Towards A Good Samaritan World

Wednesday, November 10, 2004

Arnold Kling suggests that the New America Foundation might have served the Democrats well as a source of ideas for the 2004 campaign. I agree. I admired them before the Iraq war, then got alienated by their dismissive attitude towards that. But they're still smart. I've just added them to the Blogroll.

In this New America article, Phillip Longman acknowledges the need for Social Security reform, but voices misguided skepticism about what he calls privatization (which should be called "partial privatization":

Most privatization plans stipulate that individuals take a 33% cut in their regular benefits and use personal accounts to make up (or exceed) the difference. That provision raises two big objections: What happens if the market tanks as you retire? And what happens if you live to be 115?

Both objections are bogus. If the market tanks as you retire, it won't hurt you much, because you will have disinvested from the stock market and transferred most of your savings to lower-risk assets before that. Privatization lets you choose your level of risk: if you're a risk-lover, pile your money into the stockmarket, live it up if your luck holds, and take the consequences if not. If you're very risk-averse, you can have your whole portfolio in indexed Treasury bonds by the time you're 50. And while Longman explains why annuities are "inefficient financial vehicles" due to adverse selection, this would cease to hold if partial privatization of Social Security enlarged the market for annuities. The market has answers, as usual.

But this acknowledgment is priceless:
Because of Social Security's long-term insolvency, taxes will be raised and benefits cut, one way or another.

YES! Take that, Kerry and other Democratic denial-mongers! Longman's plan, a gradual rise in the retirement age, is not my preference-- I support private accounts-- but it's at least a rival good idea. If the Democrats got their ideas from the New America Foundation, they would actually be making a worthwhile contribution to the political arena.


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