Barro on Bush: Not Pretty

"Why Private Accounts Are Bad Public Policy" - Robert Barro

A little different take on Social Security Privatization, from 1995 Nobel laureate, and author of one of my intermediate econ texts, Robert Barro. Chalk it up to a conservative excuse to opt out of fighting the battle that George Bush seems intent upon pursuing:

A SERIOUS ANALYSIS STARTS with asking why we have Social Security. If we were not so used to it, we would find it odd for the government to collect money from young workers and give it to the old (mostly workers' parents). One rationale is that the government should help people who lack discipline to save for old age. I have never embraced this paternalistic view. It's true that society will inevitably provide welfare to the needy elderly. Knowing this, some people will save too little and rely on public support when old. Thus, there is reason to require workers to save for retirement. How much depends on what is viewed as a minimal standard of living; suppose it is $1,000 per person per month. (Currently, a person with the median earnings history gets $1,200 from Social Security.)

Contributions that fund just the minimum cannot go into a meaningful personal account. People would opt for too much risk, knowing they would be bailed out if they fell short. Also, contributions that cover the minimum provide no individual return and, therefore, amount to a tax that discourages work.

Personal accounts have to supplement the minimum payout. But then why have a public program at all, rather than relying on individual choices on saving? I think there is no good reason to go beyond the minimum standard; that is why I view personal accounts as a mistake -- they enlarge a Social Security program that already promises too much.

For his part, Barro is content to reduce future benefits by changing the index of benefits, picking an even tighter price index, and indexing the retirement age to life expectancy. That's his way to save Social Security ... by cutting it and calling it done. How he would propose to eliminate elderly povery, though, is anyone's guess. Commence with the conservative crackup over this issue ....

SIDENOTE: Brad DeLong, on the other hand, has it just about right in his analysis here.