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December 17, 2004
Social Security Reform
Michael Kinsley of Slate asked the other day if by definition social security privatization is doomed to failure. I have cared about this issue for longer than any other public policy issue I can think of and Bush proposing these reforms four years ago was the first thing he did that made me think he was the right man for presidency. Kinsley's argument is based on major flaws and a misunderstanding of how investing and economic growth works. Investing is not a zero sum game. This tends to be how many liberals approach things like investing: "One person is making money so someone else must be losing the same amount of money. The are only so many pieces of the economic pie and it is never growing." Another thing which Kinsley does not understand (or chooses to ignore) is that in its current form social security is a drag on the general economy. Every year all the tens of billions of dollars of surplus of social security taxes are forced into government bonds by legislative dictate, not by the market. This gives the federal government a cheap source of capital that otherwise would be lowering the cost of capital for the rest of society.
Although I think the economic case for allowing people to invest their social security taxes into private accounts is very sound, it is the moral case that I care more about. Donald Luskin has a thorough takedown of Kinsley's economic mistakes here, but my favorite part was his conclusion: "Oh, and there's another little matter that Kinsley ignores. It's a liberal blind-spot, I guess. Personal accounts are a good idea because we are a free people who ought to have a say over how our money is invested. And after all, it is our money. Isn't it?"
Posted by Pete at December 17, 2004 10:35 AM
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