Arnold Kling  

Questioning a Talking Point

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Andrew Biggs writes,


First, Sen. Obama says, "Social Security has lifted millions of seniors and their families out of poverty. Without it, nearly 50 percent of seniors would live below the poverty line."

This is a common talking point, but let's be clear on what it means: if we forced people to pay Social Security taxes all their lives but didn't pay them any benefits, yes, nearly 50 percent of seniors would live below the poverty line. But this is a silly standard. If we were truly "without" Social Security, we would also be without Social Security taxes, which individuals could then save on their own for retirement. So the better question would be, "Without Social Security taxes and benefits, what would the poverty rate among seniors be?" The answer is, about the same as the current rate.

In the 1930's, many seniors were poor. Today, most seniors are affluent. It is tempting to credit Social Security. However, the main cause is economic growth.

Take away the economic growth of the last 75 years and leave Social Security, and seniors would still be poor. Take away Social Security and leave the economic growth, and most seniors would be affluent.


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CATEGORIES: Social Security



TRACKBACKS (1 to date)
TrackBack URL: http://econlog.econlib.org/mt/mt-tb.cgi/883
The author at Notes on Social Security Reform in a related article titled More on Social Security and poverty… writes:
    It seems one of my comments from yesterday struck a nerve, both here and over at Arnold Kling's blog. Here's the offending passage... [Tracked on August 18, 2008 1:49 PM]
COMMENTS (8 to date)
KipEsquire writes:

It is vital to emphasize one particular aspect of this: the total lack of vesting of Social Security benefits in the event of death before retirement.

A person who works and pays FICA taxes over an entire working career and then dies the day before his 62nd/65th birthday leaves his estate exactly zero in benefits. Biggs calls that a "silly standard," yet it happens all the time.

Horatio writes:
Without Social Security taxes and benefits, what would the poverty rate among seniors be?

When you consider the negative effects that SS has had on economic growth and the low rate of return, poverty rates among seniors would probably be significantly lower without SS.

spencer writes:

Kip -- your statement about leaving the families nothing is just plain completely incorrect.

Under SS surviving spouses receive benefits as long as they live and children get benefits as long as they are underage.

The entire argument assumes that the money going into SS would have been saved and invested. That is an extremely unlikely assumption. Just look at how few people invest in the tax exempt and company saving plans they are offered.

SS is a form of mandatory insurance or savings.
Provide us with a single bit of evidence that without the mandatory nature of SS that the great bulk of people, especially those in the lower income groups, would save and investment a comparable sum.

They did not do it before SS came into existence, so why should they do it now?

Dazhi writes:

I cannot imagine seniors in this country can be affluent without mandatory savings/insurances. SS is the best idea ever in this culture.

Caleb Rackliffe writes:

Whether or not you think people would save money if left in charge of their own finances doesn't have anything to do with whether or not social security should be MANDATORY for all. Even other countries that have mandatory systems, like Chile, at least give people more options.

If you really want to have something like SS, simply make it like a "default" where people can opt out if they wish. If you think most people are too stupid to save for their own retirement, that doesn't mean they will be too stupid to opt out of a system they are enrolled in by default.

I used to do employee benefits enrollments at companies (during the summer in college), and this happens all the time. The people that don't care about their benefits can just get thrown in the government's retirement plan, while the people who don't want a real negative rate of return (grin) can opt out and invest themselves.

What's wrong with that?

Andrew Biggs writes:

I've made an updated post on the Social Security vs poverty issue here. Thanks for the generous comments! http://andrewgbiggs.blogspot.com/2008/08/more-on-social-security-and-poverty.html

Lord writes:

Well if we are to submit opinions based on simple assertion of what we would like to be then yours is as good as any. Some of us have a little higher standards.

Steven McMullen writes:

To answer the question, you need to know not just what GDP growth would have been without SS (this effect is probably small) but also the amount that people would have saved if they did not have SS. As Dazhi alluded to, some people might not save nearly enough.

I suspect, however, that many would save enough to make up for SS, and many would find that in the absense of SS, their families and communities would pick up the slack, and keep the living standards of the elderly pretty high. That said, perhaps only for those unlucky ones without that kind of support network, SS is still an important program.

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