Friday, November 12, 2004

Social Security Reform

So far there is no concrete proposal for SS reform, but some outline of the plan being proposed by President Bush gives reason to comment.

Most of the commentary calling for reform, especially coming from this administration and its supporters seems to me based on a lot of mistaken ideas about Social Security, what's its role is, and how it operates.

My view on the proper functioning of the system is that it should be an insurance policy against destitution in old age. It makes no sense, and is no proper role for government, to force it's citizens to meet some state mandated savings or investment requirement for one's retirement. However, if one becomes truly destitute in old age, that will place some burden upon the rest of society and thus on the state. In the absence of a social security program, whatever method we choose to handle the elderly destitute, no matter how callous or generous it might be, will place costs and burdens upon the state and society. Therefore, it seems to me, it is well within the proper authority of the state to require each citizen to take out insurance against destitution in old age.

The frequent claims from the right that Social Security is about to fail are false. The program can continue to run for decades certainly, and perhaps indefinitely, as currently funded. The ability of government to continue to raid the program for other functions is soon to come to an end, but that is not relevant to the health of Social Security.

Note to that any reform to the system will be expensive. Incoming revenues to the Social Security Trust Fund are already allocated for benefits. Any reallocation of that revenue will require a change in benefits or the raising of other sources of revenue. The cost to the system varies with the proposal for reform, but several trillion dollars at the least would be required over the next ten years.

Given the above no reform is absolutely needed. However, I feel that the current system is undesirable from a cost perspective. We citizens pay far more into the system than is actually beneficial to society as a whole. The problem is not that it is an inefficient system for retirement savings, but that it is a system for insurance against retirement itself. That is, one gets paid off on the insurance policy if one retires. Because retirement itself is so likely, nearly all get paid, therefore the premiums required are quite high. If we were to spend the money to reform the system, it would be far better to transform it to a system of insurance against destitution in retirement. Such a system could be run with much lower premiums. The problem would be political, in that many would pay into the system (although much less than is now the case) but never collect. I don't know if such a reform is politically possible, but it would make more sense to me financially and philosophically.

The proposals coming from the white house, however, to privatize the program are completely ill considered. Moving funds out of the current program will weaken the insurance aspect of it, thus increase potential costs to society and the state in the future. Then the program is expanded to be a forced savings plan run by the government. If money is to be taken out of the insurance program, it should simply be returned to the people to be used as they see fit. The proposals coming from the White House violate both conservative and liberal philosophy. These proposals serve only to funnel money into the financial markets. While they have every right to do well on their own merits, weakening the necessary insurance aspect of Social Security to provide a windfall for that narrow sector of society is not the proper role for government.

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