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The Alleged Moral Case

Will Wilkinson, moral philosopher that he is, is full of praise for the "moral case" for Social Security privatization. This centers around the notion, naturally enough, that cutting guaranteed benefits and replacing the taxes that finance them with mandatory savings on a dollar-for-dollar basis would enhance freedom and choice. I continued to be puzzled as to why Will and other libertarians think this is so in any meaningful way. If Will were proposing that we switch to price indexing and cut the payroll tax rate commensurately with that, I would think he was proposing bad policy, but I could hardly deny that the bad policy he was getting behind would meaningfully increase the degree of choice in people's lives. Most notably, it would allow people more freedom to choose between present consumption and hedging against a long lifespan. All the evidence is that if we allowed this, people would choose poorly. I don't think there's anything morally wrong with paternalism, so I don't think this is an idea I need to take very seriously, but I can see why others might disagree.

The combination of benefit cuts with mandatory savings and annuitization, however, only seems to enhance choice in a tendentious and meaningless way. It's as if the IRS were to start allowing you to request a W-9 form on any of several different colors of paper and we proclaimed that a great victory for human freedom. Sure, it's a choice, but it's a distinctly "so what?" kind of choice. What about getting to choose from a small list of index funds is so fantastic, if you leave the economic considerations out of the picture? Assuming the average payout will be the same either way, moving to private accounts is more like introducing a degree of "hassle" (and profit for account managers) into the system than like introducing a meaningful choice.

January 19, 2005 | Permalink

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Comments

I agree that choice is another red herring, much like the "crisis" that the privitization is supposed to cure. But I still think there is something to be said for allowing/requiring people to save for their own retirements rather than taxing them to pay for someone else's. It seems to me that, as an end state, privitization has a lot to recommned it. The problem is how do we get there.

Posted by: Bill | Jan 19, 2005 1:33:49 PM

The combination of benefit cuts with mandatory savings and annuitization, however, only seems to enhance choice in a tendentious and meaningless way.

Well, not being much of a libertarian, I have no problem with government using its awesome powers to force you to do things like saving, and index picking. Matt's right, of course, to a substantial degree. To a great extent this fight is coming to us not so much from pure libertarians, but from folks (me included) who think the current system's benefits to our society don't pass cost/benefit analyis. It's about increasing utility (greatest good for the greatest number) over the long term.

Still, Matt is glossing over a few possibilities. It depends on the specifics of the legislation, of course, but if one dies at, say, age 58, one could leave one's PRA to one's non-dependent heirs. That's not possible with today's system. It's easy to discount such a possibility if you're wealthy or upper middle class (in which case you'll most likely have a considerable estate by age 58, probably at a minimum it will include a home). But a lot of people in our society have no such estate. PRA's could change that. Moreover, let's say you enjoy robust health at age 65 and would just as soon continue working (I have a friend whose mom is 73, and very much happily employed as an executive secreatary). Well, with a nice fat PRA you could (again, it depends on the legislation) purchase a cottage by the sea or a condo in a retirement community. Perhaps you could even use some of the cash as seed capital for a part-time business. Cutting the FICA tax one pays over the course of 50 years or so will help reduce the barriers to such choices that impede a lot of folks under today's status quo (people,who, basically, have great difficulty building up savings).

Posted by: P. B. Almeida | Jan 19, 2005 1:40:38 PM

If the point is simply people having their own accounts, we can do that without any stock market investing. It would of course force the same massive deficit as any privatization plan.

If the point is actual choice, people should be able to simply opt-out of Social Security.

So what purpose does pushing everyone towards mandated stock market investment have, other than shoveling more free money over to politicians' rich friends?

Posted by: crayz | Jan 19, 2005 1:48:25 PM

"The most important arguments for Social Security privatization are moral, not economic. Privatization would not be justifiable if it were economically beneficial but morally suspect."

What kind of backwards reasoning is this?

To speak slowly, as if to a 7 year old, there are many policies we support precisely because they are economically beneficial, even though they are also morally suspect. We tolerate the morally suspect presence of poverty in order to be economically benefited by hyper-capitalism, to take one obvious example.

---

But more to the point, I'm curious why you seem to take libertarians so seriously, Matt?

Where I come from, both libertarians and communists are mildly amusing to make fun of at a party, but no one takes their rantings seriously.

Posted by: Petey | Jan 19, 2005 1:52:00 PM

"Assuming the average payout will be the same either way." No, let's not assume that, because that would be silly.

As a middle class, middle aged guy, I can assure you that I'm going to get reamed with a very big reamer by social security. My return on index funds would almost assuredly be far larger than on incremental dollars flushed down the toilet of social security. Between my "employer" (ha ha) and myself, I'm pumping nearly $11,000 a year into social security, and my return on that investment, unlike the return of the early and therefore happy participants in the mandated Ponzi scheme, is going to be negative.

Posted by: ostap | Jan 19, 2005 2:03:34 PM

They like it because it eliminates the 'income redistribution' component, which is what they hate the most.

Posted by: abb1 | Jan 19, 2005 2:12:51 PM

ostap,

When we talk about 'returns' on an SS 'investment' we have already decided what should be done with SS.

The question itself dictates the answer. SS is a horrible financial investment.

Today the government is forcing you to pay 11K a year which the government then gives to the elderly, widows, orphans, and the disabled. SS doesn't 'invest' anything.

The 'real' question is what would happen if the government stopped taking your SS money and giving it to the elderly, widows, orphans, and disabled?

There is no simple answer to *that* question.

Posted by: Tripp | Jan 19, 2005 2:15:49 PM

What's moral about significantly cutting benefits for retirees and the disabled? What's moral about giving $2 trillion to investment bankers to "fix" a reliable, efficient system that's not broken? What's mopral about adding that $2 trillion to what's now world history's largest trade deficit? What's moral about allowing plan administrators and trustees to pocket 15% to 25% of privatized accounts in the name of fees?

President Bush's Social Security privatization ideas sound to me like immoral thievery. There's nothing "moral" about it.

Posted by: Deborah White | Jan 19, 2005 2:28:16 PM

Why debate specific government programs with libertarians? They view ALL appropriation (i.e., taxes) immoral, except strictly security or infrastructure related. And more power to them. But debating Social Security with a libertarian is like debating military strategy in Afghanistan with a pacifist.

Posted by: Realish | Jan 19, 2005 2:44:40 PM

Umm, helloooo. Like it or not in a Judeo Christian cultural context "moral" means effectively populist, which is to say economically liberal and culturally conservative. This is why conservatives can't win economic argumenents on "moral" grounds, any more than liberals can win cultural arguments on "moral" grounds. This doesn't mean that liberals aren't right on cultural issues (they are right), or that conservatives aren't right on economic issues (and of course they aren't right), simply that only in the bizarro world of libertarians is destroying the last threads of the social safety net a "moral" objective.

Posted by: Green Dem | Jan 19, 2005 2:56:54 PM

On the 'choice' front, I would prefer to choose Social Security. I already have a well funded 401(K). Social Security is an insurance program that diversifies my portfolio. If I get injured tomorrow, I get paid. If I retire at 67, I get paid enough to put a substantial floor on my possible portfolio. If my 401(K) does well, the floor will perhaps be a small percentage of my monthly income. But, I am glad to have this floor and could not get it from the private market.

Posted by: EdSez | Jan 19, 2005 3:02:37 PM

What is moral about greed?

Nothing. And there is nothing Christian about it, either. In fact, greed is one of the greatest of biblical sins.

Posted by: Deborah White | Jan 19, 2005 3:04:21 PM

P. B. Almeida points out some benefits of PRAs. however, assuming (I don't know, but can guess) that if no taxes are due until withdrawal, they appear to offer the well off (defined here to be anyone who doesn't need to annuitize) the opportunity of another tax-free transfer to legatees, either directly or indirectly via a "beachside cottage". not to suggest this is right or wrong, just that it should be understood in those terms.

and on another issue, before whining too much about about the redistributive aspects of the current system (which I had always assumed to be substantial - but didn't whine about), one should check out the 1/14 post at http://thelowestdeep.blogspot.com. it's not definitive to the contrary, but suggestive.

Posted by: CW | Jan 19, 2005 3:12:35 PM

"debating Social Security with a libertarian is like debating military strategy in Afghanistan with a pacifist."

Right on.

I'd only add that debating almost anything about politics or policy with a libertarian is a waste of time.

Posted by: Petey | Jan 19, 2005 3:22:28 PM

Assuming the average payout will be the same either way, moving to private accounts is more like introducing a degree of "hassle" (and profit for account managers) into the system than like introducing a meaningful choice.

Yes, but there is money to be made in allowing people to have these different choices, in the same way that colored-paper suppliers who be benefited by the ability of taxpayers to request their W-9 forms in any number of different hues. The beneficiaries of SS privitization wouldn't receive any tangible benefit-- that's not the point. The hope is that SS privitization will allow part of the private sector more access to a source of investment funds that they have otherwise been shut out of the market from. Most libertarian arguments invariably stem from the premise that the government manages something for the people that other businessmen would prefer to control themselves, and this is no exception.

That said, libertarian arguments are so predictable and so banal that I really don't see why they have to be mentioned and addressed in forums like this. Their arguments are very formulaic, and we already know what they will be for any given topic, so why weren't they dismissed out of hand to begin with?

Posted by: Constantine | Jan 19, 2005 3:26:56 PM

Sorry, Wilkinson is another web horse's rear end, who apparently doesn't want comments that are opposed to his bloviations.

Posted by: raj | Jan 19, 2005 3:28:16 PM

Where's the lack of choice in the current system? There are 401(k) and IRA accounts--and if you really want a comfortable retirement, then you had better start using these investment vehicles. Social Security is an absolute baseline, and it has been a resounding success in reducing old-age poverty. Because it is a baseline, it makes sense to organize it as a defined benefit instead of opening it up to "choice."

Privatization is an attempt to lower the baseline with the likely aim of eliminating it completely. It will not be a significant help to those who have the means to save for a comfortable retirement and are already saving 20% or more of their income (including retirement accounts and other forms of saving such as home equity). It will increase the risk for those who expect to rely on Social Security as their main source of retirement income and are not taking advantage of other savings plans.

Does anyone think that opening up more "investment options" is going to create new wealth? I don't see any obvious mechanism for that. The money is going to be invested one way or another. The main effect is a redistribution such that retirement payouts are allocated according to individual investment choices. Thus, where we now have everyone getting a baseline return, we will have some people above and some people below the baseline. I don't see any societal benefit to seniors living in misery because they made poor investment decisions--most likely, we'll wind up with a secondary insurance scheme to restore a baseline to such people.

Now, above the baseline that society deems fit for retirement, it makes perfect sense for people to make whatever risk/reward calculations they want. Probably there is even a "moral case" for it. But they can already do this through a plethora of tax-advantaged investments.

I doubt that many people responding on this blog truly believe that social security income is going to be their primary means of support in retirement. It is actually an ideological dispute between those who believe that there should be a risk-free baseline at or above the one planned, and those who consider any such baseline to be a form of socialism.

Posted by: Paul Callahan | Jan 19, 2005 4:05:33 PM

The Wilkersons of the world seem to think that morality requires allowing the unlucky to starve . . .

Posted by: rea | Jan 19, 2005 4:23:48 PM

Looking at your blog, Deborah White, I see that you are an evangelical Christian. I'm not religious, so I'm probably ill-informed, but nonetheless, from what I had picked up, pride was the worst sin: as long as someone has pride, they not only sin, but are incapable of repenting for that sin, whereas someone who is greedy but not proud would still be a sinner, but would at least be able to repent. What are your thoughts?

I'm actually sympathetic to libertarian morality, though I don't agree with it. What could seem more commonsensical than "if someone threatens you with throwing you in a concrete cell unless you do what they say, well, that's wrong, unless you ****ed with someone else"? Still, Will Wilkinson is not DIRECTLY advocating an increase in freedom with his support of privatization. I suspect that what he's doing is hoping that there's a slippery slope here -- that once we turn it from a PAYGO social program into private accounts, people will view the accounts less as a government entitlement and more as a restriction on what they can do with their money, which will eventually lead to the abolition of the mandatory private accounts as well. This IS a moral goal of his, but not on the immediate agenda of Bush or anything, so he's settling for what he can get: something that does not increase freedom, but that may make freedom easier to increase in the future.

Posted by: Julian Elson | Jan 19, 2005 5:01:05 PM

Libertarians worship at the Idol of Choice. Yet while choice is appealing, it often only works for those who make the right choice; SS is about protecting people from Wrong choices.

Furthermore, an abundance of choices often makes us Less happy. here is one explanation: http://www.pbs.org/newshour/bb/economy/july-dec03/paradox_12-26.html

Posted by: yoyo | Jan 19, 2005 5:08:02 PM

"debating Social Security with a libertarian is like debating military strategy in Afghanistan with a pacifist."

Personally, I'd say it's more like debating bedtime with a five year old.

Posted by: Violet | Jan 19, 2005 5:20:04 PM

"Today the government is forcing you to pay 11K a year which the government then gives to the elderly, widows, orphans, and the disabled. SS doesn't 'invest' anything."

Technically, that would only be true if Social Security weren't running a surplus. In as much as it is, only part of that 11k is being spent on the widows and orphans, the rest is being spent on other ways of buying votes.

And, yes, the gain in liberty is just exactly that, with private accounts, one assumes that they can be part of your estate, to be willed to whomever you wish upon your death.

Posted by: Brett Bellmore | Jan 19, 2005 5:39:04 PM

" All the evidence is that if we allowed this, people would choose poorly."

If people wouldn't choose well individually, by what magic will they choose well collectively?

You say Americans aren't competent to manage their own lives; but I should endorse their managing of mine democratically?

Posted by: John T. Kennedy | Jan 19, 2005 5:41:00 PM

Where's the lack of choice in the current system? There are 401(k) and IRA accounts--and if you really want a comfortable retirement, then you had better start using these investment vehicles.

Paul Callahan: the lack of choice comes from making, say, $45K a year and having to support two children. It's pretty hard to reduce consumption enough to fund these "investment vehicles" if one is of limited means. But cutting one's FICA burden is a way around that difficulty. I agree that one should save money if one wishes to retire in comfort. I just wish the government didn't make it so difficult for so many people to do so.

Posted by: P. B. Almeida | Jan 19, 2005 5:51:32 PM

"If people wouldn't choose well individually, by what magic will they choose well collectively?"

Choosing well = saving for you're retirement.

It ain't rocket science, John. Or stock picking or market timing.

Posted by: SqueakyRat | Jan 19, 2005 6:01:21 PM

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