Bryan Caplan  

Who's More Irresponsible?

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One of the main rationales behind welfare reform was the view that teenage single moms are irresponsible. Since their predicament is in large part the result of their own high-risk behavior, they're less deserving of help than, say, the congenitally blind.

This rationale seems right to me. It is irresponsible to have a child who you aren't able to financially support, and irresponsible people are less deserving of help.

Now consider: One of the main stumbling blocks to Social Security reform is the view that left to their own devices, many people will fail to save for their own retirement, and "we as a society" can't allow them to live in poverty. Objectively speaking, however, there is a strong case that people who fail to save for their own retirement are much more irresponsible than teenage single moms.

How so? You can become a teenage single mom just by yielding to impulse once. And once you have a child, it takes two decades of hard work to make up for your youthful indiscretion. I won't say "It could happen to anyone," but there are a lot of responsible adults out there who are lucky that their risky teen-age behavior didn't happen to mess up their lives.

In contrast, no one fails to save for his retirement because of a few minutes of teen-age passion. To fail to save for your retirement, you need to make the wrong decision week after week, year after year. If you're too immature to save for your retirement in your twenties, you have a second chance in your thirties, a third chance in your forties, and so on. In short, to fail to save for your retirement, you have to be consistently irresponsible for decades.

The upshot is that the moral objection to Social Security reform is greatly overstated. Elderly people who fail to save for their retirement are at least as much to blame for their plight as teenage single moms. My Non-Bleeding-Heart Libertarian view is that both groups should have to rely on family and private charity. But if that's too harsh for you, there's still every reason to make old-age payments as stingy, means-tested, and stigmatized as welfare payments. Indeed, since failing to save for forty years is a lot more irresponsible than failing to use birth control a few times when you were sixteen, there's every reason to make old-age payments more stingy, means-tested, and stigmatized than welfare payments.


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TRACKBACKS (9 to date)
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The author at De Gustibus Non Est Disputandum in a related article titled Você versus a mãe solteira writes:
    Quem é mais irresponsável: a mãe solteira que deseja subsídios ou você que não calculou direito sua aposentadoria? Byran Caplan já sabe a resposta e você não vai gostar dela, exceto ser for uma pobre mãe solteira. Claudio... [Tracked on December 6, 2005 7:07 AM]
The author at The Club for Growth Blog in a related article titled Tuesday's Daily News writes:
    Having It Both Ways on Tax Relief - Larry Kudlow, Money Politics ‘The Tax Cuts Are Working’ - New York Sun Editorial Permanent Tax Cuts Urged by President - Washington Times End Farm Subsidies - Orlando Sentinel Editorial Who Pays... [Tracked on December 6, 2005 9:54 AM]
The author at Mike Linksvayer in a related article titled Are you more irresponsible than a teenager? writes:
    Bryan Caplan: [T]here is a strong case that people who fail to save for their own retirement are much more irresponsible than teenage single moms. How so? You can become a teenage single mom just by yielding to impulse once. And once you have a chil... [Tracked on December 18, 2005 1:04 AM]
COMMENTS (30 to date)
David writes:

I think that the moral objections to social security reform are based on fear of the market. Someone could have saved for his retirement his entire life, only to have his nest egg wiped away by a market crash.

Brandon Berg writes:

I'd say that that's a strategic objection, not a moral objection. No one has to invest in stocks. And according to modern portfolio theory, those who do should shift to more secure investments as they approach retirement.

The objection is that some will choose to invest irresponsibly, not that anyone will be forced to.

Adam writes:

In addition, while teenage mothers may be irresponsible, that's not the fault of their children, who it could be argued do not deserve to grow up in debilitating poverty because of their mothers' indiscretions. On the other hand, it's hard to see how failing to save for your retirement hurts someone innocent.

Ronnie Horesh writes:

It's quite rational not to save for retirement, at least for those who aren't rich or canny enough to set up trusts etc. There is a good chance that government will at some point in the next thirty years tax your savings, or strip your assets, while channeling funds to those who didn't save, or who blew all their savings on extravagant consumption.

Bill writes:

My issue with this argument is the existence of Social Security and Medicare. Having over 15% of every penny earned confiscated makes it harder to save for retirement. Eliminate this tax and people will likely save more. I most certainly would. Many if not most SS recipients paid a fairly large sum of money into the system, so it's not surprising that they expect some back. Teenage mothers that go on welfare generally haven't contributed any money whatsoever.

John Brothers writes:

Hmm. I would expect the standard progressive answer to this would be 'Those poor old people never had enough money to make ends meet, and now you're claiming their irresponsible because they chose to feed and clothe their children instead of putting money into a retirement system run by arrogant white men? You're a racist class-warfare whore, Kling!'

Rhetoric aside, there are a couple of important points there that need to be addressed.
1) Shame would be one way to get poor(er) people to value investment over Xboxes, but progressives hate the idea of using shame to motivate anyone who isn't rich.
2) Maybe the EITC could be put in an IRA on behalf of the poor person?
3) Many poor people I have known lack the willpower to make long-term sacrifices for their own good. That's generally why they are poor. It would be nice if this was taught and reinforced in school.
4) Many people (not just the poor) underestimate the long-term risk of an immediate-gratification purchase, relative to the risk of buying stocks (or even bonds). That would also be something that would be nice to have taught more effectively.
5) Some way of incenting minority entrepreneurs to build "investment assistance" companies might be in order, so that poor minorities can worry less about being 'screwed by the man'. In theory, no such incentive should be needed, but...

Tom West writes:

And according to modern portfolio theory, those who do should shift to more secure investments as they approach retirement.

What sort financial planners have you been listening to? They sound 10 years out of date. Given that you may be retiring for 30 years or more, you are guaranteeing yourself misery if you choose a conservative portfolio at retirement. You'll simply run out of money. Yes, there is risk, but it's the risk of automatic misery versus the possibility of unhappiness.

Sure, people can invest conservatively, but only by fighting tooth and nail against most modern advice.

Shame would be one way to get poor(er) people to value investment over Xboxes

On what planet? Generally the admiration and respect on your peers *depends* on consuming *now*. To say nothing of the fact that consuming less makes it less likely that you make it to retirement. Consuming less house saves a lot of money, but puts you in a higher crime area with less police protection.

I'm somewhat conservative with my money, but I can hardly fault those who aren't. Absolutely *everything* in society is bent towards getting you to consume now. There are no rewards at all from society at large for saving for retirement (until you reach retirement). For forty years, you're not a responsible person - you're a person that isn't making it. And that, of course, affects your employability (and your health). After all - who wants to hire a loser? (And we all know that low status is highly correlated with low health.)

John P. writes:

One difference between the teenage single mom and the improvident oldster is that the single mom is young and healthy and has a lot of life remaining in which to learn from her "punishment" and do better. The oldster, on the other hand, is basically out of luck. (Not that this necessarily justifies Social Security; it merely weakens the main argument.)

Roger M writes:

I have read that the original reason behind SS was to get old people out of the workforce during the Depression and so leave more jobs for younger people with families. SS was a bribe to persuade them to quit earlier than they normally would have. However, before people can effectively save for retirement, we need to eliminate taxes and inflation which punish savers.

Randy writes:

Interesting and thought provoking topic Bryan! Good job.

But I don't really think either type of behavior is irresposible. Nature intended for us to reproduce. And nature intended for us to live as well as possible and then die. To define either behavior as irresponsible is a cultural bias. Indeed, I am tempted to say there is something very wrong with a society that places blame as the price of charity.

Ian Lewis writes:

John,
It is Caplan that is the racist class-warfare whore, not Kling.
And one interesting thing about humane people is that they tend to want to help those that help themselves and ignore those that are selfish and impulsive. This is not a bug, it is a feature.

Lord writes:

Maybe you haven't noticed but Social Security is already very stingy and means-tested by taxes.

One difference is the teen outcome is nearly certain while retirement is quite variable, both genetically and economically. A total lack of financial education and an emphasis on winning the lottery don't help. One can even ask if we would be better off if they didn't consume as much, slowing the economy, and lowered investment returns by saving more. It may be a wash.

Roger M writes:

One can even ask if we would be better off if they didn't consume as much, slowing the economy, and lowered investment returns by saving more.

That's pure Keynesian econ. However, if the Austrians are correct, increased savings will boost the economy and increase investment returns.

Steve Sailer writes:

No, the problem with subsidizing welfare mothers at a humane level, as began in the 1960s, was that it raised the crime rate, whereas provisions for the elderly poor generally do not. The crime rate began rising rapidly in the 1960s as soon as AFDC rates in places like New York state were raised to levels where women were receiving enough both to support their kids and a man who didn't have a job. A large number of men dropped out of the workforce to be supported by women and supplemented what they could get from welfare mothers with crime. It also had a longer term impact by raising the illegitimacy rate, and the fatherless boys grew up to be criminals at a higher rate than boys who came from two parent homes, but the initial impact of higher AFDC on the crime rate was immediate.

In contrast, I know of no evidence that Social Security payouts are at all linked to crime. I could imagine a complicated indirect linkage, but the AFDC linkage to crime was remarkably immediate and large.

I lived next to a high rise housing project for the elderly poor in Chicago for a dozen years and I never suffered from it being there at all. In contrast, having a high-rise housing project four blocks away full of unwed mothers, their unemployed boyfriends, and their illegitimate children was a major problem for all of us in the neighborhood due to violence, property crime, drug dealing, loitering, screaming arguments in the street, littering, etc.

ziel writes:

The moral argument is really irrelevant. The important question is what kind of behavior does the program generate? As Steve pointed out, welfare generated disastrous behavior, which is why we had to pull the plug.

Social Security certainly doesn't generate crime. But does social security actually discourage savings? Does anyone who could afford to actually fail to save thinking that there's no need to with Social Security? I wouldn't think so, but then would I be like those liberals who insisted that no one would have a baby just to go on welfare?

Bex writes:

MEN!! Not one of you mentioned where the dads fall on the spectrum of irresponsibility! At least the single mom is doing just that - being a mom. In my thinking, that's pretty damn responsible...[apologies to those dads who are taking care of their kids].

Mark writes:

Bryan, one reason why your argument is invalid is that even the most prudent saver could outlive their savings. None of us has the ability to precisely predict how many years we're going to live after we retire. Even your co-blogger Arnold has recognized this point in the past.

Matt writes:

Well, as the token non-libertarian I guess I'll take the bait. Welfare reform from my perspective wasn't about blame at all, but creating the right incentives. Support needed to be decoupled from getting a job, and lifetime limits plus a larger EITC made work pay over the alternative.

Lots of progressives were against these sensible ideas because they thought of it as uncaring or a thinly veiled attempt to punish poor people. That sentiment is, of course, confirmed by bloggers like Bryan.

Boonton writes:

QUESTION: What happened before Social Security? The elderly were among the poorest age demographic in the nation while today the elderly have the lowest levels of poverty.

Were people fundamentally irrational back then? If so then what of the central economic assumption that the idealized Rational Man(tm) is a suitable model for human behavior?

Boonton writes:
Bryan, one reason why your argument is invalid is that even the most prudent saver could outlive their savings. None of us has the ability to precisely predict how many years we're going to live after we retire. Even your co-blogger Arnold has recognized this point in the past.

Over on Slate I think it is Daniel Gross who has an interesting series on analyzing the finances of public figures. For example, he looked at the financial disclosure statements of SC nominees Miers and Roberts. While Roberts has an impressive amount saved Miers had very little and it appeared she had committed several very bad sins of financial planning...for example she tapped into her 401K (it seems to care for her sick and elderly mother).

When poor planning is the norm at what point does it cease to be 'irresponsible behavior' and simply human behavior? Decades ago auto makers refused to consider auto safety, arguing that the problem was 'bad drivers'. That worked well until Ralph Nader knocked them over the head.

Roger M writes:

Boonton, Good points! Half of all people who declare bankruptcy do so because of illness and medical costs. Possible solutions: End the AMA monopoly on health care in order to reduce medical costs, reduce government spending so taxes can be lowered, eliminate taxes on savings and capital gains, implement a monetary policy of mild deflation so that the value of savings automatically increase. Finally, people should work longer, at least until 70. Only then will we see people have the potential to save enough for their retirement years.

Boonton writes:

A fair point Roger except my argument is a bit more. Let's take the Tragedy of the Commons. When a resource is owned communally the tendancy of humans is to abuse it. This is called human nature and the standard solution is to let the resource be owned privately. Likewise when explaining why socialism was a failure human nature is often invoked.

Here, if Arnold & co. are correct, humans seem to almost always under save for retirement. To the degree that it almost looks like human nature rather than simply a case of distorted incentives. In other cases economic policies are expected to be molded around human nature (for example, rejecting socialism as unworkable...rejecting communal property etc.). If it is human nature to undersave for retirement then you have an economic argument for paternalism (where a gov't policy makes people better off than simply letting them do their own thing).

It's interesting to note that even many of the strongest Social Security reform advocates keep the idea of necessary paternalism implicit in their proposals. They do not, for example, often propose simply abolishing Social Security along with 401K's, IRA's etc. and letting people save as little or as much as they please without any gov't created incentives or disincentives.

James writes:

Boonton writes,

"It's interesting to note that even many of the strongest Social Security reform advocates keep the idea of necessary paternalism implicit in their proposals. They do not, for example, often propose simply abolishing Social Security along with 401K's, IRA's etc. and letting people save as little or as much as they please without any gov't created incentives or disincentives."

Really, I agree with this. Some of the reform advocates have carved out an inconsistent position that is pro and anti paternalism all at once. They have a strong point when they advocate individual ownership of SS accounts, since one of the objections to SS is that the government doesn't have to give you anything when you reach retirement age, or they can lie about how much you'll get when you retire or when you can do so. But at best, mandatory private savings would be an incremental improvement over the present state of affairs, not a program to support on its own merits.

See also my last comment under the Fogel interview, which might as easily have gone here.

moneybagzz writes:

As a Social Security Reform advocate, I favor the following:

[a] consolidate retirement options (ira, 401k, 403b, 457, PS/MP, DB plans, etc] into a single Universal Pension Account w/ one set of rules for all participants (that just happens to be more generous than current rules). Similar accounts, modeled on HSA's could be used for retiree healthcare.

[b] encounrage the private sector to underwrite "floor offset" insurance for Universal Pension Accounts. The concept (and I am not an actuary, so my input on details is not likely to be substantial) is for actuaries to determine a premium, based on age, earnings, current savings and anticipated returns, which would provide a floor benefit in the event of a disaster (I leave it up to professionals to work out the details).

[c] institute revenue-negative tax rate reductions to get taxpayer dollars out of Congress' collective hands so that waste can be finally cut.

[d] buy inflation adjusted annuities for current and near Social Security recipients.

If my policy recommendations make some uneasy, think how uneasy you will be when entitlement spending really increases later in this decade, and Congress will be forced to decide between Social Security payments and a brand-new "Bridge to Nowhere."

Guess what they will choose.

Boonton writes:
Really, I agree with this. Some of the reform advocates have carved out an inconsistent position that is pro and anti paternalism all at once.

Again back in the old days very few were impacted by income taxes. What little taxation there was was done on consumption (through tariffs). Assuming paternalism was not justified, elder poverty should not have been a problem. There were dynamite incentives for people to save and work hard being that taxes were roughly zero on both while consumption was taxed. Yet elderly poverty was a serious problem. People chronically undersaved.

I'm not so sure the supposedly private accounts are such an incremental improvement. First of all they are not really safer than the promises of congress. Let's suppose a massive market downturn leaves one generation suddenly facing a retirement that is 20% poorer than they had expected. Are you seriously going to tell me that this wouldn't generate massive political pressure to tax 'private retirement accounts'? I can easily see politicians asking in 2030 why a million elderly have to retire in poverty due to a random market downturn while some lucky '401K multimillionaires' get to enjoy their accounts tax free (yes I know Roth-IRAs are tax free for withdrawls but you get the idea).

Second people are being told how much they will get when they retire off their 401k's. This is done with very fine print stating that this is for 'average market returns' using 'historical data' and market returns are not guaranteed. Is this any different than today's fine print that says Congress can alter SS benefits? Will this generate any less sense of entitlement should life not turn out so rosy?

katie writes:

You are making a generalization that all teenage mothers are irresponsible. I'm one, but I'm going to a university right now and taking care of my fourteen month old son. I'm not irresponsible and I take offense that you made a generalization. Why didn't you say teenage parents? Men are half responsible also.

Boonton writes:

A good point katie. A while ago there was an interesting report that stated that teenage motherhood may not be so irresponsible after all. It looked at women who would mostly have clerical careers. For them it made more economic sense to get pregnant at 16-18 years old when they were just before starting their working years and their parents could help out in raising their babies. By the time they reached their mid-20's they could go to work full time and spend their time building senority and income.

In constrast, a comparable woman who had children in the mid 20's would be cutting herself out of the income building career world at a critical point.

Half Sigma writes:

Old people vote, teenagers with kids don't.

Half Sigma writes:

"I know Roth-IRAs are tax free for withdrawls "

Only the contributions are tax free, if you do your investing right your contributions will only be a tiny percent of the total value.

In my non-Roth IRA, my original contribution only represents 29% of the value, and I've only had it for a few months.

mountain mechanic writes:

Saving for retirement is easy when you have the means to do so.Week after week decisions need to be made on how best to use what is left from take home earnings ie;Presciptions,school supplies and sign-up fees,gasoline as of late etc.Year after year this amount has shrunk to a point where the average person is living for the "NOW" and not for the future.

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