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March 27, 2005

Social Security Basics

Neil Buchanan: March 27, 2005

When people learn that I am an economist, they are usually quick to confess that they know nothing about economics. Frequently, they apologize while telling me how much they hated their college econ class, or they confess that they majored in econ but can’t remember anything that they learned. Mostly, though, people seem keenly aware that they know nothing about economics, with some people feeling somewhat guilty about it while others simply find their lack of knowledge amusing.

People who learn that I specialize in government budgeting issues, though, offer a rather different reaction—especially if they find out that my scholarly interests include Social Security. In those instances, they are quick to tell me that they know exactly what is wrong with Social Security. Usually, this turns out to mean that they learned one clever insight about Social Security, and they have decided that that one piece of special knowledge is all they ever need to know. More often than not, that special piece of knowledge is that the Social Security Trust Fund “doesn’t have anything real in it.” This half-truth is the source of more nonsensical assertions about Social Security than many outright falsehoods. It is the best example I know of the old adage that a little bit of knowledge is a very dangerous thing—even for the few people who approach these subjects without the usual ideological agendas.

By way of comparison, some students arrive in college (or even law school) not having heard that the Gold Standard has been abandoned and that the U.S. dollar is no longer backed by any precious metal. Thus, the dollar isn’t backed by anything “real,” either. I’ve yet to see a student respond to this revelation, however, by tearing up her greenbacks. People know that even fiat currency—that is, currency backed by nothing more than a government’s full faith and credit—has value. Promises mean something, and the economy would stagger to a halt if we stopped believing in the value of dollars.

Social Security’s Trust Fund is also backed by the full faith and credit of the U.S. government. Ah, but I hear people say, the Trust Fund is just a bunch of accounting entries. The Trust Fund’s assets are Treasury bonds, the familiar IOU’s by which the federal government promises to repay its lenders. The partially-informed then argue that there is nothing backing those Treasury bonds in the Trust Fund, because the Treasury is going to have to borrow the money, anyway. If by “nothing” one means nothing more than the government’s commitment not to default on the most trusted financial instrument in human history, then it’s true: There’s “nothing” backing the Trust Fund’s assets.

Treasury bonds (and bills and notes) are a uniquely powerful promise. While politicians often lie, the U.S. government has always been committed to honoring its IOU’s. Default is unthinkable. And putting one’s trust in Treasury bonds is hardly a sign of financial naiveté: Financial managers (even those who cannot say the name Franklin Delano Roosevelt without spitting) and economics professors (even those with signed portraits of Milton Friedman on their desks) treat Treasury bonds as risk-free. Indeed, Treasuries are the definition of risk-free assets against which all other financial assets are compared. Treasury bonds are, if you will, the Gold Standard of financial securities.

This is why Professor Elizabeth Anderson’s post on this weblog last week (March 25) was so important. As she notes, the one thing that the United States government has always stood behind is its debt instruments. Politicians might lie about whether they had sex with “that woman,” or whether they will unite rather than divide, but there are some promises that we always stand behind. For any politician to suggest that we might someday choose to default on those obligations is the height of irresponsibility. When that politician is the President—and particularly a President whose fiscal policy depends completely on the ability to borrow trillions of dollars over the next decade or more—then there is really something askew.

But, some argue, the government cannot help but default on those bonds in the future, because the rest of the government is running a deficit and will not be able to finance the Social Security system when the Baby Boomers have retired. So Bush, according to this argument, is merely being honest, not issuing threats. Again, this argument is based on a half-truth that is more damaging than pure ignorance.

Begin at the beginning of the Trust Funds: In 1983, a divided Congress and a very conservative President adopted a plan proposed by a bipartisan panel (led by Alan Greenspan and Daniel Patrick Moynihan) to “smooth” the financing of the Baby Boomers’ retirements. At precisely the time when the youngest of the boomers were entering their earning years—and therefore when it would have been possible to cut Social Security taxes significantly without reducing the benefits for a very small cohort of current retirees—President Reagan and Congress raised Social Security taxes significantly. The idea was to set a tax rate that would not need to be changed for decades to come, one that would guarantee surpluses in the Social Security system for the first several decades, offset by deficits in the system for several decades thereafter. During the fat years, an accounting system would keep track of the number of dollars that had been collected by Social Security in excess of its annual needs, plus interest. Those accounting entries would be secured by Treasury bonds, with the Trust Fund balance representing the total of such IOU’s issued by the Treasury. During the lean years, Social Security would then receive money from the Treasury in repayment of the excess funds that it had shoveled to the Treasury starting in 1983.

The 1983 law, therefore, was a promise made across time. The government said something like this: “Listen up, Baby Boomers. We’re going to collect much more in Social Security taxes than is necessary to finance the system while you’re working. When you retire, your benefits will be partly financed by funds from the Treasury that are, in the aggregate, just about equal to the excess contributions you made while you were working, plus interest.”

That was the promise; but as we know, many promises are broken. Therefore, the promise needed to be guaranteed in some way—sort of a government equivalent of “cross my heart and hope to die.” Consider the different ways that the government in 1983 might have tried to guarantee such a promise. It could have passed a law with a super-majority requirement, to allow future legislative minorities to block changes in the law. At the toothless extreme, it could have simply included a passage in the statute to the effect that “future Congresses should take note of the promises made here.” The method that Congress and President Reagan chose was, in some ways, the most powerful guarantee available: It put the promises in the form of Treasury bonds. Promises can be broken, but the promises embodied by Treasury bonds never have been. The Trust Funds represent an automatic appropriation of funds for Social Security benefits during the years when—entirely by design—the system will collect less annually in taxes than it pays out in benefits.

The promise in 1983 also, therefore, included the following guarantee: “And if, when the time comes to pay out benefits, the rest of the government is running a deficit, we guarantee that we will do what is necessary to honor this promise, by allowing the Social Security system to ‘cash in’ these Treasury bonds in exactly the same way that private citizens can.” This is precisely what Professor Anderson was describing: The Trust Funds, like all accounting systems, are ultimately just accounting entries that represent obligations from one entity to another. But the form of those obligations is what really matters. The form of the Social Security Trust Fund is as iron-clad as you can get, and it should remain that way.

Again, though, even promises made in good faith—and backed by solemn guarantees—can sometimes not be honored. How is it that the government can honor future Social Security obligations under the various forecasts of future government deficits? The answer, it turns out, is in the original design of the Trust Funds. Notwithstanding the rhetoric from the Administration, there are no dates at which a crisis will occur.

Go back to the basic plan from 1983: If the rest of the federal government were to run a deficit during the build-up of the Trust Funds, then the total amount of money that the government would need to borrow on the financial markets would be reduced by the diverted Social Security tax revenues. If the annual Social Security surplus was big enough (such as in the late 1990’s), there would be enough money not only to eliminate the need for the Treasury to borrow from the public but also for Social Security taxes to be used to pay off existing Treasury bonds held by the public.

In that sense, to repeat, it is absolutely true that the Trust Funds—and the Social Security system as a whole—are accounting fictions. We happen to collect a tax called the Social Security tax, which allows us to pretend that the Social Security system is separate from the rest of the federal budget and has its own deficit or surplus. In fact, the federal government is either a net borrower or a net lender on the financial markets on an annual basis. (Lately, of course, we have again become a rather significant net borrower.) But this particular accounting fiction was enacted in a very non-fictional form.

What happens when the years of Social Security surpluses (measured, again, by artificially separating Social Security’s taxes and expenditures onto separate balance sheets) inevitably turn to the planned years of deficits? Nothing dramatic. If the Congressional Budget Office’s forecasts turn out to be accurate, Social Security taxes will fall short of scheduled benefits for the first time in about 2020. (If this year’s Social Security Trustees’ report is accurate, this will happen in 2017. If last year’s report is accurate, it’s 2018.) If, as expected, the rest of the federal government is running a deficit around that time, is that not a crisis? Certainly not. In 2019, Social Security’s annual balance will be positive but near zero. In 2021, the system’s balance will be negative but near zero. The contribution in any of those years of the Social Security system to the overall federal deficit, either way, is trivial. From that date and for several decades onward, the Social Security program will pay the difference between full benefits and its annual dedicated tax revenues by presenting IOU’s from its Trust Fund to the Treasury and saying, in essence, “Remember all that money we gave you in the 80’s, 90’s, etc.? Well, it’s time to pay it back.” During this time, Social Security’s net annual shortfall will become nontrivial gradually, and then it will shrink again. If the overall federal deficit becomes larger, lenders to the federal government will require higher interest rates, and policymakers will have to decide whether to cut spending or raise revenues. We can decide to do that now, too, but that needn’t have anything to do with whether the Social Security system is going to become a net borrower in some particular year.

But again, some people say, there will be no money to pay back the IOU’s. If the government is running an overall deficit, Social Security will be left holding an empty handful of IOU’s. If that were true, though, people who are currently holding Treasury securities that are due to mature this year will not get their money, either. If I present the Treasury with a $100,000 face value bond that matures in 2005, I am absolutely sure that I will receive my money. The money will come either from increased taxes or by “rolling over” the debt, i.e., by the Treasury’s borrowing again from other willing lenders. Given that the average maturity of Treasury debt is less than 10 years, this is a common occurrence. Old debt is paid off by issuing new debt on a regular basis.

Is this bad? Not necessarily. The Treasury can issue new debt each year, so long as there are people willing to lend to the federal government. As above, if the Treasury’s overall borrowing needs (including any deficit or surplus from Social Security) become too large, then willing lenders will become harder to find. So the issue is not whether the balances in the Trust Funds are “real,” but rather whether the federal government will, at some point, run out of lenders.

Clearly, that question is completely separate from the calculation that led to the Bush Administration’s oft-repeated crisis date of 2017/2018/2020. If the overall budget is far enough out of whack, the financial markets will become more and more leery about lending to the Treasury. We can and should think about the consequences of such a circumstance, as well as the logically prior question of whether things will really ever get that bad.

I will post future entries on this weblog about future scenarios and the overall budget picture. For the time being, though, I’ll end this post with one further observation. The Bush Administration claims that it can finance private accounts by borrowing several trillion dollars on the financial markets over the next decade or so. They claim that this is not really an increase in net long-term debt, because it merely replaces an unfunded liability (benefits in excess of Social Security taxes, mostly in the decades after the Trust Fund is no longer relevant) with the present value of that liability. Again, though, the nature of different types of promises is the key: The Administration’s plan would give current lenders iron-clad guarantees in the form of Treasury bonds, to be offset later by the possibility that future benefits will be lower. The future cuts, though, really are nothing more than politicians’ promises. Bush would have us trade a possible very-long-term benefit for a guaranteed immediate liability. That does not fit most people’s definition of prudent fiscal stewardship.


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Posted by: Perseus

Speaking of a little bit of knowledge being a very dangerous thing:

"Consider the different ways that the government in 1983 might have tried to guarantee such a promise. It could have passed a law with a super-majority requirement, to allow future legislative minorities to block changes in the law."

Sorry, but no Congress can bind a future Congress in that manner. Such a law would be unconstitutional because such a rule can only be sanctioned by the Constitution's amendment process. If matters were as Prof. Buchanan suggests, a simple majority of the Congress could have passed all of the amendments to the Constitution as normal laws and required unanimous consent to repeal them so as to make them more immune to future majorities than constitutional amendments. I believe that even Don Herzog would agree with me on this point.

Posted by: Perseus | Mar 27, 2005 9:53:49 PM

Posted by: john t

Prof. Buchanan Could you please supply the source and context of Bush mentioning default. Ms Anderson's post leaves a door or two open on that. In mentioning reduction of bemnefits are you thinking of SS reduction? If so that would be a given. Am I wrong in assuming that you're against transition costs [increased debt ]when the future promises increased debt with a possibility of higher SS taxes as an alternative. As the trust fund is depleted and no reform in place what would else would be done and what else do you suggest? Signing off for now.

Posted by: john t | Mar 27, 2005 10:31:44 PM

Posted by: D.A. Ridgely

A generally very sound, thorough and sensible analysis, Mr. Buchanan. I'm sure you are already aware of Perseus' point, put perhaps more tactfully, that any extra-constitutional hurdle Congress attempted impose on itself by, I suppose, a rules change, could just as easily be undone by any subsequent session of Congress. Hence, the great "nuclear option" controversy of late.

I remain uncertain, though, why anything you wrote goes to support why Ms Anderson's comments were, as you say, so important. However deep or widespread ignorance of economics or law may be among the American public (and Lord knows I've never claimed more than enough knowledge of either to make myself dangerous, mostly to myself), nothing President Bush has said has led to any measurable panic in the financial markets any more than it has led to the looming threat of revolution and anarchy Mr. Velleman continues to suspect I have been fomenting.

Do you believe her comments are important because there are indeed such dangerous stirrings afoot that I just haven’t noticed or perhaps because they constitute further evidence of the sort of uninformed overreactions to these issues you previously mentioned? Because at the end of the day if all this fuss and feathers is about is only another liberal overreaction to yet another careless or crassly political statement by the president along the lines of the WMD debate, we all have better things to worry about. You know the U.S. isn’t going to default on its debt. I know it. The world financial markets know it. Every major holder of Treasuries knows it. I suspect even Ms Anderson and Mr. Velleman know it, too.

Posted by: D.A. Ridgely | Mar 27, 2005 10:51:05 PM

Posted by: Don Herzog

I believe that even Don Herzog would agree with me on this point.


Posted by: Don Herzog | Mar 27, 2005 10:55:38 PM

Posted by: Perseus

Minor Correction: "... a simply majority of the Congress could have passed all of the amendments to the Constitution" should read "...a simple majority of the Congress could have passed the first ten amendments to the Constitution..."

Posted by: Perseus | Mar 27, 2005 10:57:22 PM

Posted by: D.A. Ridgely

By the way, doesn't every entering freshman forced to take out student loans to get through college and, say, graduate or professional school "trade a possible very-long-term benefit for a guaranteed immediate liability"?

Posted by: D.A. Ridgely | Mar 27, 2005 11:01:34 PM

Posted by: Perseus

Don Herzog: "even" was intended as a gentle gibe at your Constitutional views, which, from what I've seen, are not nearly as objectionable as I had originally feared.

Posted by: Perseus | Mar 27, 2005 11:04:18 PM

Posted by: Perseus

As for DAR's analogy, I suppose that Prof. Buchanan would argue that the magnitude of sums involved in transition costs--trillions of dollars--makes it a much riskier proposition. Then again, the long-term problems with the system also involve trillions of dollars.

Posted by: Perseus | Mar 27, 2005 11:12:12 PM

Posted by: D.A. Ridgely

I merely question the logic of the assertion, per se. Heck, I thought fiat currency was a cash rebate from Italian auto dealers.

Posted by: D.A. Ridgely | Mar 27, 2005 11:17:15 PM

Posted by: neal

(led by Alan Greenspan and Daniel Patrick Moynihan) to “smooth” the financing of the Baby Boomers’ retirements

OK, so we now know that this scheme to increase middle class funding of the federal government is a leftist's idea. How huge is it? Social security is funding the federal government to the tune of 1.7 trillion dollars, most of it since 1988.

Meanwhile, the republican's have been diligent to cut off any kind of equitable repaying of the low tax largess for rich people since 1988 by protecting rich investements, ala capital gains, and inheritance tax reductions in the overall tax rate.

So the middle class will get screwed by the democrats largess to the rich, now safely taxed and in low tax investements, and later because they will be doubly saddled with regressive VATs (they are talking about it, think of how smart the french are) and income taxes. The rich's property accumulated during the low tax years is protected by clever republicans.

Wonderful. How I trust government.

Forget about the talk of default. It's simply a red herring. Here is another example of left and right linking up to screw the middle class.

Posted by: neal | Mar 27, 2005 11:31:39 PM

Posted by: Bret

Sure, the treasury instruments held by the trust fund are as good as gold and essentially as "real". What's not "real" is any sort of guarantee that those funds will be used for the specified purpose. In other words, there's nothing "real" that would stop a future congress, say in the year 203x, to say "hey, paying all these old geezers the benefits promised to them by their contemporaries before we were even born is causing economic strain and severe unrest among younger Americans so we're going to substantially cut those benefits."

While I suppose the government could also decided to confiscate portions of private investment accounts as well at that point (libertarian and anarchist complaints notwithstanding), I think it might be a little harder psychologically and politically.

I don't like the privatization of social security for other reasons, but I still think the trust fund isn't really "real'. The money contained in it is real, but how it's used is not guaranteed.

Posted by: Bret | Mar 28, 2005 1:47:56 AM

Posted by: Literally Retarded

Of course, the most likely scenario is a sharp increase in Federal taxes to support the SS payments, when payroll tax receipts fall short.

That tax increase will slow the economy, which will reduce Federal tax receipts, which will require an addtional increase in taxes, and so on.

This is the time bomb that Bush is trying to defuse.

It is glaringly apparent to the financial markets, and they are watching to see what solution is proposed.

Posted by: Literally Retarded | Mar 28, 2005 6:49:36 AM

Posted by: David Bennett


The Bush administration is not concerned about the "time bomb" of social security. The medicare prescription clause alone is projected to result in a larger deficit, more rapidly. Yet Bush has promised to veto any reforms of this. Similarly the general deficit is a far more threatening "bomb." The issue is philosophical, how retirement is to be organized.

Overall we have a projection of a SS deficit somewhere between 30 and 40 years in the future. All accounting tricks aside, the key to paying it will be the wealth of the nation. If in real terms it has increased at around 2 1/2% annually we can support twice as many people at the same level with the same percentage of GNP as we do now.

Specific financing is a problem, but considerng the stress on the dollar, large increased loans in the next few years are likely to cause significant problems, remember we are dependant on foreign nations to finance much of our current debt. These problems could include much larger increases in interest rates and more significant declines of the dollar. These could do far more to destroy real wealth and disrupt the economy than modest increases in taxes. Indeed one possibility would be stagflation with higher prices in goods, a slower economy and crashes in equities and possubly real estate. These possibilities are already a concern in a number of rather conservative financial circles, borrowing huge sums of money to meet a future crisis would aggravate them. At least at this time.

It is also unckear how much of the tax cuts especially those given to the upper classes have actually aided the economy and production. A significant proportion has gone into stocks which remain overvalued by traditional measures, and except for new offerings or the selling of stcks held by a company such purchases do not directly aid production. There is also the possibility of bubbles in a number of areas, typically these areas are engines of the economy and slowdowns will ripple. Tax cuts have not led to new savings and the whole thesis of the US economic miracle may be based on questionable grounds. Certainly there is a lot of worry in the business community.

Posted by: David Bennett | Mar 28, 2005 7:40:15 AM

Posted by: john t

David Bennett If after months of good economic news on all fronts it is still unclear what benefits have derived from tax cuts at what point in the future does it become clearer,any time frame? The optimism in your 2nd para is belied by your pessimism in the 4th although even there you use the term economic miracle. To the extent stocks are overvalued more cash is transferred to corporations after which they decide how to directly or indirectly aid production. Regarding future sustainability of SS somebody must have disagreed with your assumptions when eligibility age requirements were raised,and as you know another such restriction is on the table,or at least some tables.

Posted by: john t | Mar 28, 2005 9:28:40 AM

Posted by: Simon


Speaking of a little less knowledge being even more dangerous, the Senate already uses certain supermajority requirements in its budgeting procedures.

See, for example: http://www.ombwatch.org/article/articleview/1111/1/86?TopicID=1, which is referring, I believe, to the rules created by the '74 Budget Act.

Those procedures are, of course, ultimately (after the bottommost turtle) subject to majority correction. But that is consistent, I think, with the tenor and intent of what Neil originally wrote.

(And of course I agree that entrenchment -- either statutory or constitutional -- is nonsensical. Heck, /even/ Don says so.)

Posted by: Simon | Mar 28, 2005 9:53:01 AM

Posted by: D.A. Ridgely

While I agree with Mr. Bennet’s statement that “the issue is philosophical, how retirement is to be organized,” it is always prudent to remember that in Washington policy and politics are never far apart. There has been much complaining by some commenters on this blog about ripping off the middle class, but the fact is that most government spending, variously construed, goes back to the middle class. The rich don’t need it and the poor don’t have enough political clout to demand it. Besides, the middle class is where most of the money comes from in the first place.

Thus, insofar as Mr. Buchanan correctly questions whether the certain present liability is worth the problematic long-term benefit of privatization (not being a politician, I can use that term), and while Mr. Bennet correctly notes some reasons to be worried about its effect on the overall economy (I personally worry about rising inflationary pressure), we all know the U.S. government isn’t going to default on Treasuries and that the real worse case scenario here is some mix of a return of inflation, a recession, public debt becoming more expensive as interest rates rise, etc. Bad things, things we hope do not happen, but things we’ve all lived through before and will probably live through again regardless of federal policy. (By contrast, if the U.S. actually defaulted on Treasuries, Mr. Velleman wouldn’t have to worry about the likes of the lunatic fringe, but Wall Street investment bankers would be rioting in the streets of Washington, armed to the teeth and out for blood.)

But the question before the Republicans isn’t so much what is best for the nation as what is also best for the Republican Party. Of course, the two need not be mutually exclusive and, of course, I would make the same cynical observation about Democrats when they are in power. Those of you who care more about policy than politics will be bored or infuriated by this, but the Republican Party has masterfully taken issue after issue away from the Democratic Party in recent years, and issues determine elections. Forget whether the prescription drug benefit to Medicare was good policy, it was good politics – the Republicans were “doing something” people cared about and Democrats were left in the preposterous position of simultaneously claiming that it was too expensive and not large enough. Yes, yes, I know, raise taxes. But people don’t like to pay taxes, at least people outside Ann Arbor, and they don’t understand economics or demographics and they don’t really care. Social Security was always a “pyramid scheme” (a phrase Mr. Velleman first introduced into these debates) in the sense that it depended in large measure for there to be a much larger base of contributors than recipients.

Now, and here is where the liberals will get even more infuriated, many (of us) believe that Democrats in power have used precisely that sort of voter greed and ignorance to their own advantage for several generations. (Recall LBJ’s spending versus taxing policies as one glaring example.) Once, not so long ago, the Democratic party routinely lambasted anyone “rich” enough to own corporate securities and tried to demonize Wall Street in every election cycle. Now, however, most of us middle-class folks own stocks and the Democrats can no longer successfully employ that particular tactic, or must at least be more oblique, only vaguely accusing anyone with a 401(k) of being among the rich and wondering why that hasn’t played as well as it did 50 years ago.

This is where the “philosophical” and “political” points meet. If privatization is tried and works for most Americans, regardless of its start-up costs, that will be a long term win for the Republican party. If it turns out not to work for the middle class, it will backfire and hand power on a plate to the Democrats. Generally, the less the middle-class looks to government for things it has grown accustomed to receiving from government and only from government, the better off the Republican party will be versus the Democratic party and vice versa.

Similarly, I wrote above that the reason most government spending is for the middle class is that the rich don't need it and the poor can't demand it. If the middle class comes to decide it doesn't need much of what government now provides because private alternatives are better, then and only then will the middle class demand less government. Time will tell.

Posted by: D.A. Ridgely | Mar 28, 2005 9:55:54 AM

Posted by: mw

It seems to me that the question of whether or not the trust fund is 'real' is not an economic one but rather a political one. The government need not default on the bonds in the trust fund to break the promise that they represent--all it needs to do is to make the decision NOT to cash and spend them.

Why ever would it do that? Simple--because it couldn't afford to do so. Or didn't want make the other sacrifices (budget cuts in other areas, tax increases) to make it possible. So the retirement age is raised, benefits are trimmed (or not increased at the rate of GDP growth) and, voila, there turns out to be no reason to cash out the trust fund bonds at the anticipated rate. No default involved, but the promise has been broken (or at least renegotiated).

How would the politics be different if there was no trust fund and Social Security had to be funded out of general revenues? I don't think it would make much difference--in coming years, general revenues ARE going to pay for a (growing) portion of Social Security, and whether this money is spent to pay off bonds to pay retiree benefits or whether it's just spent to pay retiree benefits directly makes no financial difference and, because it makes no financial difference, I doubt it will make much political difference.

Posted by: mw | Mar 28, 2005 10:30:33 AM

Posted by: neal

Similarly, I wrote above that the reason most government spending is for the middle class is that the rich don't need it and the poor can't demand it

Excluding defense and the social insurance programs from the picture, about 50 % of the federal budget is for social programs (food stamps, housing, etc). Other big notables include net interest on the debt (17% of the remaining, 7% of the actual), and physical, human and community development (24% of the remaining).

I would say hardly middle class programs. Nor are things such as "affirmative action," etc. These programs are directed at the poor.

What do you think the federal government does for the middle class?

Posted by: neal | Mar 28, 2005 10:39:06 AM

Posted by: Terrier

As one from the middle class, in the middle class all of my life, I must observe that remembering the Savings and Loan debacle it is clear to me what is driving the 'privatization' debate and it is not reduced government services, it is nothing more than a transfer of wealth from the middle class to the upper class with a long term guarantee (note how the 'accounts' are not really yours to do as you want with) of continued revenue. Just how secure the Enron and Worldcom and Halliburton pensioners feel now is how secure the current crop of young people will feel in the future with these accounts. When they go belly up from mismanagement and malfeasance where will the money come to back them up but the US Treasury? Forgive me, Mr. Ridgely, if I don't believe that the Republicans want to cut government any more than the Democrats. Reagan could have done something about it but he sent larger budgets to the hill every year than was actually passed and he did nothing to reduce the Federal work force (Clinton did that.) BTW, I worked for banks in the 80s and saw the Federal money that poured into them like a gulf at the foot of a thousand mile river. I knew people who purchased Savings and Loans because (as they even then explained) they were a license to print money. That whole process was a worse 'rape' of the middle class that any taxman ever dreamed of and it drove a wooden spike into the heart of the middle class savings ethic. Taking the last 'real' guarantee that the middle class has and transferring it to the moneychangers will do nothing but hasten the day that the middle class will melt into Hoovervilles.

Posted by: Terrier | Mar 28, 2005 10:51:30 AM

Posted by: D.A. Ridgely

Um, you wouldn't consider defense and social insurance programs middle class benefits? I would. For that matter, most of the debt being maintenanced would have to be included. Oh, sure, defense is for everyone and Social Security is for nearly everyone and so is are virtually all the federal regulatory programs, public works programs, national parks, etc. But "everyone" is mostly middle class people because most people are middle class. Take those splendid folks at the Transportation Security Agency scrounging around in your underwear, for example. The rich can charter flights and the poor don't fly. For a tip-of-the-iceburg list of the many wonders and, ahem, benefits of the modern welfare state, I refer you to Mr. Velleman's litany on Ms. Anderson's recent thread.

Posted by: D.A. Ridgely | Mar 28, 2005 11:04:33 AM

Posted by: D.A. Ridgely

Terrier, you may be right. But insofar as the parties divide philosophically (which I have previously noted many times they do less and less), I think my analysis is sound. By the way, these accounts were first floated as being under the full ownership and control of individuals, but the idea was shot down politically because we all know, and Democrats continue to remind us (in this particular case for the time being, correctly) that most people couldn't or wouldn't manage the accounts responsibly themselves and, of course, we'd only have to bail them out later then. Still, one step at a time...

Posted by: D.A. Ridgely | Mar 28, 2005 11:10:09 AM

Posted by: neal

Um, you wouldn't consider defense and social insurance programs middle class benefits? I would.

Social Insurance. Well, let's see. I've been paying social insurance for the last 20 years, fifteen percent of my income, and haven't seen a dime, so not exactly. But seriously, it seems mostly to affect everyone pretty much based on what they put in, isn't it, except that recently it has been raided for general fund purposes. Other than that I would say social insurance is class neutral.

Defense is primarily a benefit to the wealthy. The Huns aren't going to raid the US because of the Barios in San Jose, they are going to raid because of its wealth, which last I checked was pretty well locked up in the hands of the few.

Posted by: neal | Mar 28, 2005 11:40:44 AM

Posted by: Terrier

D.A. Ridgely, while you're busy selecting your favorite weasel based on the purring sound they make when you stroke them note that their handlers are eyeing you like a cartoon wolf gazing at a sheep. When you are fleeced it will be a matter of no consequence who held the shears. And tho I worry that they may shave you, I fear that they will devour our children.

Posted by: Terrier | Mar 28, 2005 1:16:55 PM

Posted by: Sebastian Holsclaw

The appeal to the full faith and credit of the US government obscures the key reason why people correctly say that US Treasuries when held by the US Government are not assets.

If there is no Social Security Trust Fund, one or more of the following things will happen.

A) The economy grows fast enough that there is no crisis.

B) Benefits to Social Security get cut (either directly or by adjustments to the retirement age).

C) Taxes are raised to cover Social Security benefits.

D) Other government programs are cut to provide money for Social Security benefits.

If there is a Social Security 'Trust Fund', one or more of the following will occur:

A) The economy grows fast enough that there is no crisis.

B) Benefits to Social Security get cut (either directly or by adjustments to the retirement age).

C) Taxes are raised to cover Social Security benefits.

D) Other government programs are cut to provide money for Social Security benefits.

I'm sure you will notice that precisely the same scenarios exist both with and without the Social Security Trust Fund.

Posted by: Sebastian Holsclaw | Mar 28, 2005 2:55:53 PM

Posted by: Perseus

Simon: Prof. Buchanan used his example as the strong extreme of making Congress keep its promise (with "the toothless extreme" being "a passage in the statute to the effect that 'future Congresses should take note of the promises made here'"). Specifically, he posits including a super-majority rule that would "allow future legislative minorities to block changes in the *law*." That's entrenchment. Senate rules such as the one you cited (or even the more familiar filibuster) are not *laws* since all laws must be passed by both houses of Congress and presented to the president.

Like Prof. Buchanan said, a little bit of knowledge is a very dangerous thing.

Posted by: Perseus | Mar 28, 2005 3:59:39 PM

Posted by: Colin Danby

1. I'm reminded of a book by William Cannon, _New Class Politics: The Polarization of America and What We Can Do About It_ (IPS, 1986) which I'd call a genuine class analysis of the early Reagan budgets. Cannon works through the budget category by category and tries to figure out who benefits from what. You don't have to agree with his conclusions, but it's an example of the kind of careful, data-driven analysis that one needs to think usefully about this. It also becomes clear that you need thoughtful and fine-grained definitions of classes. Cannon is also, if memory serves, harshly critical of D.P. Moynihan. I'm still chuckling over the notion that Greenspan and Moynihan would be associated with anything "leftist" -- "left" and "right" have become categories so sweeping and ill-defined that they obstruct understanding.

2. Neil Buchanan's very helpful writeup has an interesting parallel to the question of contracts in libertarian thought that comes up in another thread on this site. What is the relation between the synchronic and the diachronic? What influence can one have on a future outcome? One can think of a question of allocation of resources in a given moment, or in say a given year, in essentially adversarial, power-politics terms. But clearly that's not a complete explanation for what happens. Individually and in groups, people do many things -- sign contracts, make promises, pass laws, ratify constitutions, declare human or property rights, and publish party platforms -- which are efforts to bind what people will do in the future, and which are all little more than cultural performances: rituals, words on paper, spoken declarations in public. None of these performances is as "real" as a hot meal or a roof over your head. All of them can be potentially ignored by people with superior force, or undermined by other cultural performances. (We've seen for example dramatic evidence of how easy it may be to undermine respect for judicial decisions and for judges.) On the other hand it's remarkable how successful most of these performances are, so you can't just move to a nihilist position that it's all mumbo-jumbo. Now if you agree with me that these diachronic links are essentially cultural, in the larger sense of the term -- the creation, manipulation, and circulation of meanings -- it's then harder to draw a bright line between one side of culture and another -- between an office-holder's casual utterances on the one side, and respect for codified obligations on the other. Government debt can be contested. There are certainly historical examples in which governments have defaulted on their debts, or allowed inflation to erode their real values. Some of you may remember the game of chicken around the gov't shutdown in the Clinton administration, which also turned on a similar question of just how sacred debt repayment was.

Posted by: Colin Danby | Mar 28, 2005 4:10:19 PM

Posted by: Simon


You insist on a distinction without difference. As a practical matter, the Senate's super-majoritarian rules (whether the filibuster or budgetary) allow for a form of entrenchment without the "law" for which you yearn. Why the Senate could not adopt a similar rule to protect Social Security is unclear. (It's been a long time since I read on this question, but I think there might be reasons why the House could not follow suit. Not that they haven't tried -- type "supermajority" into THOMAS and wile away the rest of the day.)

Of course, your obsession with this relatively trivial point does raise an larger, more interesting issue. Suppose the 1983 law (passed by both houses, signed by President Reagan) included some sort of super-majoritarian entrenchment requirement. How do we test its constitutionality? Can a private citizen sue? Can a member of Congress (or the institution itself) sue? Or maybe all that needs to happen is Congress passes a new law that says, inter alia, that the old law is no longer good law?

I suspect that the last course would be the only one open (I have a hard time imagining a court willing to address suits by priviate citizens or individual legislators on this topic.) If that is the case, then the supermajority requirement, while ultimately legally toothless, could still serve as an important political obstacle to changes in the law.

But again, this is really beside the point. Neil was contrasting both the empty promise and the supermajority requirement with the system that was ultimately adopted.

Posted by: Simon | Mar 28, 2005 4:44:19 PM

Posted by: Perseus

According to Prof. Buchanan's profile, he "received his J.D., magna cum laude, from the University of Michigan Law School in 2002," so I assumed that he was more careful in his wording--"statute" and "law"--than your average economist. Perhaps, like the old joke about the economist stranded on an island with canned food, I simply assumed the existence of a can-opener. And in defense of Don Herzog (Edson R. Sunderland Professor of Law at the Univ. of Michigan), I will also assume that Prof. Buchanan didn't get the entrenchment idea from him.

I'm no expert on issues of standing, but my guess is that a member of Congress could in fact sue to challenge the constitutionality of such a law, presumably when a legislative minority blocked a change in the law via the super-majority requirement.

Posted by: Perseus | Mar 28, 2005 5:30:03 PM

Posted by: BigMacAttack2@yahoo.com

While I really liked what Sebastian Holsclaw said I want to expand on MW’s point in another direction.

When I buy a T-Bill the terms of my contract are fixed. The amount I am paid on X date is agreed upon.

This is not true with the SS trust fund.

So Krugman, Buchanan, et al are constantly reminding us that the SS trust fund is like a giant holding of government bonds. The terms aren’t fixed. If only that was the case!

Because the SS Trust fund is currently paying out stock like returns.

Proposed adjustments are about making the returns more bond like.

Neat huh! They are bonds that pay out stock like returns. Why I dislike modern liberalism, reason #43.

Posted by: BigMacAttack2@yahoo.com | Mar 28, 2005 5:43:06 PM

Posted by: Simon


First, while entrenchment may seem crazy to you and me and Don, it is hardly unknown. See, for example, THOMAS like I mentioned earlier. Or, for that matter, Article V. Or the German constitution. Or the work of Bruce Ackerman (Sterling Professor of Law and Political Science at Yale University).

Second, on the issue of standing, I'm not sure whether an individual legislator would have standing based on the diminishment of the influence of his or her vote. I want to say that courts have already addressed and rejected standing in such cases, but I'm away from my books and can't confirm that. It's far more likely, I'd think, for courts to reach the issue when some private citizen (or legislator qua private citizen), harmed by the failure of Congress to abide by the supermajoritarian requirement, sues to try to declare the law passed without a supermajority a nullity. But there are all kinds of reasons why none of this would never happen, some of which might even go to Neil's original point that the supermajoritarian requirement would provide some imperfect protection for the Social Security law.

Finally, though, I really do think you're reading this too hard (and I'm equally culpable for egging you on.) At this point we're arguing about corollaries to tangents, none of which go to the fundamental soundness of Neil's post.

While we are considering extrinsic evidence of corollaries and tangents, however, I really must correct one of your last points: Don serves not only as Edson R. Sunderland Professor of Law but also as a Professor of Political Science. If you're going to try to puff him up you might as well finish the job.

Posted by: Simon | Mar 28, 2005 6:04:36 PM

Posted by: David Velleman

Mr. Ridgely writes that individual freedom in managing the privatized accounts has been limited on the grounds "that most people couldn't or wouldn't manage the accounts responsibly themselves ". That's wrong. The reason is that, no matter how responsibly people managed the accounts, there would still be winners and losers. (Liz explained this back here)

I see that Mr. Ridgely's campaign against FDR and LBJ is gathering steam. I will certain vote against re-electing either one of 'em. How inconvenient for his argument that it doesn't fit the most recent Democratic and Republican administrations. Oh -- I forgot: they're sui generis!

Posted by: David Velleman | Mar 28, 2005 6:11:11 PM

Posted by: Terrier

David Velleman, you should know that Mr. Ridgely lives in a world with the Republican and Democratic parties that he wishes he had, not the ones he actually has!

Posted by: Terrier | Mar 28, 2005 7:08:27 PM

Posted by: Perseus

1) My objection to entrenchment was to its use in the normal legislative process precisely because it violates the higher law of the Constitution. Having a version of it in the Constitution is a different matter.

2) My mention of Don Herzog being a professor of law at UM was merely to show (but ultimately deny) a possible influence on the views of Neil Buchanan (who received his law degree from UM Law recently) in this matter, not to puff up Herzog, whose credentials hardly need burnishing by the likes of me.

3) I never claimed that my comment went to the overall soundness of the post. It was clearly a "blooper" tangent pointed out by a guy in his living room in his pajamas.

As for the post itself, Anderson and Buchanan have yet to prove their inference that Bush is seriously threatening default on these "special issues." Like John T, I'm waiting for something more definitive than the president's statement in a political speech denying "there's a pile of money being accumulated" in the SS trust fund. As has been pointed out many times now, it far more likely that the government will cut benefits, increase taxes, borrow more, print lots of Federal Reserve Notes, and the like.

Posted by: Perseus | Mar 28, 2005 7:18:38 PM

Posted by: Wild Pegasus

I think, when conservatives and libertarians say that the Social Security Trust Fund isn't real or is a farce, they're not saying it's a put-on. What we're saying is that the Trust Fund doesn't change what's going to have to happen in the future: taxes or borrowing will have to increase, or benefits will have to be cut.

- Josh

Posted by: Wild Pegasus | Mar 28, 2005 8:11:04 PM

Posted by: Simon


Now I'm intrigued. I can recite fairly easily the standard objections to supermajoritarianism in a democracy. But I'm at a loss, looking at Article I, to find where such rule is specific to the Constitution. The only reference to legislative majority that I can find deals with quorums, not final passage. It seems to me that the same basic problems of statutory supermajoritarianism would apply to constitutional supermajoritarianism, and vice versa. A neat game of political and legal theory, but not one I see as creating the distinction you wish to draw.

As to the magnitude of Neil's blooper, you may well have him beat on his apparent lack of knowledge of the difference between a law and a Senate rule. (Don, is there any way to revoke his degree? Or strip him of Latin honors? Anything? Anything? Think of the children.) It seems, on further review, however, that the 1983 compromise /did/ establish some supermajoritarian protections for Social Security. Who knew? http://www.ssa.gov/history/bushstmts.html

As for the substance: you question whether our President is "seriously" threatening default. Does this mean that you think he is doing so casually? Or perhaps inadvertantly, like the time he caused a ruckus in Japan because he didn't know (or couldn't articulate) the difference between deflation and devaluation?

Posted by: Simon | Mar 28, 2005 8:15:19 PM

Posted by: Thomas

Once we acknowledge that debts can be rolled over--as the author of the post does--what's left of the "threatened" default?

After all, in 2017 (or whatever the year turns out to be), the SSA can present its bonds for payment, and the government can, in response, issue new bonds to SSA.

No cash would be supplied to SSA to pay benefits, but the obigation to pay cash at some point in the distant future would still be there, as good as ever. And the bonds can be cashed at the convenience of the government, when funds are available. Until then, pile up the IOUs as high as you can.

Similarly, one could simply roll a portion of Medicare expense from the general fund into Social Security, and cash the bonds out very quickly, with additional "retirement security." Surely that's not a default, but it looks to me like it would be a permissible legislative option.

I was 12 years old in 1983. What did the law say to me? Was there a promise made to me? Neil seems to think that the 1983 law spoke to boomers, but presumably laws speak to all citizens. I think I know what the 1983 law says to me, and to my children, but this is a polite conversation, so I won't say it here.

Posted by: Thomas | Mar 28, 2005 10:55:02 PM

Posted by: john t

I,ve seen some comments on this post to the effect that if the economy grows at such and such a rate this will ameliorate SS problems. However predictions of growth are not as feasible as predicitons of demographic change. Not to say it won't happen but the rate of contributors to the rate of Social security recepients will continue to decrease. Implicit in this argument is the unstated need to raise SS taxes,"we can do this in a growing economy". Because if you don't raise taxes it really won't matter what the economy is doing. We may be turning out more hula hoops and widgets and more SUV's but still be stuck with a declining pool of SS payers. I know there are economists lurking out there waiting to pounce on the uniniated while sitting raised on their well thumbed copies of Samuelson,Keynes,and Kuttner and I'd be interested in their thoughts. Pounce away.

Posted by: john t | Mar 28, 2005 11:09:41 PM

Posted by: Perseus

1) Here are a couple of links on the issue of super-majoritarianism and the Constitution:




2) Based on arguments like those cited above, the Senate's apparent super-majority rule on the SS trust fund, like the filibuster, could be altered by a simple majority of the Senate, which, once again, vitiates Prof. Buchanan's claim about placing restrictions on future legislatures.

3) I don't think that the president is threatening default, seriously or casually. I think what he's saying is: there's no "lockbox" (to use Al Gore's term); the SS trust fund is not "off-budget;" or, to use Gary Becker's formulation, the government is not "'putting aside' assets for the future." Instead, the SS surpluses are merged into the consolidated federal budget account and spent, which is standard operating procedure in Washington. This is what I believe the president is getting at.

Posted by: Perseus | Mar 28, 2005 11:26:40 PM

Posted by: D.A. Ridgely

Mr. Velleman's comments are comforting insofar as I now understand he has no objection, per se, to sarcasm.

If he is unaware of objections to unrestricted privitization either expressly or implicitly arguing that individuals could not or would not manage such accounts responsibly, this may result from too few sources of information outside the New York Times, his six NPR stations, and the musings of his colleagues. Of course, there are winners and losers in his preferred system, too: generally women and African American males, respectively, but why quibble over anything so incidental to liberal policy preferences as data? Indeed, let's not re-elect FDR or LBJ again and while we're at it ask his preferred major party to stop running against Herbert Hoover. (Although, given the results of such tactics, perhaps we shouldn't at that.)

In any case, his incorrect reference to my prior use of the phrase sui generis -- I said only that Clinton was -- is, I trust, indicitive only of carelessness on his part and not intentional misrepresentation. Certainly, I would be reluctant to accuse him as he once accused Posner of engaging in a diatribe.

Posted by: D.A. Ridgely | Mar 28, 2005 11:41:36 PM

Posted by: stick

T-bills are a sort of speculation, but probably don't make much money for investors, and the big financiers want a cut of the social security tax base. Why not transfer funds to some private accounts so that both investors and speculators could see some real profits (and of course make it on bull or bear market even if your retirement is being gambled away). Maybe hire Michael Milken as Chairman of the Fed.

Really it would be nice to see a real economist discuss why gas prices just went up 40 cents a gallon ( and what do you bet some investors realized a fortune on that move in the futures market, while millions of working class people gotta pay out another coupla twenties a week.)

Posted by: stick | Mar 29, 2005 12:43:46 AM

Posted by: Perseus

Just to add to DAR's comment about restrictions on private accounts, wasn't David Velleman (tongue-in-cheek) complaining not too long ago about not being able to use all of the money in his private retirement account to buy a boat when he retires?


Posted by: Perseus | Mar 29, 2005 2:03:02 AM

Posted by: Simon


First off, who am I to disagree with Vik Amar? Having said that, I didn't find his discussion of supermajorities all that compelling, at least as a matter of US Constitutional law (as opposed to a broader prohibition applying to legislatures and the Constitution itself.) He alludes to "strong indications in Supreme Court caselaw that the Court would not approve of the 67-votes-to-amend rule-change rule, and would deem it unconstitutional," but then cites to only two cases that are basically inapposite -- INS v. Chadha and Powell v. McCormick. (The former dealt with the ability of a single house of Congress to block action by the executive; the latter with courts' ability to entertain a suit by a congressman wrongly denied his seat.) A quick search of Supreme Court caselaw revealed only ten instances where the Court discussed supermajorities, none of which come close to applying here. Maybe Amar has some other cases in mind but I can't divine what he was referring to. (Amar also runs afoul of Simon's First Rule of Constitutional Interpretative Theory: Any theory that relies on capitalizing "We the People" is probably nuts.)

Of course, I agree that any Senate supermajority rule is ultimately subject to correction by the majority (that's what I said in my very first comment in this thread.) I draw very different conclusions than you about that evidence, however.

Consider the filibusters of judges. The Democrats intransigence threatens the most important Republican goal (and probably the most consequential) of the last quarter century. Yet the Republicans have refused thus far to break the filibuster (and will probably continue to refuse to.) Why? Because the political cost of doing so is too great. A similar dynamic (buttressed by the program's political appeal) would likely protect any supermajoritiarian rules about social security.

This leaves us where we started: with more protection than a simple promise, but less security than the mechanism ultimately adopted.

Posted by: Simon | Mar 29, 2005 9:02:41 AM

Posted by: David Velleman

Mr. Ridgely: The point of saying that there will be winners and losers is not that some will benefit more than others: that's unavoidable. The point is that some will have enough for their retirements and others won't. And Social Security is designed to prevent that outcome.

Posted by: David Velleman | Mar 29, 2005 9:14:03 AM

Posted by: D.A. Ridgely

Well, Mr. Velleman, the point of Social Security is to supplement one’s retirement income and assets regardless of what you or your colleagues might like its point to be. Those who die before they are old enough to receive benefits are complete losers (many African American men); those who make minimum contributions throughout their lives receive benefits far too small to survive on; those who put make minimal contributions early in life, then withdraw from the employment market to raise families and then return to the market in middle age to complete their required units at higher incomes and thus top out in benefits and live another twenty or more years are big winners (almost invariably women). So we’re agreed that there are always “winners and losers” and we are left, as the old joke goes, only arguing over the price.

It is odd, though, or at least worth mentioning, how much friendly interpretational latitude you seem all too ready to give to your own comments and those of your colleagues in contrast to how relentlessly punctilious you sometimes are in criticizing the comments of those with whom you disagree. Or am I just being unduly sensitive?

Posted by: D.A. Ridgely | Mar 29, 2005 9:36:51 AM

Posted by: David Velleman

No, I've been unfair. I get upset about what sounds to me like wholesale bashing of "gov'mint". I should have remembered that you are not a "basher". I apologize.

Posted by: David Velleman | Mar 29, 2005 10:00:10 AM

Posted by: D.A. Ridgely

Thank you. I freely admit to doing a fair bit of government bashing at the retail level (but only when I think what the government is doing is inappropriate or unnecessary or that there are better alternatives available), and I fear my own rhetoric all too often tends to get overheated when I respond in frustration to some of what I read; so I apologize as well.

I have no desire to see older Americans or anyone else living in dire poverty, I am an ardent critic of the Bush administration on many issues (and supported Clinton when I thought he was right) and I recognize that any policy shifts entail risks. My political and economic views might be completely wrong, but they are not motivated by survival-of-the-fittest indifference to the plight of the poor. I would much prefer getting and keeping people out of poverty to merely ameliorating its effects. However, I admit that it’s not an “either/or” situation, that people will fall through the cracks of any system and that society has a moral obligation to assist such people. Whether the best way to do that is publicly or privately is another question; indeed, it is basically the question we are examining in these conversations.

Let me make one more point about Social Security versus some form of vested personal account system, not to grind an axe but to point to what I think is one of the rarely discussed potential advantages of some form of the latter system. For those who have lived in poverty or marginal poverty for generations, one of the principle barriers to escape from that poverty is their inability to accumulate even fairly small sums of capital, living paycheck to paycheck. The vested capital which someone who dies in his late 50s or early 60s and leaves to his family might make the difference between that family purchasing a home, sending someone to college, starting a small business or not. The Grameen Bank system has demonstrated that access to even small sums of capital can make all the difference in the world for some people. There is no single solution to poverty, but the ability to build and pass on some generational wealth as a potential factor in that solution should not be overlooked too readily.

Posted by: D.A. Ridgely | Mar 29, 2005 11:42:34 AM

Posted by: Terrier

D.A. Ridgely, would you support removing all the crazy rules and restrictions on 401Ks and similar accounts and giving a flat tax cut for money invested in those accounts and leaving Social Security alone?

Posted by: Terrier | Mar 29, 2005 12:23:41 PM

Posted by: D.A. Ridgely

Terrier, I take that as a serious question and my serious answer is I don't know. I'm certainly in favor of the former, but do you really think Social Security can be left alone as it currently is for the next half century; that is, without some increase in taxes or reduction in benefits or older eligibility age, etc., etc.? I'm all for "have my cake and eat it, too" solutions if they will work, but I think the demographic realities are that, private accounts or not (and without any silly talk about "crisis"), some changes to Social Security are inevitable. Don't you?

Posted by: D.A. Ridgely | Mar 29, 2005 1:15:13 PM

Posted by: Terrier

D.A. Ridgely, my serious answer is I don't know. My guess is that if we just increase the ceiling for paying into the system we may buy ourselves a great deal of time. If, in the process, we reduced the barriers to saving imposed mainly on the middle class then people (the miraculous market!) may spontaneously find a better system of retirement savings that would reduce the need for Social Security to the point where we could means test it and reduce the tax. If you really have faith in a private solution then why not provide a way to let that solution work for a while at least before deciding to jerk the tablecloth off to see if any dishes will remain standing? The future may find our descendants speaking Chinese and working in sweatshops to produce sneakers for the master race for all I know - I would consider it irresponsible if I insisted that you make all your decisions now based on that possibility. Give the middle class a chance to save by themselves, with their own money before you decide they need government managed, Wall Street kicked-back accounts - is that too liberal for you?

Posted by: Terrier | Mar 29, 2005 3:11:07 PM

Posted by: D.A. Ridgely

Terrier, not at all too liberal. Nor have I ever suggested jerking out the tablecloth, as you put it. I would worry, however, that what too many people would do would be to continue to rely on the prospect of Social Security for much (and in many cases too much) of their retirement income and that the unregulated 401(k)s would merely supplant whatever private savings responsible people were doing anyway even in their absence. Still, offer me a tax credit for a personal use and you'll find it difficult for me to say no regardless of whether I think it will achieve its policy objectives. By the way, I favor the same sort of gradualist experimentation in medical savings accounts, but I don't think there is enough evidence yet to suggest whether they should be expanded, revised, etc.

Posted by: D.A. Ridgely | Mar 29, 2005 3:27:01 PM

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