Sad to see a Noble Laureate in Economics flailing about quite so badly. Just one point:
America’s social security
system insulates individuals against the vagaries of the market and
inflation, providing a form of insurance that the private market does
not offer.
People who have been publicly honoured for their contributions to a science have, to my mind, a duty to actually speak the truth on matters to do with that science. There are parts of Social Security that are insurance, things like survivor’s and dependent’s benefits. It is a government run system of life insurance.
It is also true that when set up, Social Security was a form of insurance. The age at which benefits were paid was 65, which was almost exactly the average life expectancy. As with Bismark’s system in Germany decades before, of Lloyd-George’s in the UK, there was a reason for this, setting the age at which benefits were paid at such an age. It was insurance against living too long, against outliving your savings.
The system has now morphed into a system of assurance. We now all expect to live a decade or more beyond the benefits age. So we are no longer insuring against an unlikely (or 50/50) event. We know that it is going to happen (or rather, the odds are heavily weighted to the fact that it will), and this is assurance, not insurance.
There is actually a very simple change (one that I agree is politically unlikely) to the Social Security system that would return it to what it was, and to my mind should be. A system of insurance against an unlikely event, or alternative events. Dying young and leaving dependents, covered by the already extant insurance component. Dying old, above the average age for your cohort, and thus living longer than one’s savings. A system of insurance not assurance. Raise the benefits age to the average life span of the preceeding cohort. Currently around 75.
As far as I can see the only US economist speaking out for this is Brad DeLong (no wild eyed rightist he) and interestingly, although I’m sure this is not being used as a justification, is the UK idea that over the age of 75, benefits are no longer dependent upon NI contributions. You simply get the flat rate as a resident of the Kingdom. All that’s needed now is to eliminate the pension for those 60 to 75 (obviously, not for those who have been paying NI already. Phase it in by the generations) and we end up with exactly what we should have. A system of insurance for old age, not a system of assurance that is unaffordable.
As above, I think it is the duty of those publicly honoured to explain such things, rather than the rather tired pushing of the party line that he does actually do.
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