Social Security Confusion

Steve Landsburg has a worthwhile article on Slate. But he stumbles toward the end. He's right that the best way to help future retirees is to maximize production through the market. He is right that the debate is obscured by all the accounting illusions. He's right about savings, except I would say the government needs to stop discouraging it. It really doesn't have to be encouraged.

But he's wrong in this paragraph:

Which brings us to the president's proposal for private accounts. I like that proposal for three reasons. First, it will encourage people to save. Second, it will give people choices, and choices are good. And third, it will give more voters a stake in the capitalist system, making them more likely to vote for the sort of pro-growth policies that will improve the quality of life for us in our old age and our grandchildren.

Bush’s plan may not encourage new savings, but only shift savings from one form to another. The new choices it will provide will be limited and may be offset by the government's power to interfere in, or at least influence, the capital markets. And there is no reason to believe it will make people think like capitalists. That's a Marxist position that I can see no justification for. So-called private retirement accounts are more likely to extend the entitlement mentality to stock-market returns—and that would be very bad. On this subject see my Freeman article “No Shortcuts” (pdf).

Hat tip: Jude Blanchette