper 7520 – must pay to view) are even less sanguine about the progressivity of SS. They find that it is not just almost non-progressive. They find that it is actually regressive.
See also Fullerton and Mast.
And so the data on the non-progressivity of Social Security forces the question to those who might wish to make the argument Krybo mentions. Since Social Security is either almost not progressive or regressive on the whole, what conceivable welfare liberal excuse is there?
I think left-liberals like Social Security not so much because it efficiently fulfills the purported goal of social insurance, but because they see it as a strong political asset.
It makes many people dependent on the system, and gives them a reason to oppose candidates who want to make changes that might threaten their benefits.
In other words, it makes most people worse off (and this trend increases over time), but they think it makes left-liberal candidates better off. I suppose they believe that this is the path towards doing more good in the long run, but it strains credibility for me.
And yet…SS provides a third of its recipients with 100% of their income in retirement and another third with the majority of their income….I guess we see what we want to in statistics.
As the chances of any SS “reform” ever passing is about zero, it may be profitable to switch to a new line of work, Will. Unless you are counting on living off of your SS check in retirement…hehe.
http://hootsbuddy.blogspot.com/2005/01/individual-security-new-phrase.html
I think I qualify as a liberal, and I’m certainly a big fan of this sort of system! I never understood why people (especially Democrats) were against “means-testing” social security.
And this is a move that would clearly make social security solvent much more easily than any “privatization” scheme. We could even just start phasing it out now, so that people are guaranteed to the benefits they’ve “earned” up to 2006 or something, and from then on the payoffs decrease for people who are expecting more than a “dignified” level of support, and perhaps they increase for those making less.
C’mon Will. You already know the answer to your question. If everyone wasn’t dependent on SS, our lefty friends believe the voters wouldn’t fund the safety net at a level high enough to guarantee the indigent the proper amount of “dignity” that egalitarian dogma dictates.
Schwartz gestures toward the redistributive function of the program, but . . . there is almost no redistribution! And . . . it isn’t progressive!
How do you figure that? Someone paying less than 10% of the maximum contribution can get about a quarter of the maximum benefits. Is this cancelled out by shorter lifespans among the poor?
Brandon,
Lifespan has a a good deal to do with it, but not everything.
From Harvard’s Jeffrey Liebman:
See here.
Coronado, Fullerton, and Glass (NBER Working Paper 7520 – must pay to view) are even less sanguine about the progressivity of SS. They find that it is not just almost non-progressive. They find that it is actually regressive.
See also Fullerton and Mast.
And so the data on the non-progressivity of Social Security forces the question to those who might wish to make the argument Krybo mentions. Since Social Security is either almost not progressive or regressive on the whole, what conceivable welfare liberal excuse is there?
I think left-liberals like Social Security not so much because it efficiently fulfills the purported goal of social insurance, but because they see it as a strong political asset.
It makes many people dependent on the system, and gives them a reason to oppose candidates who want to make changes that might threaten their benefits.
In other words, it makes most people worse off (and this trend increases over time), but they think it makes left-liberal candidates better off. I suppose they believe that this is the path towards doing more good in the long run, but it strains credibility for me.
And yet…SS provides a third of its recipients with 100% of their income in retirement and another third with the majority of their income….I guess we see what we want to in statistics.
As the chances of any SS “reform” ever passing is about zero, it may be profitable to switch to a new line of work, Will. Unless you are counting on living off of your SS check in retirement…hehe.
http://hootsbuddy.blogspot.com/2005/01/individual-security-new-phrase.html
I think I qualify as a liberal, and I’m certainly a big fan of this sort of system! I never understood why people (especially Democrats) were against “means-testing” social security.
And this is a move that would clearly make social security solvent much more easily than any “privatization” scheme. We could even just start phasing it out now, so that people are guaranteed to the benefits they’ve “earned” up to 2006 or something, and from then on the payoffs decrease for people who are expecting more than a “dignified” level of support, and perhaps they increase for those making less.
Yes Will (Barry) there are some very real contradictions and wool-pulling-over-eyes with ‘old age insurance’ which doesn’t resemble insurance but rather a RETURN of funds to the higher bracket whence it came! I love the notion of: “..some kind of property-like nexus of entitlement between the payroll tax and retirement benefits.” Maybe ‘property’ is the operative word here and wealthier property-’investors’ will get their entitlements back based on prior levels of income and tax.
Yes Will (Barry) there are some very real contradictions and wool-pulling-over-eyes with ‘old age insurance’ which doesn’t resemble insurance but rather a RETURN of funds to the higher bracket whence it came! I love the notion of: “..some kind of property-like nexus of entitlement between the payroll tax and retirement benefits.” Maybe ‘property’ is the operative word here and wealthier property-’investors’ will get their entitlements back based on prior levels of income and tax.
The truth is that we have to improve payroll services and create a better economical environment for young people that are located at the start of their careers.
i agree with tiberiu84… payroll services reduces the work a lot…