Network News

X My Profile
View More Activity

Social Security, ctd

By Karl Smith

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.

By Karl Smith  | November 12, 2010; 9:49 AM ET
 
Save & Share:  Send E-mail   Facebook   Twitter   Digg   Yahoo Buzz   Del.icio.us   StumbleUpon   Technorati   Google Buzz   Previous: Wonkbook: Liberals push on taxes; G-20 agreement; Korea trade deal fails
Next: The 21st-century retreat from public higher education

Comments

ss certaily allocates investment funds (during surplus especially), funds which instead of being part of the gov's unified budget approach (despite attempts to segregate) could be used for more efficient allocations. also, there's a bit more depth to the direct crowding out in the literature esp related to implicit debts (during shortfalls)

Posted by: stantheman21 | November 12, 2010 10:29 AM | Report abuse

I feel that McMegan is, as usual, wrong on this one. Yes, she is being more honest about her paternalism, however, she's still incoherent on the tax policy issue. She skews the data to support her position (NO! Surely not McMegan!) by glossing over the fact that while a majority of people in other age groups don't support raising taxes a plurality do.

She also makes the absurd claim that because these young people are mostly unemployed their opinions shouldn't count, which is totally how a democracy works. I'm pretty sure it's right in the constitution that the people who pay the most taxes get the most votes.

Posted by: DKOSullivan | November 12, 2010 10:39 AM | Report abuse

I meant to say that a plurality of people prefer raising taxes to cutting benefits, my mistake.

Posted by: DKOSullivan | November 12, 2010 10:41 AM | Report abuse

Karl, it's been three days. Why are we still talking about yet another report from another commission that will never be adopted or voted on?

Social Security is not even an issue compared to the huge other problems facing us.

Posted by: 54465446 | November 12, 2010 10:42 AM | Report abuse

"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."

And, of course, deadweight loss as people seek to avoid the transfer.

Posted by: krazen1211 | November 12, 2010 10:58 AM | Report abuse

I'd like give a shout out for the all the non-paid work that retired people do. Retired people volunteer through civic organizations, election boards, caring for grand children, why isn't this a public good purchased by society paying for retirement?

Posted by: ideallydc | November 12, 2010 12:37 PM | Report abuse

I'd like give a shout out for the all the non-paid work that retired people do. Retired people volunteer through civic organizations, election boards, caring for grand children, why isn't this a public good purchased by society paying for retirement?

Posted by: ideallydc | November 12, 2010 12:39 PM | Report abuse

Social Security payments still crowd out investment because it is a transfer to households with a relatively high propensity to consume.

I might add that even if today's 20- and 30-somethings are OK with a system requiring more payments, it's like making a sale with someone today who is going to complain when they get the bill in the future. It is not a matter of paternalism so much as a bad social contract because the contract will be strained when everyone realizes what the consequences are of the deal that was made.

Posted by: bdell555 | November 12, 2010 2:36 PM | Report abuse

Post a Comment

We encourage users to analyze, comment on and even challenge washingtonpost.com's articles, blogs, reviews and multimedia features.

User reviews and comments that include profanity or personal attacks or other inappropriate comments or material will be removed from the site. Additionally, entries that are unsigned or contain "signatures" by someone other than the actual author will be removed. Finally, we will take steps to block users who violate any of our posting standards, terms of use or privacy policies or any other policies governing this site. Please review the full rules governing commentaries and discussions.




characters remaining

 
 
RSS Feed
Subscribe to The Post

© 2010 The Washington Post Company