Getting Back to Bibamus

In some comments on a post last month, Bibamus makes the following observation about the Social Security reform debate:

Part of the problem with this whole debate is that so many different people are in it for so many different reasons. While there are a thousand different bad arguments for privatization (more than a few with Luskin's name to them), it seems to me that there are at least three good ones, where by 'good' I mean intellectually consistent - not necessarily convincing (to me):

(1) Arguments related to pay-as-you-go Social Security's depressing effect on saving.

(2) Arguments related to the inability of the government to pre-fund its Social Security liabilities.

(3) Arguments related to 'freedom to chose' type beliefs, such as the one that Mankiw makes in his response to BDK.

There may be more but these are the ones that occur to me at the moment.

Stepping back from the details of the present debate, #3 is the most compelling argument. If you believe in limited government, as I do, then you would support a Social Security system that is no bigger than it has to be in order to keep seniors out of poverty induced by chance events. That means that the system would pay a flat benefit as an annuity at the poverty level--and no more. Individuals would then be free to choose how they wanted to prepare for their old age (or not), in accordance with their own preferences. But, as Bibamus noted, the current debate really isn't taking place along these broader themes, and so Mankiw's remark may have seemed out of place.

I first got into research on this subject based on a combination of #1 and #3, where #1 would be augmented to include distortions to the labor market as well as the capital market. In the current debate, a review of the archives would suggest that I am pre-occupied by the projected insolvency and that most of my arguments are motivated by #2. I don't think there is any way to suggest that the government could pre-fund future obligations through running surpluses inside the Social Security system over any sustained period. Whatever lockbox there is has 536 keys, but more importantly no lid.

For me, the debate is becoming less and less about philosophy or efficiency, and more about the inequity of passing such large burdens off to future generations of taxpayers. I freely acknowledge that this burden is coming not just from Social Security, but the growth of Medicare and the inability of the government to balance its budget. A sensible fiscal policy would have the on-budget deficit sum to zero over the business cycle and all long-term entitlement programs to have zero projected long-term actuarial deficits.

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