Wednesday, August 15, 2012

Paul Ryan's Social Security and Medicare plans

Brad Delong posted a transcript of Paul Ryan's speech before the Atlas Society, an organization dedicated to the promotion of Ayn Rand's philosophy:

"That is why there is no more fight that is more obvious than the differences of these two conflicts than Social Security. Social Security right now is a collectivist system. It is a welfare transfer system. It is a system where--and I always tell my constituents, and none of them usually believe me--you don't have an account with your name on it in the federal government. There isn't a box with your cash in it that is going to come to you when you retire. A lot of people think that. And what is important is that if we actually accomplish this goal [of Social Security privatization] of personalizing Social Security (extended laughter)--think of what we will accomplish. Every worker, every laborer in America will not only be a worker but a capitalist. They will be an owner. They will be an owner of society and a participant in our free-enterprise system, our capitalist system. I would like to have more people on our team who are owners and believers in the individualist capitalist system than on the other side. And if every worker in this country becomes an owner of real wealth, of seeing the fruits of their labor come and materialize for their benefit, than that many more people in America are not going to listen to the likes of Dick Gephardt and Nancy Pelosi and Ted Kennedy--the collectivist class-warfare breathing demagogues."
"[Keeping Social Security and Medicare unchanged] will bring more government, more collectivism, more centralized government if we do not succeed in switching these programs and reforming these programs from what some people call a defined-benefit system to a defined-contribution system--and I am talking about health-care programs as well--from a third-party socialist-based system to an individually-prefunded individually-directed system."
"I think that if we win a few of these right now, moving health care to a consumer-based individualist system, moving Social Security to an individual preowned pre-funded retirement system, just those two things would do so much to change the dynamics in this society in the direction of accountability, individualism, and transparency in government than anything else we can do."

In the speech, Paul Ryan set out his belief that the Left-Right divide is a fight between collectivism and individualism.  Apparently, Social Security and Medicare are "socialist-based system[s]".  In fact, Social Security is described by him as a simple welfare transfer system.  This is somewhat true, but that's the way it has been since its inception.  But it's not entirely true because there is now a Social Security Trust Fund to help this generation pay for its own retirement.  Privatization plans are all very problematic because most of the existing system is just funded, as he said, by transfer payments from current workers to current retirees.  Thus to put money into individual retirement accounts, that means either a big increase in the Social Security tax or diversion of money to individual retirement accounts, which could come from current retirees, raiding the Social Security Trust Fund or borrowing lots of money (raiding the fund or borrowing money might have some overlap).  In fact, it's not that hard to make Social Security solvent more or less indefinitely.  I don't mind the idea of switching the growth in benefits from being indexed to wages to being indexed to the CPI, which would fix Social Security in one fell swoop.

As I mentioned in a prior post, Paul Ryan's "fix" for Medicare is just cost shifting, from the government to retirees and probably won't result in any reduction in the overall cost of healthcare, while "Obamacare" has real mechanisms for addressing long-run costs without sacrificing quality of care, although all the answers aren't there yet.  The issue requires serious scrutiny of the costs and quality of care, which is what "Obamacare" delivers.

As for the battle between individualism and collectivism, I don't see the developments of Social Security or Medicare as indicative of a future of collectivism or "socialism".  The fact is that the market does not always do a great job for solving all problems.  Providing a safety net for retirees, if anything, allows people to take more courageous personal initiative in striking out and taking a few risks without the fear that they will have no income and no healthcare in their old age because of their risks.  Surely there are some factors of these programs that push in the other direction, but I don't buy the idea that we are less free because we have established a few institutions that help seniors get by in their retirement.

The fact is, that Paul Ryan is perceived as a serious-minded reformer, but he's an ideologue and a pragmatist poser.  I went through some of this in the previous post and my post on August 12th.


  1. "I don't mind the idea of switching the growth in benefits from being indexed to wages to being indexed to the CPI, which would fix Social Security in one fell swoop."

    I do. For three reasons:

    1. Per-capita contributions to the program grow at the rate wages grow, not the CPI. It means the return on SS drops exponentially with each generation.
    2. It means the difference between the life you expect while working and the life you can get in retirement grows exponentially with each generation.
    3. It means SS stays in the black indefinitely. That might sound like a good thing, but it means it functions as a tax that funds other parts of government as well as SS, and that presents somewhat of a fairness issue particularly given that only the first $90,000 of income is taxed.

  2. Eric,

    My own preferred option for Social Security has three elements: indexing benefits to CPI, removing the cap for the payroll tax (which is actually past 110k already) and reducing the retirement age. I'm not dogmatic about it, though. You've got a point abt the expectations of people for their retirement benefits and maybe I'll change my mind abt it, after more thought. As for Social Security funding other functions, I'm fine with that as long as we're talking about the use of the trust fund proceeds. Basically, I feel that the revenues and expenditures should be matched in the long run, but that means sometimes excess funds will accumulate and sometimes they will be drawn down. Thanks for your comment.