Privatizing Social Security the Public Way

A few years back, the big push from some quarters was to privatize social security. We’d put our money in the market which, we were assured, would do better for us than the government scheme would anyway.

The worry was obvious: “on the average” and “over the long run,” the market may well do better than traditional social security. But that’s no good to you if you are ready to retire when the market goes south. And as we know all too well, the market is quite capable of going south in a hurry. And for a while no one talked about privatizing social security.

That was then; this is now.

Back in the Bush days, I asked various people a question that I never got a good answer to. Seems a good time to ask it again.

If privatizing Social Security is really a good idea “on average,” why not do it this way? We put our money on the market in accord with whatever guidelines the government thinks make sense. (Under the Bush plan there would have been various rues and restrictions, so this is no new idea.) Most of the money is simply invested and when the time comes, we get the market return. A small portion of it goes into a social insurance fund. And what the fund does is this:

  • It guarantees that whatever the state of the market at the time we retire, we’re guaranteed a certain minimum return on our investment.

There’s room to talk about what that minimum should be, but the idea is this: if it’s really true that on average, we’re better off in the market than we would be under social security, the government will not have to pay our very often. But we’ve built in protection so that folks unlucky enough to hit retirement at a bad time won’t have their economic security wiped out. 

On the other hand, if it’s not really true that on average we’re better off in the market, then privatizing social security is a bad bargain from the point of view of the average wage earner. If so, the arguments for privatizing social security seem to be a matter of ideology rather than economics.

The next step, I suppose, would be to say that such insurance schemes are fine, but they, too, should be left to the market.

At this point, we come up against a ideology again. Some of us (I’m one) believe that it’s perfectly legitimate for government to provide a safety net. Other people think otherwise. No way we’re going to sort that out here, but if this is what the issue really comes down to, we might as well be clear about it.