Social Security, ctd
Megan McArdle offers a reply to my concerns about our paternalistic treatment of future obligations that I like a lot. There are at least two important points. The first is essentially that paternalism is unavoidable. Even when provided with all the relevant information, poll respondents still don’t give logically consistent answers.
People in polls are lunatics on the budget; they consistently oppose tax increases, oppose spending cuts, and strongly support balancing the budget. Depressingly, pollster Doug Rivers says that this is true even when you inform them of the sums involved--i.e., make sure that they know you can't close the budget gap just by slashing foreign aid. Despite being informed about the relevant tradeoffs, when they are again asked the question, they continue to insist that they very much want to close the budget deficit--without raising taxes or cutting any major programs.
This is a more balanced perspective than Simpson-Boyles. McArdle suggests that we are getting mixed signals from the public and trying to do the best we can with what we got -- much healthier than the Commission to Save America, Grandchildren and Puppies.
She also notes:
The question, then, is not simply, "Should we raise taxes or the retirement age to fix Social Security?" The question is, "What are the best spending cuts and tax increases to bring our budget into balance?" There are a number of reasons that raising Social Security taxes, and the retirement age, are among those--fiscal reasons (there's a lot of money there), economic reasons (social security encourages people to leave the labor force earlier, which raises spending and shrinks the tax base), political reasons. You can argue that these aren't good reasons--that there are better reasons to leave it the way it is.
There are important differences between pure transfers like Social Security and public goods like education and national defense. With education or defense there are society-wide benefits to estimate and important policy choices to be made regarding how much of the public good to produce and by what means. With a transfer you get out the same thing you put in: cash.
McArdle is right that since choices about Social Security restrict our taxing options that we can’t look at these programs in pure isolation. Still there is a fundamentally different sort of analysis going on. Social Security payments do not crowd out the private sector in favor of public goods. That basic trade-off does not have to be considered. If Social Security recipients want to buy iPads or shoes, American-made apparel or Chinese imports, it is up to them. Resources flow into the private sector under the direction of private individuals.
Karl Smith is an assistant professor of economics and government at the University of North Carolina and a blogger at ModeledBehavior.com.
| November 12, 2010; 9:49 AM ET
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