National Treasure Duncan Black writes:
Eschaton: No. Look, people who advocate adding "personal accounts" to Social Security are just stupid people. Really, just morons. There's no reason to do it. There's no reason to take any part of Social Security contributions and put them in a little fund account with my name on it.
If you think some Social Security contributions should be invested in the stock market (I don't) to raise returns overall, then it can be stuck into an index fund or managed by a fund manager or whatever. I still think that's a bad idea, but there's a rationale for it. There's no rationale for dividing that up into millions of individual accounts. There's no rationale for letting individuals "control their own money" by letting them choose across some finite number of managed funds. Social Security is a lovely program which works just fine and really needs no changes other than extraordinarily nonurgent tweaks to the tax formula at some point.
And, no, there's no need for modest benefit cuts. There's no need for means testing it. There's no need for any of these things The Serious People like Bob Kerrey want to do. There's no need to strike a "grand bargain" which combines some stupid things with some smart things because there's no need to do so. Leave it alone.
There is no problem with the Social Security system. People who continue to argue that there is - and that the problem can be "solved" with the magic private accounts fairy - either have broken brains or are attempting to push an agenda for ideological reasons or for personal enrichment for themselves and their kind.
I would, to defend myself, say:
First, there is a chance--a 40% chance by 2050, and an 80% chance by 2100--that the Social Security system as currently structured will be in a deep financial hole someday. It would be best to make small changes to guard against this first possibility and then probability now rather than waiting until the changes have to be big. So there is, I think, a powerful argument for raising taxes a little--i.e., uncapping FICA so that it hits all wage-and-salary income and a good deal of in-lieu-of-salary income. And there is a powerful argument for cutting benefits a little--i.e., indexing the retirement age to some function of life expectancy so that Social Security benefit years do not go up one-for-one as life expectancy increases. And there is a powerful argument setting up automatic non-political mechanisms to keep the system in whack whether things turn out to be better or worse than we currently expect.
Second, there is a chance--I think a 70% chance--that half or nearly half of Americans are drastically undersaving. A forced saving plan thus seems to me to be a good idea.
Third, the poorer half of Americans have essentially no investments in equities, a historically very high-return asset class. So tax an extra 2% of wages and salaries. Match it one-for-two with money raised from uncapping FICA. And invest it in the U.S. government's Thrift Savings Plan.
That seems to me to be good public policy and to be an attainable political bargain. Or simply sit Diamond-Orszag-Liebman-MacGuineas-Samwick in a room until they all come out (ideally, alive). I'll sign on to whatever emerges.