Wednesday, August 1, 2018

Thoughts on Social Security

A friend recently asked for my thoughts on this video from The Atlantic, which all but declares Social Security "the Greatest Government Policy of All Time."  The video cites statistic indicating Social Security has successfully reduced poverty, and then asks: "why do some people hate Social Security?"; it essentially settles on "because those people are dumb," and then closes with the following quote: "Is it socialism?  Maybe.  But it's socialism that saves us from our human nature."

This closing line shows EXACTLY the attitude that makes people hate Social Security.  

The driving philosophy of the program (from here on described as idea X) is that government knows how to manage a portion of our money for us better than we do ourselves. We can debate whether X is true, but it’s mighty condescending in any case. People take pride in being self-sufficient, rational adults capable of running their own lives and making good decisions, so it’s aggravating when some wonky dweeb in a purple tie chortles that they’re too irresponsible for that, to justify the state taking their hard-earned money away from them.

Beyond this initial agitation, I have three arguments against Social Security:

1. For many people, X is false, which means Social Security robs them / makes them poorer.

Social security basically takes 1/8 of your income and puts it into low yield U.S. Treasury bonds. That’s better than not investing at all…but still a really dumb investment strategy for most people. Your actual rate of return from SS depends on how long you live, but studies show “over 99 percent of the U.S. population would have earned a greater return by investing in the S&P 500…relative to the current Social Security system” as of 2004, and that SS’s rate of return is “vastly inferior to what they could expect from placing their payroll taxes in even the most conservative private investments.”  So anybody with enough brain to save for retirement at all gets a bad deal from Social Security.

2. There are better and fairer ways to help those for whom X is true, without hurting everyone else.

People who don’t save money for retirement can be broken into three categories:

1. The ignorant, who don’t know HOW to start investing and/or WHY it’s so important.

2. The poor, who are living paycheck to paycheck and can’t afford to save.

3. The spendthrifts, who are too impulsive to delay gratification (despite having both the knowledge and the disposable income to do so).

I think the first group is by far the biggest, and that Social Security is a horribly inefficient way to help the people in it. The best way is literally just to educate them! I gave my Soldiers a 20 minute class on compounding interest the day the TSP lady came to brief them, and it blew their fucking minds; probly did more good for them than every piece of cellular biology they ever snoozed through in high school. Make it a part of our Senior-year curriculum, explain the importance of starting early, and set people up with an easy-to-use online account, so they can realize the 7% annual rate of return from a basic Index fund instead of just crossing their fingers they live long enough to break even from SS.

The poor, meanwhile, are the ones who can least afford the reduction in their short-term income, and also those who can most elevate their standard of living by choosing stocks over bonds with whatever is left-over. So as welfare programs go, a UBI makes more sense to me (and private cash transfer charities do an even better job).

That leaves the spendthrifts. I’ll be honest: they’re the group I have the least sympathy for. But even for them, privatizing it would be better. If we kept the mandatory contributions part, but gave people more control over how to invest it, you would check people’s profligate tendencies and save them from future poverty without suppressing and collectivizing everyone’s earnings in the process.

3. Whether or not X is true for most people, government has no legal or moral right to seize our income for the purposes of reducing poverty.

I’ll spare you the history lecture on why I think Social Security is unconstitutional, but ethically speaking
, I think it runs contrary to some defining American values like individual liberty, personal responsibility, and private property ownership/right to keep what you earn.

I’m all about helping people who are poor due to circumstances beyond their control. I give a substantial amount to charity every year, and do my homework to find out which charities stretch my dollar furthest to do the most benefit for the most people. I passionately believe that the charities I’ve settled on do more good with my money than the government does with my tax dollars.

At the same time, I don’t buy the idea that not saving money for retirement counts as something “beyond people’s control” in most cases. When I was 18, I used my life savings to that point + the gift money from my graduation party to set up a Roth IRA. I’ve contributed to it religiously every year since. That’s involved sacrifice. That’s required discipline. That’s again required me to “do my homework” to make a wise investment. And, once again, I’m extremely confident that the particular allocation I’ve chosen will absolutely dwarf the return I’ll ever receive from what’s left of Social Security by the time I retire.

So the way I look at it, if I didn’t have to pay Social Security taxes, I could do both things better. I wouldn’t merely get a better return on my personal investments; I’d get a better “return” (as measured by “amount of good done for others”) on my charitable contributions as well, in part by giving that money to those I consider actual victims of injustice or circumstance. It isn’t bad luck or “human nature” to not save money when you make enough to do so – it’s just indiscipline. We all make our choices and should live with the outcomes. I guess I’ll pay for shortsighted people’s food and ER visits to ensure they don’t literally die…but beyond that, I think it’s fairer for the impatient spenders to be relatively poorer when they’re old than it is to coerce everyone else in society to enrich them. I’d rather send that money to buy a thousand $2 mosquito nets in Sub-Saharan Africa, to save the kids who really never had a chance.

Maybe you disagree and that’s fine – but disagree with your own money, okay? The point isn’t “spendthrifts deserve to be poor!”; it’s that on BOTH the question of “how to best save for my own retirement?” AND the question of “how to best allocate my income to help those deserving help?” I am perfectly well-qualified to make my own decisions with my own money, IAW my own values and reasoning. Who the hell is FDR or Derek from the Atlantic to overrule me?

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