I have very little to add to Will Wilkinson’s excellent post from Tuesday on how Barack Obama might fix Social Security:
Anyway, I have a dream that President Barack Obama will decide to privatize Social Security, because it’s the sensible and moral thing to do. Democrats will be extremely confused for a couple months, but then will decide that this is in fact the greatest idea ever. Roles will reverse and Republicans will enlist the AARP and Jonathan Chait to kill it in a repeat of 2005, but their hearts aren’t in it, and they lose. Obama’s successful Jason Furman-lead transformation of the Social Security system is incredibly popular with the younger voters who put him into office and and sets him in such a strong centrist position that he completely crushes Romney in 2012. Are you listening Barack?
Before I leap in and comment, a couple caveats:
(1) Though I trust Will to be well-informed on any subject he writes about, I have my doubts that Bush’s early attempts to privatize Social Security would have been the pure market hand-off of which libertarians dream. Privatizing the power grid in California didn’t end that way*. Privatizing the nation’s military efforts in Iraq did not lead to efficiency and accountability. I have little reason to think that Social Security general practices would have been reduced to one sentence – “let the market handle it” – and left untouched forever.
(2) I think Will’s having a little fun at all the progressives who have tripped over themselves to rationalize Obama’s backing of the new FISA / telco immunity bill. And I can’t argue with that at all. The Opposition Party stands against the expansion of domestic surveillance until such time as they stand for it, just like the Ruling Party opposed unilateral interventions in Islamic countries until the time came to support them. Similarly, if Obama came out in favor of privatizing Social Security, you might see a few months of confused mumbling, followed by begrudging acquiescence, and capped off with the usual stirring defense. La partie continu.
That being said, whenever the topic of privatizing Social Security comes up, someone mentions the current poor state of the stock market (funny how the market’s always doing poorly enough to comment on, no matter when you’re speaking, but that’s for another day). “If Bush’s plan had passed,” this person says, “think of how poorly everyone’s ‘individual retirement accounts’ would be! Thank God our Social Security pension isn’t invested privately!”
And I wonder at this, because:
(1) As far back as we have data, the stock market usually outperforms every other mode of investment – Treasury bonds, commodities, real estate – over any given 10-year span. And it absolutely outperforms every other mode of investment over any given 40-year span. Consider that most of us “invest” in Social Security for at least 40 years (start working at 23, retire at 63) and you’ll see my point. Today’s poor performance does not suggest that the market fails as a retirement fund.
(2) But let’s say the unthinkable happens, as it inevitably must, and the stock market becomes a losing investment. Let’s suppose that the $1,000,000,000,000 write-off spells the beginning of the end for American investments. Will the Social Security Trust Fund really be a safer place to keep your money? Social Security’s ability to write checks hinges on young people contributing – meaning, it hinges on the current strength of the economy. A world where the stock market is no longer a safe investment over a 40-year time frame is a world where Social Security is already doomed.
How is the national pension going to be a better investment than the nation it pensions off?
* The doctrinal libertarian response whenever someone points out how badly California’s deregulated power grid fared: “well, it wasn’t a true privatization.” That is exactly my point. What incentive does a government agency have to let a bureaucracy that employs thousands, earns millions of votes and billions in campaign donations, fall entirely out of their control? Why would anyone willingly and fairly sell off their favorite horse?