Privatizing Social Security

Studies | Social Security

No. 217
Wednesday, July 01, 1998
by Laurence J. Kotlikoff


The Ethical Challenge

"We need not steal from future generations to meet the legitimate goals of Social Security, Medicare and Medicaid."

I am accusing the federal government of expropriating the earnings of today's young as well as future generations through the expansion of the Social Security, Medicare, Medicaid and other programs. In doing so, I risk being accused of ignoring all the good these programs have done. Let me plead innocent on that score. I appreciate the critically important functions these programs perform. Chief among them are making people a) save for their retirement; b) insure against early death, disability and large medical expenses; and c) join a pool that prevents insurance companies from covering those with small expected losses and leaving exposed those with high expected losses.

To say that we need to make people save, insure and pool risks does not imply that we should ask our children and grandchildren to save for us or to pay for our insurance. We need not steal from future generations to meet the legitimate goals of Social Security, Medicare and Medicaid.

As the father of two small children, I'm appalled at our country's fiscal child abuse and the lengths to which our so-called leaders are going to disguise this behavior. One way they do so is to portray the question of reforming entitlement programs as a left wing-right wing fight between Democrats and Republicans. Each side claims it cannot move the other, and they end up compromising on a "solution" that does too little and starts too late.

In truth, the issue breaks down not along party or ideological lines but along generational lines. The great ethical question of our day is: are we adults going to protect our children or prey upon them?

This question prompts others. Are we going to do long-term fiscal planning or pretend that 2002 is the end of time? Are we going to acknowledge all of Social Security's fiscal problems or just a third of them? Are we going to continue making overly optimistic forecasts of future Social Security, Medicare and Medicaid expenditures and then claim things turned out worse than we could have predicted? Or are we going to stop talking about "saving Social Security" and start asking a) what are the legitimate goals of the program and b) how can we achieve those goals without embezzling from our children? Are we going to discuss publicly the size of the net tax rates we are willing to impose on our children? Finally, are we going to do what it takes to achieve generational balance?

Having considered the grave state of U.S. generational policy and the great ethical question it presents, let us examine Social Security's role in our nation's generational imbalance and how we can restore the balance through privatization while retaining the legitimate objectives of the system.


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