man [who] is trying to sell his future Social Security benefits on eBay. The starting bid is $200,000. . . .
[D]oes this portend the public’s desire to do an end run around the government? If Washington is unwilling to create personal accounts for Social Security, what’s to prevent citizens from creating an alternative market themselves? Of course a big legal roadblock, which would make all of this irrelevant, is the fact that people don’t technically own their benefits so the law might prevent them from selling to another person.
But I don't think that the law could prevent something like this from happening:
1. A borrower (B) gives a prospective lender (L) full access to B's Social Security earnings record, employment record, financial data, health history, and other information relevant to B's future earnings prospects and life expectancy.
2. L estimates B's Social Security benefit (or likely range of benefits), using the detailed calculator that is available at the Social Security website.
3. L computes the present value (v) of the B's Social Security benefit, using a rate of interest (r) that would enable L to earn an acceptable rate of return, given (a) L's prospecitve uses of B's loan payments; (b) B's personal, physical, and financial situation; and (c) the possibility of changes in (uninflated) Social Security benefits during B's expected lifetime.
4. L offers B a loan in the amount of v, repayable over the remainder of B's life at rate of interest r, and subject to certain safeguards for L. For example, the loan (or portions of it) might be secured by a mortgage and/or a life insurance policy.
5. L and B negotiate the terms and conditions of the loan.
6. The model established by L and B is adopted on a large scale by financial institutions, resulting in a market for Social Security-benefit-backed securities.
No one would force the Ls and Bs of the country to make or take loans. The would act only if they believe that they would be better off by making and taking such loans. And -- most of the time -- both would be better off. The Bs would receive lump sums on which they could earn better returns than the 2 to 3 percent current workers will earn on their "contributions" to Social Security. The Ls would gain by making fairly secure long-term loans, the payments on which they would be able to roll over into similar loans or ventures with potentially greater payoffs.
The Social Security system, in large part, would become a mechanism for funding productive investments in the private sector. That would be a major, positive change -- given that the current (de facto) function of Social Security is to direct funding away from productive investments and toward current consumption.
Related post (with links to reference materials and other posts on the subject): Social Security: The Permanent Solution