Friday, May 11, 2012
John Galt's Pension Plan
Perhaps the best political line of the last half-century is the one that goes something like, “I think you can spend your money better than the government can.” It’s brilliant for two reasons, the first being that there’s no possible answer because no politician who wants to get elected is going to argue the point.
The second reason is that it’s not true.
After decades of behavioral research, it has been pretty well established that the average person is terrible at managing money. People consistently underestimate what they need to salt away for retirement and tend to indulge themselves now, rather than planning for the future.
When you add to that all the income shocks that can occur in a lifetime (serious illness; lingering endgame for a parent; kid with a drug problem; divorce; period of unemployment), even people who are reasonably prudent and frugal are likely to come up short at the end of their working lives. So you would think that a social policy based on people managing money shrewdly over the long haul would be a non-starter.
If you doubt that, consider how many people, faced with the choices for investing their retirement money, chose the most conservative path they could imagine: investing in their own company, which they felt they knew. When that company was Enron or PG&E, they lost everything; in other companies, the loss may not have been total but was still devastating.
I’ve always believed that it’s silly to have a system that expects people to be other than what they are. It’s why I can’t imagine a Marxist society ever working. It’s also why I can’t imagine there being any good ending to Congressman Ryan’s proposals to convert Social Security and Medicare to individual accounts. Ryan, an acolyte of Ayn Rand, believes his ideas would encourage individual responsibility.
I’m all for responsibility, but if a policy based strictly on that virtue would result (as I believe it would) in 90 percent of the people being worse off than they are under the present system, what’s the sense in it? What’s the morality? Letting old people die of starvation because they invested badly or from lack of medical care because they bought the wrong health-insurance policy is no different, morally, from killing them in re-education camps because they were unwilling to embrace communism.
The beauty of Social Security and Medicare is their simplicity and their guarantee. Social Security says you will get a check from the day you retire until the day you die. Medicare says you will get basic medical coverage from age 65 to the grave. The sharp decline in poverty among the elderly over the past four or five decades is proof that these programs work.
No one disputes that they are in need of an overhaul, but the overhaul has to be built around maintaining the fundamental concepts. Letting people go their own way, however appealing that might sound to the libertarian mind, amounts to setting up many, probably most people to fail.
Ryan’s old-age plan changes wouldn’t affect my generation (a shrewd political calculation on his part) and I wouldn’t live long enough to see the outcome. But I can write the scenario. Go down the path of individual retirement plans and individual senior health plans, and forty years from now you wouldn’t be able to drive across town without encountering dozens of geezers holding cardboard signs offering to work for food or asking for help with their medical bills. John Galt’s pension plan would be on public display at every street corner.