December 28, 2006
Arnold Kling
Tyler Cowen endorses the idea, with a twist.
Just as the earned-income tax credit pays poor people to work, the universal 401(k) would pay poor people to save...
There is an obvious way to pay for a universal 401(k) plan. For every dollar spent on the universal 401(k), the federal government could spend one dollar less on Medicare and Social Security benefits.
Economically, linking reduced benefits to greater saving is sensible. Politically, it is a poison pill. I would be happy to see the savings accounts instituted first. The cutbacks in future entitlements are inevitable--no need to "blame" them on personal savings accounts.
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Sorry for the off-topic post, but I wanted to let you know that the link to Rus Roberts' Treasure Island II seems to be broken. Thanks.
[Oops! Good catch! Thanks, Bob. I've fixed it.--Econlib Ed.]
For the umpteenth time, although you guys never bother to address or deal with this point, cutbacks in social security at least are not inevitable. They may happen, but it is highly unlikely that it will be because the social security trust fund is running a deficit as forecast to happen in 2017. But the assumptions underlying that mid-range forecast remain the ridiculous ones of the US econ growth rate going to half its recent and historic rate and immigration crashing soon to near zero. Do either of you guys buy these at all as reasonable assumptions?
The low-cost scenario, which has been proving to be correct since these scenarios first appeared in the late 1990s, has the trust fund running a surplus forever. In fact as long as the growth rate remains above 2.2% per year and immigration manages to stay above about half its current rate, that forecast of the fund running a surplus forever holds. I fully understand that you guys support cutting social security benefits for ideological reasons, but please do not repeat nonsense projections that are bandied about by morons and hacks in the media and the political establishment of both parties. You guys should know better. Oppose social security on honest grounds, not baloney projections.
Do we really need yet another government program? If poor people don't save enough, here's my counter-proposal: tax savings less, and balance the books by reducing the size of the federal budget. That's it. No messy bureacracy. No incentive for poor people to spend more today in anticipation of future withdrawals from tax-subsidized accounts.
