Jonathan Chait's latest column identifies his chief reason for opposing the partial privatization of Social Security: the program is a form of social insurance. Consequently, he refuses to listen to arguments that would lead to reforms that would undo the program's ability to act as social insurance.
His column is only a column, of course; therefore, it's rather short. Chait recently wrote a much longer article — "Blocking Move" — for The New Republic. Unfortunately, it's available only to subscribers, but here's the part that talks about social insurance:
Privatizers portray Social Security as a kind of low-performing 401(k) plan. But the program was never intended as a personal retirement plan. It's a form of social insurance, designed to spread risks throughout the population. One such risk is that you get sick or hurt and can't work anymore; 11.5 percent of Social Security benefits go to disabled workers (which is another reason why retirees get a lower rate of return).Another risk is that your income will decline, perhaps because economic changes make your skills less valuable. (Today, for example, steelworkers could be made redundant by productivity increases. Perhaps in 30 years it will be accountants or software engineers whose work was outsourced overseas.) That's why Social Security gives low-earning retirees a greater return on their taxes than high-income retirees. Still another risk is that you'll live a very long time and exhaust your savings, which is why old-age benefits are indexed to inflation and last for a lifetime.
A system of individual accounts would concentrate all these risks on the shoulders of the individual. The inherent risks of investing have captured the most attention. Obviously, if you invest poorly--or even retire at the end of a market slump--you may get a nasty surprise at retirement. (Gary Burtless of the Brookings Institution studied what would have happened historically if workers had invested two percentage points of their Social Security taxes in stocks. Those retiring at the end of a slump would have less than half the income of their more fortunate counterparts who cashed in a few years earlier.) But the risks of replacing social insurance pose an even harsher dilemma. If you suffer a career-ending disability before you've put aside enough in your account, if you find yourself at the low end of the income scale, or if you live longer than you had made contingencies for, you would be out of luck. Social Security doesn't make anybody a millionaire, but it offers everyone the assurance against suffering too much from outrageous fortune. A privatized system would invert that premise.
Privatization advocates insist that the changing economy has rendered social insurance obsolete. "The economy is changing, the world is changing," asserted Bush during last year's campaign. "In our parents' generation, moms usually stayed home while fathers worked for one company until retirement. The company provided health care and training and a pension."
Bush is right about the changes. As Yale political scientist Jacob S. Hacker has noted, this generation of workers faces much greater income variability than the previous generation. Rather than slow, steady pay increases and lifetime employment, workers change jobs and see their incomes fluctuate dramatically. One of the most potent changes has come in company pensions. Forty years ago, most pensions gave workers a fixed benefit. Today, most pension benefits are tied, at least in part, to stock-market performance.
But Bush has the implications of this change exactly backward. Because workers face higher risk in the economy today, social insurance that eliminates risk makes more sense, not less. Privatized Social Security might have made some sense 40 years ago for workers who stayed at one company their whole career and retired to a guaranteed pension. Why not let them take some risks with their public pension? But it utterly fails to meet the needs of the present day. The last thing you want is for your 401(k) and your Social Security to drop simultaneously during a market decline shortly before you retire. If workers are going to take on greater risk in a more dynamic economy, a risk-free bedrock of social insurance offers the perfect complement.
Notice how Republicans have studiously avoided these issues. They've omitted them, since they're trying to convince voters to think of Social Security as an investment plan that could be bettered through the addition of private accounts.
Here's a weak analogy, but it might prove helpful. Most states mandate that drivers at least carry collision insurance as a condition for legally operating an automobile. No one is advocating that such laws be overturned, and that we establish private collision accounts. Furthermore, no one objects to these laws on the grounds that the money spent on premiums is no longer in the hands of drivers, can't be inherited, and the like. Why? For the obvious reason: insurance is insurance, it's not an investment. We all understand the difference.
Several months ago, I might add, I blogged a bit about Jacob Hacker's ideas of rising insecurity — "It's the Insecurity, Stupid!"
