McFreedom

The Wall Street Journal has an interesting editorial this morning titled "Ants and Grasshoppers," by Kevin A. Hassett, Director of Economic Policy Studies at the American Enterprise Institute. It's subscription-only, unfortunately, but it lamets the fact that the current Social Security debate is focused on when the system becomes insolvant, as if it wouln't be worth replacing if only it were sustainable.

He clearly makes the point that, if a private entity offered a retirement plan with the same features as Social Security, you'd be a fool to buy it: For the princely sum of 12.5% of your earnings per year, you receive a very small annuity from money invested in a single security (low-interest government bonds). If you and your spouse die before retirement, you only get any of the money back if you have school-age kids. You can't use any of the money you've saved to buy a house or to cover emergencies. You have to pay in at the same 12.5% rate whether you're 27 or 57, desipite the fact that 12.5% of your salaray is a lot more painful to cough up when you're young, underemployed and trying to get your life started.

He notes that, with these features, Social Security is clearly not designed to make people better off than they could make themselves: "It forces irresponsible 'grasshopper' individuals to save for their retirement along with responsible 'ants.'" But, he argues, it's poorly designed for that goal, too. "[T]oday's system forces the vast [rationally-saving-for-retirement] majority to endure a straight-jacketed program that reduces their lifetime welfare significantly, all for the benefit of a small minority" who wouldn't otherwise save. Mr. Hassett's solution is to endow private savings accounts, forcing people to perform the diversified investment that is in their own best interest, rather than depending on the long-outdated economic theory underpinning a system designed in 1935.

This piece is quite correct - it's a real shame that the current debate is framed in terms of the date of insolvency. As he concludes, "It does not matter if the current program runs out of funds in 2042, 2075 or never. Social Security should be reformed because a better policy exists today that will significantly enhance Americans' welfare."