The Right Coast

February 16, 2005
Here's why you should privatize social security
By Tom Smith

Gary Becker (no big surprise) gets it. SS has grown into a giant welfare scheme for the elderly, who are not even that elderly. In fact, on average they are a lot richer than the people who are paying for them to be retired. Professor Becker is far more distinguished than I, so it is left to me to announce, it's just a giant rent-seeking scheme by the old, financed by the work of the young. Don't get me started. If the scheme were privatized, you would at least reduce the incentives for old folks to game the system, pushing for higher benefits, early retirement ages, and so on. Even all the yada yada about the looming insolvency of SS is biased in favored of the wrinkled minority. The idea is youngsters must pay and pay to make sure those bloated SS payments are ab-so-lutely guaranteed. It has to be rock solid, even if it means mom has to dump the kids at Cockroach Daycare and scrub the johns. It is a grotesque redistribution from the young and poor to old and rich. By privatizing it, people would have to internalize some of the costs of their decisions, such as when to retire, how much to save and so on.

Another point worth exploring would be whether privatization would put more capital allocation decisions in private rather than state hands. I can't think this one all the way through. But I know this. This argument would be worth making just because it might give Paul Kruger heartburn. It goes like this: The increase in private management of capital would increase economic growth, increase tax revenues, and therefore make the change self-financing. You would certainly have a lot of stock in firms that do stuff instead of government bonds sitting in accounts. Sounds good to me.