Government Guarantees

by Will Wilkinson on November 10, 2004

I was listening to the White House press briefing today on CSPAN, and a reporter asked McClellan something like, “Wouldn’t the president’s plan–putting a portion of SS witholding in private accounts–reduce the amount of the benefit guaranteed by the government.” (It’s online, so I guess I should just listen.) As I remember it, she tried to push her question at least one more time, again stressing the “guaranteed” part, clearly frustrated that Bush’s solid frontman refused to accept her framing. Now, that “guaranteed by the government” part always annoys me when folks talk about SS.

The government doesn’t guarantee anything. I need to check, or somebody can tell me, but I think my legal entitlement to SS money is entirely at the discretion of Congress. It could disappear !*POOF*! just like that. If Congress tomorrow raised the retirement age to 157, established means-testing such that you don’t get benefits if you have more than $7 in your savings account, or abolished the program outright, I wouldn’t see one shiny dime of the thousands of dollars the government has taken from me, and there is nothing other than the winds of public opinion and whatever else motivates politicians keeping the government from doing this sort of thing. Furthermore, today’s government has no real ability to bind tomorrow’s government, which might decide to use all the Social Security money to pay for a titanic nationwide party with the best firework show ever. Isn’t this why Al Gore kept talking about lockboxes? Because there is NOT a legal/institutional impediment keeping future governments from doing whatever they want with the SS money?

And isn’t one of the nice things about giving people property rights in their retirement accounts just this: that it at least creates some kind of legal barrier between your money and the state, which is certainly more of a guarantee that the money will be there when you retire than earnest assurances by some politician who will be dead when you reach middle age?

(Of course, nothing can really guarantee that the government won’t just take your money, if it really wants to. That is, nothing except the vigorous exercise of our second amendment rights!)

  • Bob,
    Private retirement accounts in lieu of Social Security would never be invested entirely in Enron stock. When you have highly diversified mutual funds and your investments range not just among different companies but among different sectors, the rate of return is almost always better than the return from treasury bills.

    People seem to think that private accounts means that people will be picking and choosing individual stocks on their own: no serious reform proposal suggests that. The accounts can very easily be structured such that investors are protected from individual company meltdowns like Enron.
  • bob mcmanus
    Odds of avoiding default and loss of your money are better on treasury bills, than say Enron Stock. That the question is even conceivable shows a quantitative difference that approaches qualitative.

    So if you will agree that your money is safer in T-Bills than your average hedge fund, you have to ask why is it safer? I might perhaps contend that if you don't agree, you are taking for granted institutions and mechanisms for securing your wealth (in gold or fine-art?) without acknowledging your dependence on them. If the gov't were to default on its unfunded liabilities, your money-market investment will be proportionately damaged.
  • You are entirely correct, the Supreme Court has made it crystal clear that there is no property interest in Social Security benefits (in Wall Street parlance, benefits never "vest").

    See Flemming v. Nestor, 363 U.S. 603 (1960) or my post on the subject.
  • katzxy
    At least someone understands the ultimate reason why we have the 2nd amendment!

    P.S. Congrats on the Cato job.
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