In the “policy world”--the sector of society where most ideas are bad, dated, or both--the discussion centers on ways to go about ‘privatizing’ social security via individual accounts. The WSJ sought out a “liberal” and a “conservative” economist (will we ever get rid of these terms?) to debate the issue. But instead, what they found was that the two can only agree on this: Social Security should not be privatized. (Mises.org articles on this topic: 1, 2, 3, 4, etc.) Tyler Cowen states his case, in a nutshell:
I wish to privatize many things, but forced savings is not one of them. The so-called privatized accounts would be regulated rather than truly private in the libertarian sense. They will channel benefits to government-approved providers, thus leading to bureaucracy, regulation, and costly commissions. We could even imagine a government trying to direct those investment funds to particular sectors. And if anyone’s account goes bust, a secondary safety net would likely bail them out. What if the whole market went bust for about 10 years’ time, as it did in the 1970s? Imagine a replay of the S&L crisis but on a larger scale.
I also worry about the fiscal implications of Social Security privatization. The proposed reforms limit the collection of “pay as you go” contributions and move people toward private accounts. But during the transition an influx of trillions, either from taxes or borrowing, would be needed to pay off the current elderly. In theory this is a revenue-neutral debt swap (we already have the implicit liability toward future retirees), but more likely the higher taxes or borrowing would stick with us over time.
