My friend Randy and I have been having some
interesting back and forth about my zeal for privatization of social
security. He sent me some links that talk about social security not
being in trouble, in fact it is (according to them) rolling in dough
and getting richer. In 50 years time they estimate that social security
will have over 2 trillion dollars in reserve. If we assume that this is true (I have no idea if it is or not), it is even more reason to privatize.
I may not have made myself completely clear in my
earlier post in this subject. I apologize, but in my defense I had only
ever really talked about this with economists, so I had made some
assumptions that many normal people don’t (no, economists are not
normal people:-) When I speak of the waste and inefficiency of social
security, I am not talking about how much money is soaked up by the
government when it transfers money from you and I to social security
beneficiaries. I understand that the social security administration is
actually pretty efficient at this. No, what I am referring to is the
possible alternative uses of that money. This is the so called
opportunity cost of social security.
So what is that cost? It takes two forms. From the
individual person’s perspective, it means missing out on the miracle of
compound interest. Even if the money deducted out of our paychecks are
put in very conservative assets (cds, hi grade bonds, etc), it will
grow over the years to something that will be greater than just regular
social security allows. This is most important to the people that do
not have the extra income to start their own IRA, the current system
robs them of all the interest that they could have made.
The second form the cost manifests itself is in what
the money does in the economy. In the current system, the social
security administration holds government bonds. In other words, it
doesn’t do anything but support itself. If the money was put into
private accounts instead, it would be injected into the economy. Think
about it, every cd deposit turns into a loan, or some other use of the
money. Every stock purchase goes into either a company or to a former
stockholder. The money would actually be put to work, it wouldn’t sit
in a government fund accumulating interest for it’s own sake.
The typical argument to the first alternative goes
something like this, “That’s terrible! We shouldn’t let people risk
their money to the markets, they could lose it all!” My first reaction
is a big shrug, it’s their money, if they want to risk it let them. My
more measured reaction is that people, in general, are not that stupid.
Give them control of their money and you’ll see quite a bit of concern
with what happens to it. That leads me to the next objection…
“We can’t privitize social security, companies and
people will get rich off of this, and they’ll just try to take
advantage of people that don’t know any better.” First off, what’s
wrong with people getting rich? Business will definitely pick up at
brokerages, and that’s good, more business is always better than less
in the grand scheme of things. I’d rather see a portion of the money go
to people on wall street than for it to sit in the governments coffers.
After all, that money will be put back into the economy eventually. The
thing that most people forget is that not only would business at
brokerages pick up, but so would competition. They will slash each
others throats in order to get at new accounts. The amount of
information that will be available to consumers will be awesome.
There’s a fair amount right now, but when everyone has an account, the
entire information industry will blossom. There is no reason to think
that hucksters will be any more successful than they are now. What about
really stupid people? Or retarded ones? What will they do? I figure
they’ll do the same thing they do now, seek out help.
So I guess my biggest concern isn’t so much that
social security will fail, it’s that we’ll continue to miss out on all
the positive things that could come with privatization.