Making Populism Serious: The Case of Social Security By Bryan Caplan

Almost everyone thinks that Social Security is a great program. Why? Because they’ve been convinced by the kind of arguments Bastiat would mock. Arguments like:

“Old people can’t work anymore; government should give them money so they won’t be poor.”

“If Social Security didn’t take care of our elders, we’d have to do it!”

These arguments are pleasantly convincing, perfect for a presidential debate. All of the following reasonable retorts would cost you votes:

“Couldn’t the elderly have saved for retirement when they were younger?”

“Gee, maybe government should give everyone money so no one will be poor!”

“‘What do you mean ‘We’d have to do it’? You’ve never been legally required to support your parents, but you are legally required to pay Social Security taxes.”

“Most old people aren’t poor.”

This doesn’t mean that arguments in favor of Social Security have to be inane. You could definitely craft an intellectually serious defense. And it would look something like the following seven points.

1. Knowing that American elders live in poverty makes Americans feel bad. But private efforts to alleviate their poverty suffer from a big positive externality; when one of us helps the elderly, everyone who pities them is a little better off.

2. A reasonable solution is to impose a relatively efficient tax (ideally on a good with negative externalities; in practice on a good like labor with low supply elasticity) to fund transfers to impoverished seniors, thereby alleviating this externality problem.

3. Factoring in seniors’ wealth as well as their income, there aren’t that many poor seniors, so a modest tax – with modest offsetting costs – could take care of the whole problem.

4. Unfortunately, the public probably wouldn’t eagerly support means-tested transfers to the elderly poor. That seems too much like “welfare.” The only politically feasible way to solve the problem of senior poverty is to make Social Security universal.

5. To make the program universal requires pretty high taxes. Depending on your definition of “poverty,” we’ll probably be transferring five to ten times as much income as necessary to provide for the destitute seniors we really care about (but strangely hate to single out for special assistance).

6. While these taxes and transfers will be substantial, the disincentive effects will still be tolerable. Furthermore, the benefit formula will be so confusing that people won’t realize the severe disconnect between what they pay in and what they take out. See relevant neoclassical and behavioral econ literatures X, Y, and Z.

7. Along the way, we’ll also help people with the income – but not the self-control – to save for their own retirement. Two birds with one stone!

If a presidential candidate made such an argument in a national debate, even I might vote for him, just to reward his suicidal candor. But it’s not going to happen. If the issue comes up, both sides will defend Social Security with the crowd-pleasing arguments that Bastiat would mock. After all, both sides are playing to win.