The Case for Social Security Personal Accounts

Posted by Daniel J. Mitchell

There are two crises facing Social Security. First the program has a gigantic unfunded liability, largely caused by demographics. Second, the program is a very bad deal for younger workers, making them pay record amounts of tax in exchange for comparatively meager benefits. This video explains how personal accounts can solve both problems, and also notes that nations as varied as Australia, Chile, Sweden, and Hong Kong have implemented this pro-growth reform.

Social Security reform received a good bit of attention in the past two decades. President Clinton openly flirted with the idea, and President Bush explicitly endorsed the concept. But it has faded from the public square in recent years. But this may be about to change. Personal accounts are part of Congressman Paul Ryan’s Roadmap proposal, and recent polls show continued strong support for letting younger workers shift some of their payroll taxes to individual accounts.

Equally important, the American people understand that Social Security’s finances are unsustainable. They may not know specific numbers, but they know politicians have created a house of cards, which is why jokes about the system are so easily understandable.

President Obama thinks the answer is higher taxes, which is hardly a surprise. But making people pay more is hardly an attractive option, unless you’re the type of person who thinks it’s okay to give people a hamburger and charge them for a steak.

Other nations have figured out the right approach. Australia began to implement personal accounts back in the mid-1980s, and the results have been remarkable. The government’s finances are stronger. National saving has increased. But most important, people now can look forward to a safer and more secure retirement. Another great example is Chile, which set up personal accounts in the early 1980s. This interview with Jose Pinera, who designed the Chilean system, is a great summary of why personal accounts are necessary. All told, about 30 nations around the world have set up some form of personal accounts. Even Sweden, which the left usually wants to mimic, has partially privatized its Social Security system.

It also should be noted that personal accounts would be good for growth and competitiveness. Reforming a tax-and-transfer entitlement scheme into a system of private savings will boost jobs by lowering the marginal tax rate on work. Personal accounts also will boost private savings. And Social Security reform will reduce the long-run burden of government spending, something that is desperately needed if we want to avoid the kind of fiscal crisis that is afflicting European welfare states such as Greece.

Last but not least, it is important to understand that personal retirement accounts are not a free lunch. Social Security is a pay-as-you-go system, so if we let younger workers shift their payroll taxes to individual accounts, that means the money won’t be there to pay benefits to current retirees. Fulfilling the government’s promise to those retirees, as well as to older workers who wouldn’t have time to benefit from the new system, will require a lot of money over the next couple of decades, probably more than $5 trillion.

That’s a shocking number, but it’s important to remember that it would be even more expensive to bail out the current system. As I explain at the conclusion of the video, we’re in a deep hole, but it will be easier to climb out if we implement real reform.

Not really. TD has always said that piracy is against the law. What Mike and others often aregue, is that the laws should be changed in favour of the consumers, not faceless megacorps.

I think you're right in that TD often encourages more sane laws in favor of the public vs corporations, but as far as piracy goes, my take on the TD line is that legality is a non-issue now that technology makes it hard NOT to copy something, what's important is finding a way to make money in spite of it. Pragmatism is the name of the game.

Now the *comments* on TD run all over the map. There's a lot of soft endorsement of illegal distribution, along with people who are outright loud about it. There are people who seem to think that artists are lazy chumps who want a free ride, and people who apparently have a problem with anyone exercising any legal muscle. Luckily there are some dissenting voices of reason, who are neither "IP Maximalists" nor "Freetards". (All these phrases and sloganeering are dumb as hell and only serve to trivialize how complicated these issues really are. "Pooperty" anyone? Let's cut out this ad campaign for issues and appeal to people through their reason and intellect)

I do kind of wish they would bring in some writers with more varied opinions. For instance, I agree with the criticism that TD loves to dispense business advice for musicians without any real clear idea of what goes into a musical career. The complicated web of credits and legalities that go into bringing multiple creative people together with their own input to and ownership of a project (We're not all solo artists!), the insane logistics of performing on a consistent basis and taking it on the road, the idea that fans just buy the hell out of merch, the notion that the internet has made distribution *easier* (it's not, it's *cheaper*, but only to get started), and the idea that grass roots projects can "bubble up" to the surface without a professional PR push and management team (Amanda Palmer works with a publicist and several managers, besides the fact she's "married" to Neil Gaiman, one of the most popular writers of the last 20 years. She's not a model for future musicians). But the reality is that even a no name blogger is pitched music by major labels every day, so not having a professional management/publicist team to pitch you, more importantly to give you legitimacy, means your emails most likely will never be opened.

Now, it is true that some artists will in fact bubble up, but it's mostly going to be boring mid-level talent with an interesting story behind them. Meh. I'd trade a thousand Susan Boyles/Ted Williams/Homeless Flavor of the Month for just one Jim Croce or Leonard Cohen.

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The Case for Social Security Personal Accounts

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