Zombie Reforms, Zombie Arguments

by Will Wilkinson on February 9, 2006

In the Washington Post’s account of the resuscitation of Social Security reform in the president’s budget proposal, Allan Sloan writes, of progressive indexing:

This means that although progressive indexing is an attractive idea from a social-justice point of view, it would reduce Social Security’s political support by making it seem more like welfare than an earned benefit.

Matt Y. characterizes Social Security reform as a zombie that won’t (really truly) die. Sure. But how about Sloan’s undead item of liberal faith about political support, which keeps rearing its dessicated head despite the lack of any good argument.

As far as I can tell, there is little to no evidence that converting social security to a means-tested benefits program would reduce political support for it. It is true that former Social Security administrator Wilbur Cohen’s assertion that a program for the poor will be a poor program is repeated endlessly. But truth is not established by repetition. Unemployment and disability insurance, unlike Social Security retirement benefits, kick in only in conditions of necessity. Nevertheless, or perhaps due to that fact, they are very politically popular, well-funded, and face no apparent political threat of reduction.

Indeed, there is compelling evidence that means-tested retirement benefits would be too generous creating a perverse incentive for workers to save too little in order to qualify for a beefy means-tested benefit.

Xavier Sala-i-Martin and Casey Mulligan have written a fascinating account of the political economy of “gerontocracy” or rule by the old. Their key point is that during their working years, workers have fractured political interests. Teachers plump for teacher’s unions. Manufacturers lobby for price-supports. Investors fight for lower capital gains taxes. Etc. Many of these interests cancel each other out. In any case, there is no unified front. However, when people retire from their particular occupations, they leave behind a narrow sectional interest and move into a much broader interest group, retirees, who have highly unified interests, and, moreover, very low opportunity costs to political participation.

The demographic problem of social security is precisely that a very large portion of the population is soon to make the transition into this group. There is every reason to believe that retirees would lobby for big retirement benefits, and there would be no other political interest as large and unified to keep them from getting them. One of the chief economic reasons for mandatory retirement savings accounts is to guard against this much more likely contingency. (More likely than too little political support, that is.) If workers are required to save for retirement in protected accounts, they will not be able to prematurely consume their savings in order to qualify for predictably over-generous means-tested retirement benefits.

I agree that progressive indexing is attractive in terms of distribution. But since there is little reason to believe that a more means sensitive program will lack political support, why not just go all the way to a progressively designed means-tested program for the poor elderly complemented by mandatory personal retirement accounts to buffer against moral hazard?

This is, I agree, not a particularly libertarian proposal. But I think it is the best feasible option from almost every perspective with an interest in feasibility. For the life of me, I still can’t figure out how a liberal could possibly prefer the status quo over a cushy retirement safety net plus mandatory accounts.

My prediction is that nominal liberals actually won’t be able to hold out that long against the overwhelming liberal sensibleness of this, and so if Republicans can’t get the job done, Democrats will soon enough.

Viewing 5 Comments

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    I still can’t figure out how a liberal could possibly prefer the status quo over a cushy retirement safety net plus mandatory accounts.

    Hmm...one can favor making Social Security into more of a means-tested system and yet reasonably oppose personal retirement accounts. Why? Well, for the reasons Tyler Cowen outlines here. In fact, there may be good libertarianish reasons for doing so, as Cowen suggests.
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    Countdown to brain-dead "monkyboy" post starting now...
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    Social Security is a modest enough benefit that I can't see the moral hazard problem as a significant one. Certainly not significant enough to warrant anything like mandatory retirement accounts, which could just as easily force too MUCH savings as guard against too little. And in any case, unless you propose to have the government also manage what retirees do with the distributions from these accounts, what significant protection would they really offer? You can lead a horse to a savings account, but you can't stop him from blowing it all on Viagra once he turns 65.
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    Reading your post a bit more closely, you seem to be making your argument based not primarily on how benefits are currently allocated, but on the prediction that the large mass of future retirees would vote for politicians who would increase their benefits. This is certainly a threat, but I still don't see how mandatory retirement accounts would help avert it. And in any case, it makes the first part of the policy prescription entirely moot. A voting public bent on increasing benefits to the elderly would, of course, begin by undoing any legislation passed in recent years that had limited those benefits, starting with progressive indexing.
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    As far as I can tell, there is little to no evidence that converting social security to a means-tested benefits program would reduce political support for it.


    I think that this theory relies on the single, albeit significant, case of welfare reform. Basically, federal welfare reform didn't just shift letters around when it turned AFDC into TANF, it really transformed the program's (dis)incentive structure. Conservatives (and centrists) think that this was a huge victory for responsible government; liberals are still smarting and grumbling over this one since they believe that you can't count the success of a program on the basis of how many people were eliminated from the rolls. (Indeed, for some of them it may not be a stretch to say that the more people a program serves, the better it is.)

    Liberals have adopted a sort of dumbed down public choice. They believe that in order for a program to survive it either has to be (a) for the rich or (b) for the many. They think that the current version of SS is (ab) and so see means-testing as a poison pill.

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