Thursday, December 01, 2005

A Simple Fallacy

Economic historian Robert Fogel, in an interview with Nick Schultz at Tech Central Station, makes some passing observations about private saving as an alternative to Social Security:
Nick Schulz: In the book [The Escape From Hunger and Premature Death: 1700 to 2100] you see a growing demand for leisure and retirement, and education and health care. Now, in current debates, especially in Washington, that sounds like more Social Security. . . . How do you see that?

Robert Fogel: . . . .

We're probably going to shift gradually, despite the opposition to it, to private accounts, which exist in some countries, which require everyone who enters the labor force to put aside 30 percent of their income into a fund to cover retirement, health care, and education. In some countries, they permit you to borrow against that fund to buy houses.

And, it's approaching what American academics have. You cannot teach in American universities without having TIAA-CREF. In American universities, you're required to put aside between 12-and-a-half and 17 percent (it varies from university to university) into this fund so that when you retire you don't end up with a tin cup sitting on the administration building saying, "I was a good teacher once, please help me."

So, that's a forced retirement system. It has the advantage over Social Security that the government can't take it away. . . .

Nick Schulz: And you see that as a potential model for Social Security or public pension programs?

Robert Fogel: Right. Now, there is an argument which says it's not as secure as the guaranteed government program. Well, ultimately, what the government can pay depends on how the economy performs. . . .
Fogel's last comment is good as far as it goes, but it doesn't go far enough. Every dime the government takes from a worker and gives to a retiree is a dime that cannot be invested in economic growth. So, it's true that the "guarantee" of Social Security is only as strong as the economy. But that's only half the story. It's true also that Social Security weakens the economy by diverting resources from investment to consumption. The "guarantee" that liberals and leftists like to tout when they defend Social Security is therefore the opposite of a guarantee. Forced participation in Social Security is an insidious form of rot that actually undermines economic security by undermining the economy.