This argument over how social security is funded never made sense to me. Conservatives want to see it turned into private, 401k-like accounts, with high growth and high risk. Liberals want to see it centrally managed like a bank account, with low risk and low growth.
Why not do both? Continue to manage the fund centrally, but treat the fund like an endowment. That is, allow it to centrally invest in stocks and other assets to increase the rate of growth. But since it's still centrally managed, there's a still a major buffer in place to blunt things like economic downturns, a prevent any one person from being $$ ruined because they made a stupid investment decision.
In short…what if the SS fund was run like the endowment at an Ivy-league school? God knows they know how to manage risk while still bringing in $$$ returns.
On Social Security…why isn't it run like a university endowment?
byu/Kindly-Form-8247 inAskEconomics
Posted by Kindly-Form-8247
1 Comment
At a high level, it doesn’t really matter. The ability of an economy in a given year to support a given number of non-working retirees, invalids, children, etc depends on the amount of goods and services produced by that economy in that year (plus any leftover production from earlier years but that’s going to net out in the long-run).
In turn that depends on the labour and capital available in the economy that year to produce said goods and services.
We can finance that support by taxing the needed goods and services in that year (I’m going to call social security contributions a tax here for simplicity). There are good reasons for mainly doing the taxes using money rather than ‘direct requisition’ aka taking the goods and services directly, but that’s basically what’s happening.
If we finance the non-workers by saving into private funds, when everyone starts retiring, they’ll start selling those assets to buy this year’s goods and services and asset prices will fall until the total consumption of workers + non-workers fits into that annual constraint.
There is an argument that directing social security payments into private funds would have built up capital more efficiently and thus we’d be able to produce more goods and services. So perhaps we should have done that long before the baby boomers started to retire. Now, the current working generation would have to pay twice. And, there is also an argument that current households are saving what they consider an optimal amount of their income and thus if forced by the government to save more via social security, they’d just save less elsewhere (this is *not* dependent on households actually saving an optimal amount of their income, just on their perception).