December 16, 2004

Kinsey on Social Security

I only just saw this, but Michael Kinsey's proof about Social Security seems exactly right to me. In fact, I recall putting forth the exact same argument—though less elegantly—about a month ago.

Not surprisingly, Mickey Kaus completely misses Kinsey's point, and argues that privatization will increase national savings, and that will solve all our problems. But that's certainly not true in the short term—not if we're increasing the deficit—which is what Kinsey was driving at. There's also the possibility that households will start saving less if they think their PSAs are a good substitute for other forms of saving. Contrary to CW, households aren't "over-consuming" on frivolities, they're already saving quite a bit (in the form of home equity, etc.), and so the tendency is always to spend more. So a middle-class family with a PSA could decide that they no longer need to put as much in their IRA or 401(k). Then we have a serious reduction in savings, do we not? I ran this theory by Henry Aaron of Brookings the other day, and he seemed to think it plausible, so I don't think I'm completely talking out of my ass.

The only surefire way to increase national savings, to my eye, is to put Social Security completely off-budget, reveal the magnitude of the gaping deficit in the General Fund, and then work to close that off by repealing the Bush tax cuts.
-- Brad Plumer 3:57 PM || ||