DISQUS

(1) Would a rational person behind a veil of ignorance who knows all the relevant economic statistics for 2005 and 1980 choose to be a randomly selected worker in 1980 or in 2005?

Depends on what you mean by "worker". If you mean industrial worker, 1980 would be better.

(2) Do labor market and income volatility have anything important to do with "economic security?"

Yes.

(3) If all there is to economic security is a state "guarantee," why haven't people in socialist economies been more economically secure?

If all there is to headache mitigation is taking two asprin, why does taking two hundred kill you?

Where to begin? I'll get asthma from all the straw Will's been shovelling around.

Characterizing SS as insurance is not, in itself, proof that it is a good thing. Not all insurance is good. But it does render irrelevant the very attacks Will then makes on it. Insurance is not intended to be charity. It is not intended to redistribute income. Insurance (or good insurance) is justified because it is efficient, not because it is redistributive.

Characterizing Social Security contributions as a "tax" is begging the question. If Social Security is a scheme of social insurance, then contributions aren't taxes, they are premiums. We don't worry about whether premiums are regressive. If you want to join in the fight to make the overall tax system more progressive, Will, that would be great. But that's not what Social Security is for.

Your claims about a mandatory defined contribution scheme are just claims. Anyway, implementing such a scheme now does absolutely nothing to deal with the actuarial liabilities of the existing scheme. That can only be done by raising contributions or reducing benefits. But you can raise contributions or reduce benefits without creating a mandatory defined contribution scheme. If you ignore the existing liabilities, of course your defined contribution scheme will pay a better "rate of return." If I designed a new defined benefit scheme, which just ignored the liabilities of the old scheme, then it would look great too.

The very first generation of retirees maybe got a good deal, but the current retirees don't take advantage of future generations. That's just a canard.

Present Congresses bind future Congresses when they create rights it would be unconstitutional to eliminate. In particular, a Congress that passes a budget which adds to the federal debt creates something the validity of which cannot be questioned according to the Fourteenth Amendment.

Anyway, I am not saying that deals between classes are typically enforced through law, but through politics. As a positive matter, classes do make deals (although they revise them). As a normative matter, those deals create reasonable expectations and aid in political stability, so they should presumptively be respected.

Will, I am prepared to concede that it is harder to keep a DB plan solvent, if you will (finally) concede that, from the point of view of the individual, it has advantages that a DC plan with the same expected return does not.

Buying an annuity before retirement (particulary in an unregulated market) does not spread the risks a DB plan based on best or average earnings does.

What about this proposal? We freeze SS contribution rates, and give a trustee board discretion to fiddle with benefits if necessary. The right stops talking about beer funds, accepts that the Trust Fund is a legitimate claim on future general revenue, and further accepts that the general fund needs to be brought into balance, by tax increases if need be.

Before I started commenting on this blog, I had no idea so many libertarians are big on government debt default.

If I understand your argument, it is that a bondholder is culpable in lending money to the government in the first place, since her security comes from future taxpayers who don't get to vote (and who didn't ask to be born!). So they deserve it if we just default, whether we have to or not.

In your world, pretty much every American must be culpable and deserving of punishment. Those bastards who have federally insured bank deposits for instance. Bonny and Clyde had the right idea! Those damn kids in public school. Don't ge me started about those seniors.

Basically, you are saying that anyone who does not abide by your sectarian libertarian morality (which few Americans would even understand, let alone consider binding) has no rights.

Tabarrok didn't make an argument, so I'll ignore him.

Yglesias did. He said defined benefit plans are good things, that private corporations (even with tax subsidies and heavy regulation) aren't good at delivering them, and that shows why Social Security is good.

You seem to be saying that financial markets can easily deliver the equivalent of defined benefit plans. But you don't show that. You just show that the Cato plan has some (inferior) defined benefit element.

Why so-called libertarians think coercing people into defined contribution schemes is better than coercing them into defined benefit schemes (where the government has a real advantage), I still don't get.

Nicholas,

Your argumentation is circular, in the sense that it can only convince an already-committed libertarian. For you, promises backed by taxes are always wrong. If I accepted that, then, of course, I would be committed to getting rid of Social Security (although I don't see why Bush or Cato's scheme would be an improvement).

But, of course, I don't think that. Promises backed by taxes can be good, depending on the consequences.

Social Security is similar in principle to, but better than, ownership of government bonds (or, if you are that purist, a federally insured bank deposit). A promise to pay $X 30 years from now is nice, but a promise to pay 60% of your pre-retirement income up to a maximum is better, because it spreads various risks that the first promise doesn't.

This program is widely popular. If the Democrats kick Bush's butt on this, then it will, in effect, be a property right.

On the question of posterity's obligation to pay public debt, I think you need to distinguish between the morality of accumulating the debt in the first place and the morality of paying it back. Accumulating the debt in the first place will be immoral unless it is invested in ways that leave posterity with assets worth more than the inherited liabilities. However, even if the debt should not have been accumulated, to repudiate it is just an unjustified transfer from bondholders to taxpayers generally. Not to mention that the transfer will make everyone worse off.

I would consider defaulting on debt, unless you really had to, immoral, not just unwise. It is a species of fraud. Ex ante expectations matter. We consider lending money to the government to be no risk, if low in reward. It would be immoral to alter that expectation, which is why deliberate hyper-inflation (which, I might tangentially add, is the logical denoument of the Bush fiscal experiment) is wrong.

If I lend money at high interest to a corporate vehicle for a high interest rate, then I still expect the company to try to pay me back, but it is a bit different.

Anyway, if you don't think there is any moral difference or difference in status as "property right" between Social Security and owning bonds, then my work here is done.

If I own a bunch of 30 year treasury bonds, I'm "forcing" the next generation to pay for my retirement. What's the difference?

I would say slavery was an abhorrent system of property rights, rather than an unreal one. But this is beginning to sound like the really boring debate about legal positivism.

The point is that one of the good things about non-abhorrent systems of property rights is they provide a zone of security beyond the whims of the political process. Social democrats think these good things can come with SS benefits, if we there is a sufficiently resounding against the would-be expropriating-without-compensation Bolshevists at the Cato Institute. Why are we wrong?

Was Jefferson mistaken that he owned Sally Hemings, or was he correctly informed, but a jerk?

Will:

In your example, we all believe two things:

(1) No one is lawfully married unless the marriage is presided over by a person with the authority to do it.

(2) Bob is lawfully married to Alice.

But it turns out (contrary to our belief):

(3) The person who presided over Bob and Alice's wedding did not have the authority to do it.

First off, Bob might not legally be entitled to an anullment from Alice, even if (3) turns out to be the case, particularly if (3) is found out after Alice and Bob have had three kids, a mortgage and so on. So, your counter-example isn't necessarily one, even on the more specific level.

But, anyway, a belief that Social Security benefits are property is more like (1) than (2). I can, of course, be mistaken about my Social Security entitlement. The Social Security Administration can be mistaken about it. But the whole society can't be mistaken as to whether Social Security is an entitlement at all.

And I know when I'm having a headache.

Nicholas:

I'm not saying that property exists at the whim of the State. On the contrary, I'm saying that secure property rights exist only when it is politically unthinkable for a goverment to take them away.

But I would say that property rights are necessarily socially constructed. An individual might be mistaken about what property he holds, but only because his subjective view conflicts with the social view. A society can't be mistaken about the property rights that exist within it, anymore than I can be mistaken about whether I have a headache.

As a matter of degree, I would accept that taking away people's houses without compensation is even more unthinkable in American society than not paying Social Security benefits. But the point is that Cato and Will are simultaneously saying the problem with Social Security benefits is that they aren't secure property rights, while trying to bring about the situation it is complaining of.

Well, the Social Security Administration can't just refuse to give you a social security cheque if you qualify under the current rules. You could indeed get judicial recourse if that happened.

What is true is that you can't sue Congress for changing the level of benefits. So the analogy with the UK Parliament's theoretical power to expropriate your house without compensation is a good one.

If it is unthinkable for Congress to repudiate the obligations of the general account to the trust fund, then that is all the property rights anyone can ever have. And if the social security debate goes the way it looks like it's going, then it will indeed be unthinkable to the same degree as it is unthinkable for Congress not to respect the governmetn bonds in the portfolio of the private insurance company.

Anton,

I used this example before, but a British citizen cannot sue for relief if Parliament takes away her house without compensation. But British citizens have "real" property rights in their homes because it is (at least for now and in the foreseeable future) politically unthinkable for any Parliamentary majority to do that.

(Note: I'm not arguing against justiciable property rights in constitutions. I'm just saying that even if they don't exist, property rights still may. And, conversely, a justiciable right in the constitution, as the People's Republic of China now has, will not do any good if the judicial system will not reliably enforce it.)

Since property rights exist only when it is politically unthinkable to interfere with them, Will and Cato's statements that they aren't property rights can't be evaluated as a neutral description of reality, but as an attempt to change that reality.

Jeffrey:

I'm not sure whether you are putting forward a serious point or not.

If you are saying people can't insure against the risk of living longer than average, then you are just wrong. People can (for a price) trade capital for a life annuity.

If you are saying that these contracts have problems of adverse selection, then you're right, but that's an argument for compulsory universal insurance.

Will:

I wonder about your ontology.

What is the distinction between "illusory" property in which everyone believes and which they respect in their actions and "real" property? I am genuinely having trouble with the distinction.

Libertarian: It's not an insurance system because people want to live to be old. That's not a risk.

Socrates: But outliving your savings is a risk. And an actuarially predictible one. So it makes sense to pool that risk. Which is what insurance is.

Libertarian: OK. I can imagine a private company providing that kind of service. But they would have to fund their future liabilities.

Socrates: Dude, Social Security funds its liabilities for years and could do so in perpetuity using slightly more optimistic assumptions. Anyway, if that's your problem, we can tinker a bit and solve it.

Libertarian: But Social Security can't have real assets...

Socrates: US Government Bonds aren't real assets? Would it bother you if the insurance company was 100% invested in US Government Bonds?

Former Libertarina, now anarcho-capitalist crazy: Beer funds! Repudiate the debt and give bondholders a share of Yellowstone!

This seems like a libertarian version of the "socialist man" fallacy. It is an observable fact about human nature that people do not plan rationally for their retirement or for the risk of disability or premature death. They already have plenty of incentive to do so. So the libertarian says that if we just change public policy, people will magically change into far-seeing retirement planners.

And if they don't? Well, then we just have a lot of destitute old people. But it was their fault they invested all their money in that "no-risk" scheme that guaranteed double digit returns.

Yeah, liking anything that came out after the Thomist went to seminary is a venal sin.

When the Pope, and everyone else other than you and Vellman, refers to "relativism," they mean the idea that there is no fact of the matter when it comes to moral propositions.

I don't think the Pope means that there are never any moral decisions where the norms of your culture are relevant. But I think he would say there is a distinction between "A is wrong" and "A is disapproved by my culture." And he's quite right about that.

So, it's morally right to drive on the left side of the road in England, but not in Maryland. But driving on the wrong side of the road isn't wrong because Marylanders disapprove of it; it's wrong because it could kill innocent people.

Where the Pope's off is his Thomist views about the purpose of sex. And drugs and rock 'n roll too.

There's a market niche for someone on the pro-market right to say, "The po-mos were right, but the Austrians beat them to it." I still maintain that post-structuralism was, in its context, basically a sound reaction to PCF-style Marxism.

What's wrong with this argument:

1. Wealth (or income) variance depends (in part) on luck.

2. No one deserves their luck.

3. Therefore, wealth (or income) variance is (in part) undeserved.

4. Undeserved wealth (or income) variance is undesirable.

5. Therefore, public policy should try to reduce wealth (or income) variance (ceteis paribus, not at all costs).

That argument does not depend on the telekenetic dwarf principle that we ought to pay people an amount commensurate to the benefit we receive from them, even if they will do it for less.

Zizek is always pulling your leg. He was part of some Slovenian liberal movement, until they wouldn't let him be Interior Minister, but just Minister of Culture. Now he likes to berate New Agey environmentally conscious sensitive identity politics as a betrayal of the revolution, citing Lenin and St. Paul with equal approval.

I read a fair bit (although not as much as he wrote), and I'm convinced his only sincere belief is that dim sum is gross.

Default rules are inevitable, and should not be a problem for libertarians. You have to divide estates on intestacies, defeine what are and are not rights incident to land ownership (subject to changes by restrictive covenants, etc.), employment, sale, etc., etc. If the parties can agree to change the default rule, when they put their mind to it, it is hard to see how liberty or efficiency are compromised.

The real Hayek thought that default rules (e.g., intestacy) could justly be used to increase material equality. I don't really see the problem with using them to overcome cognitive quirks. The common law does this in innumerable invisible ways already.