Social Security Reform

The recent discussion on social security has largely focused on fiscal issues. Indeed, this is a serious matter. Today's social security benefits are paid by today's taxpayers. Your social security contributions are generally spent immediately, not invested and earning interest. Thus switching to private retirement accounts would be a strain on the social security system.

But there's another issue that has been largely ignored. Increased financial returns never come without risk. (Anybody in finance knows this; apparently politicians don't, or they're not willing to say it.) For some people--those with a long time until retirement or sufficient savings--this is a risk worth taking. For others, it is not. The status quo hurts those in the former category. The proposed private accounts hurt those in the latter who make risky investments. Note that private investment accounts don't necessarily mean risky investments--you can always pick bonds--but it gives you the choice.

So the real question is this: should the government protect people from their own ignorance or stupidity? In this case, I'm inclined to say "yes"; keep the safety net, even if it hurts some. But the issue is not clear-cut and compromises must be made either way.

This is why economics is known as the "dismal science".