Thursday, March 20, 2014

Social Security: A Modest Proposal

If a society is to support a large number of retired people, it's clear that those people will live on the production of those still working - on the transfer of production from those who work to those who are retired. This is true whether the actual funding was saved penny by penny by those now retired, is extracted by taxes on those still working, or accumulated in stock market retirement accounts.

Here is a radical proposal: create a retirement account for each citizen at birth, invested automatically in diversified securities. This would fund their individual social security pensions, which would be the same for everyone. Everyone could be encouraged to save also, to provide any luxuries they might wish to enjoy.

How to fund it? Hey it's not called fiat money after the car. The net effect would be slightly inflationary, which seems to be a good economic idea anyway - essentially all well run central banks manage their money to be slightly inflationary, which would work as invisible tax with zero administrative costs on the whole economy. The biggest advantage of the plan is that the administrative cost is essentially zero.

Anybody got a problem with that?