NCPA - National Center for Policy Analysis

IT'S NOT ABOUT MONEY, IT'S ABOUT ECONOMIC FREEDOM

February 11, 2005

Social Security should not be reformed to lessen the financial crunch, but because it would give Americans more economic freedom and greater welfare, says Kevin Hassett of the American Enterprise Institute.

Some of the problems with the current system:

  • Social Security prevents workers from spending their savings until they retire and thus fails to provide a rainy-day fund or a down payment for a house.
  • Those with a family history of health risks are likely either to never get their benefits, or not live enough to get a large enough return from the program.
  • Monies left in Social Security are not diversified across the stock market, but instead fall into a low-yield government instrument.
  • Social Security's steady contribution path runs contrary to common sense, forcing the young to live a poorer existence -- often relying on costly credit-card debt.

Savings should occur when people can actually afford it: it is natural to have negative savings when one is young and earns low wages, while having positive savings when one becomes older and earns a greater income.

It is estimated that Americans would be willing to pay as much as 7.5 percent of their lifetime consumption to be freed from the confines of the current program. In 2004 alone, this welfare loss amounted to about $500 billion.

Hassett says Social Security is an outdated system. Today, there are easy modifications -- such as private savings accounts -- that will protect those who are irresponsible with their money and at the same time give individuals the added freedom they desire.

Source: Kevin A. Hassett (American Enterprise Institute), "Ants and Grasshoppers," Wall Street Journal, February 7, 2005.

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