02 Sep 2008

Liberals and Libertarians Agree: Don’t "Privatize" Social Security!

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I have been arguing with “Lee Arnold” about climate models over at Marginal Revolution. Anyway, I clicked on his profile and stumbled across his YouTube library of “Ecolanguage” videos. Below I’ve embedded his neat little discussion of President Bush’s ill-fated plan to “privatize” Social Security.

As a free market economist, I disagreed with much of Arnold’s analysis. However, he hit on the crucial flaw in Bush’s plan, which I was hammering away at in my own articles (one and two) at that time: Because he didn’t plan on cutting government spending, Bush’s plan was a giant shell game. Whatever workers took from the “trust fund” and invested in the stock market, would simply have to be made up for by increased government borrowing. So there would be no net increase in savings and investment,* which was the whole )##$@#^ point of the program.

* I realize now that there could be an increase due to Laffer curve effects, but this wasn’t the point being made by most of the proponents at the time. They were naively saying, “Money in the stock market grows exponentially, whereas the government spends your payroll taxes right now. So Bush’s plan is better.”

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