I reeceived the following e-mail raising questions about my recent Mises.org critique of “forced savings” as a solution to the mess that is Social Security. My response follows.Professor Westley,
I’m writing in regard to your article entitled “Robbing Peter to Pay
Peter” at Mises.org.
Let me start by saying that I fully agree with you that the *best* way of dealing with SS would be to get rid of it completely. However, I’m curious as to what you see as preferable, the present situation, or some privatization plan such as Paul Ryan’s legislation, H.R. 4581. At present, we have forced forfeiture. I see forced savings as an improvement over that.
Let me also say that I agree with you that there are financial risks to stock market participation that the GOP and friends have perhaps been reluctant to discuss. I can understand why this would be a concern, as public consensus seems to hold that privatization would mean forced stock market investing. However, I’m aware of no privatization proposal which would require anyone to participate solely in the stock market as opposed to other choices such as bonds or money market accounts. This is not to indicate that I don’t appreciate the importance of risk analysis. But while those in favor of privatization have offered at least some discussion of the risks of their proposals, I have yet to see any opponents of privatization begin discuss the political risks associated with the present system. Currently, I’m forced to invest my payroll taxes in a series of nonmarketable debt instruments issued by an agency that explicitly reserves the right to adjudicate any disagreements I may have. That seems far riskier to me than any of the investment options suggested in most privatization proposals.
Finally, a hypothetical question. Suppose that the privatization effort is successful and the implementation includes the options to remain in the present system or choose forced savings in the stock market, bond market or money market. Would you remain in the present system?
My position is that this is replacing one bad system with another. Both systems have their merits and demerits–but both share the strong possibility to continue to grow the State. Someone e-mailed me from Australia saying that there is a similar “forced saving” system in place there, and it is viewed as another justification for government to regulate the private sector, given how everyone depends on continued profitability of the private sector in order to have a secure retirement. Do we really want to go there because it seems relatively better than Social Security?
Another point. I heard Cheney this morning say that privatization is meant to buttress SS, not replace it. The idea that SS is going down so let’s switch over to a privatized system is not shared by the political class. I believe that the “crisis” is that the money flowing in from the baby boomers is going to end, and that Congress will be facing a new budget constraint. Many of the responsibilities that the federal government has assumed over the last 100 years may revert to the states, resulting a “forced federalism”. The future of Social Security is not a crisis for most everyone else. In fact, from a libertarian perspective, this is quite a good development.
But you ask a good question. Would I stay in the current system if it were replaced by a privatized one? I would certainly get out of the old system as much as possible, but I am not sure where I would put my money. Probably try to ride some of the bubbles, or invest in gold? As of now, the Washington does not intend to let SS go away.