AARP Steps Up

As has been widely rumored, the AARP is going to play for the good guys in the Social Security debate instead of reprising their Medicare performance from 2003. I caution the Democrats, however, against an overreliance on the AARP as the key strategy here. The AARP's expertise is in targeting seniors, which is important, but only part of the game. And the message described in The New York Times article -- roughly, "the stock market is risky" -- will only get you so far. As long as young voters are convinced that Social Security is going to vanish in a cloud of crisis-induced smoke some time before we retire, then private accounts can be as risky as you like and people will still support them. The case against the crisis mentality needs to be paid.

What I really don't know how you do in a sound-bite, but which is also important, is something that gets to the difference between social insurance and a retirement plan. Social Security is a social insurance plan that insures working people against disability, death of a breadwinner, or some combination of longetivity and low earnings that would make retirement with dignity impossible. Private account schemes simply don't do this. Most proposals would leave a disability insurance program in place, but completely eliminate the longetivity/low earnings insurance. People who earn little will have little in the way of an account balance, and people who live longer will simply have to stretch their money further. Talk of average returns and so forth obscures all this. The whole point of social insurance is to compress the range of outcomes, reducing downside risk through methods that limit upside gains. Moving the mean point around isn't the point. On average, fire insurance is a bad idea, since very few people's homes actually burn down. This is the only way for companies to make a profit selling the stuff. People don't buy fire insurance to maximize their expected financial outcome, they do it because avoiding the possibility of catastrophic loss is worth something to people. For fires, private insurance works well enough so we don't have social insurance. Hedging against longevity on the private market, however, will be extremely difficult thanks to adverse selection. Hence social insurance, which Bush wants to eliminate.