Arnold Kling  

Social Security and Real Production

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Don Lloyd decries the accounting approach to Social Security.


The common flaw in all of the proposed remedies above is that they focus on dollars and money. This is too narrow and ignores the fact that the primary end goal of an economy is the actual consumption of goods and services. Production would be pointless unless the goods produced are expected to be consumed.

I expressed the same sentiments in Farmers and Parasites.

For Discussion. Is there any chance that raising the retirement age in exchange for lower Social Security taxes would fly as a policy for young workers?


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CATEGORIES: Social Security



COMMENTS (11 to date)
Dave Meleney writes:

Very tempting idea. Young workers'll be delighted to pay less tax in exchange for making their infinitely remote retirement checks just a bit more remote. But won't they then be more and more distanced from the whole system and in search of ways to shuck these "responsibilities"? Will the oldsters be ready to sell this gambit to the young on the assumption the young will have few plausible escapes?

Jason Ligon writes:

That would fly. It isn't the option we'll get, though. We in the 30 somethings will get delayed payments or reduced payments (same thing) and higher taxes to support the never ending demands of the boomers.

There are more of them than us, so it doesn't matter what we want. They will vote us into government dependency and ask why we won't do the same to our children.

spencer writes:

As a not so young reader (62) the social security
system is already partially set up that way. You can start collecting SS at age 62 with no restrictions. But, every year you wait your SS payments goes up over 7%. The reason most retire at 65 is not the SS regulation, but the private sector rules. It is not taxes, but payments that are set up that way. The problem with making the
tax or payment into the system variable is that no one has an intelligence way of making that choice--when you are 22 you can not make an informed guess of when you will want to retire.

Mark Horn writes:

As a young-ish worker (36) I would gladly not pay any social security taxes today for no social security benefits in the future. That means that I would have to fund my entire retirement on my own. But my plan already assumes that I'm going to have to do that anyway, and that at some point social security is just going to collapse. The sooner that I don't have to pay into a doomed system, the more that I have available to invest in my self-funded retirement.

So count me in.

Lawrance George Lux writes:

The Republican answer to Social Security always makes me ponder on their grasp of reality, not saying anything about your proposal. The Young would go for lower taxes anytime, and they would insist on full benefits at a later date when needed. Republicans must understand they are not going to push American Voters or SS recipients into some Lockbox, where they are never allowed to change it again--it will never happen!

The Social Security issue is easy to solve, if one has the resolve. State that Social Security is a Social and Political issue concerning all, and it simplifies. You can remove the limits on total payments, saying it is just a percentage tax on total Income. Then you can say that it is an issue for all of Society, not just Labor; it will allow for Business and Corporate income to be taxed by like amount. Then you can resort to Means-Testing, and tell Everyone they will not draw until they actually need it--if ever. lgl

Bob writes:

To answer Arnold's question: I think young workers would embrace the trade-off because most anticipate SS being a bad deal. If young workers heavily discount future benefits (probably both rationally and irrationally), it is a no brainer.

A different question: Does it even matter whether SS is public or private?

Let's assume SS was always private (but forced) and all contributions were put in the stock market. Does the equity risk premium fall (causing stock prices to rise) during the baby boom's peak earnings years? Then does the risk premium jump (causing stock prices to fall) as the majority of the boomers move into retirement? If so, the front end of the baby boom makes out like bandits and the tail end on gets hosed. Same as today.

I don't think this changes if you switch to consumption. Prices and wages trends substitute for changes in the equity risk premium. In a private system the tail-end boomer farmers would get screwed as they work hard up until retirement to produce cheap food for the front end of the boom and see food prices rise as they retire. Of course, in the current system the parasites might try to raise taxes on the farmers to recapture their desired consumption. While that might be possible in the farmer analogy, most workers will not be tied to the land and might be able to avoid onerous taxes.

So, as the (farmer) labor market shrinks relative to the (parasite) retirement pool, the parasites will get less (unless third-world "farmers" bail them out). Public or private system, when there are only a few farmers, economics suggests that they will call the shots. Politics might say otherwise but even there redistribution always seems to happen from the many to the few, not the other way around.

Mcwop writes:
Is there any chance that raising the retirement age in exchange for lower Social Security taxes would fly as a policy for young workers?

Yes, many would take it because they would rather pocket the money. Example, many of the younger participants in defined contribution plans, which I deal with, do not contribute despite generous matches. Mainly because they would rather not part with the dollars. The participantion rate can be aroundd 50% for the under 28 group. Through education we have moved rates for this group up to 70-80% within a year. So if they are educated about the tradeoff specifics, whatever those may be, there may be fewer takers.

Just a note - most retirees begin taking SS benefits before age 65. While this is beneficial for some (breakeven age), it is not beneficial to many married retirees.

Taxes that fund social security are simply a generational transfer. The money I pay goes to my grandmother, who spends it on stuff. The money stays in the economy. The problem is that these taxes keep the cost of labor higher, and if those taxes go up significantly, then the third world worker looks like and even better bargain. There is a point at which my return on the dollars could stink, and generate a guaranteed loss. This does not seem to be the most productive use of those dollars.

Austin Johnson writes:

Social security was great for some of the older people in my family. They earned 10x what they put into it. The problem is that it depends upon the US having a massively growing population. People who are younger will probably get 1/2 to 1/10 of what they would earn if they had invested it in the stock market.

The best way to increase the standard of living for retirees would be to privatize social security. The obvious problem is, can you really trust people who don't know how to manage money to have their social security privatized?

I think the best way would be for social security to be privatized and RUN BY THE STATES SIMILAR TO 401k's. Each state would manage the privitization similar to companies for 401ks. You would have an array of bonds and stocks that you could put your money into.

shamus writes:

Younger people haven't been able to organize themselves politically, so I would expect them to get stuck with higher taxes, lower benefits, and perhaps a later retirement age. Since they're going to pay higher taxes and get lower benefits, it wouldn't be a good strategy to volunteer for later retirement.

Bill Fellers writes:

It's true that young people haven't been able to organize themselves politically, but don't underestimate the energy of young people. When (and if) the SS mess hits the fan, I imagine that there will be a "revolution". I would not be surprised to see assassinations and domestic terrorism. All it would take is one charismatic leader to point the blame at the (still living) politicians, the elderly, academics, etc. I'm 34 and I consider myself a fairly reasonable person, but if I see my self-employment tax increase past the current 15.3%, my anger will be hard to constrain. I won't turn to violence, but I will vocally express my hated at my "enslavers" and I will do whatever I can to increase hatred of the government and the voters that support the government's policies. I'm only one person, but I've managed to convince at least five people that taxation equals (partial) economic slavery. Each of the five now hates the government more than before.

People tend to concentrate on the practical issues surrounding the unsustainable welfare state. They tend to underemphasize the potential for violent upheaval. Young people get angry very easily.

T.I. Andor writes:

The social security system should be scrapped. Period. Let everyone take responsibility for their own retirement. If they're stupid and do nothing, too bad for them when they get old; they'll just have to rely on private charities. Give everyone back every dollar they paid in and shut it down right now. It's that simple. If the stupid government has to print more dollars to do that, fine. Let the world see what idiots they truly are and let the inevitable hyperinflation begin.

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