October 18, 2005
Thinking About Economic Security
PGL at Angry Bear reads about economic security:
Angry Bear: Economic Security: A Couple of Good Op-eds: The funds for retirement for many workers will come from a variety of sources including Social Security (a publicly run defined benefits plan), private defined benefits plans, defined contribution plans, and even bank accounts. Just as FDIC and FSLIC were designed to provide insurance for bank accounts, PBGC was designed to provide insurance for private defined benefits plans. The National Review ran a very good discussion of the problems facing PBGC by John Boehner. I wish we had more principled conservatives in Congress such as Mr. Boehner.
On the general issue of economic security and how some in the GOP are proposing ways to undermine the protections of Social Security, see Jonathan Cohn who echoes some of the wisdom on these issues that have been provided by Mark Thoma.
Alas, the National Review had to run a weak attempt to rebut Mr. Cohn from Michael Cannon:
Which would you rather have, freedom or security? … Social Security privatization, school vouchers, and deregulating healthcare would expand the menu of choices available to ordinary people.... From whom would you rather buy bread: a government monopoly, a private monopoly, or one of a number of competing grocery stores? It's really not much of a contest. The government and private monopolies would have consumers right where they want them.... In essence, health-insurance regulation is a product.
Insurance is not the product, it’s the means to pay for the product. The health care debate is complicated and not all liberals are advocating socialization of prescription drugs and doctors. But it would be hard to argue that the current market system in the U.S. provides health care efficiently... [or] address[es] the health care needs of the poor....
The government monopoly canard belongs to George Will.... What this crew fails to appreciate is that households can already pursue higher expected returns in their private defined contribution plans to combine with the low risk, modest returns from bonds held in the public defined benefits plan we call Social Security. Of course, Mark Thoma would remind us of longevity risks, which are one of the reasons why putting some of one’s retirement savings into a defined benefits plan might be optimal. In theory, the private sector could provide such mechanisms, but for some reason – private markets have not done so.
Well, where is the company today that is big and stable enough to credibly offer a defined benefit plan to 25 year olds? I've swung around to the view that only the federal government is big enough to do so--and it is an important thing that people value dearly, hence an appropriate mission for the government.
Let me, however, make a small minor dissent from PGL: the poorer half of America's population is effectively excluded from investing in the stock market by a variety of "transactions costs." Having them put some of their Social Security money in the stock market would be a good thing (albeit not the way that the Bush administration structured it).
Posted by DeLong at October 18, 2005 04:12 PM