Your argument from negative externalities seems to me to be based on a fundamental economic distrust of the average person, which I think is deeply rooted in liberal thinking in general. I get the sense that liberals basically don’t think that the average person is capable of making sound decisions regarding their actions in the material world. Consequently, liberals advocate letting an elite make the decisions ‘correctly’ and impose them on everybody else by force.

Conservatives suffer from a similar problem in a different area — they don’t trust the average person to make sound decisions in *spiritual* matters. Consequently they advocate forcing ‘correct’ spiritual conclusions on people by force.

I believe in the ability of average people to make generally sound decisions on both material and spiritual issues; consequently I think the government should get out of the way and let them do so.

Social Security is not about keeping you secure in retirement.

It’s about you keeping today’s old people in their payments, and the chance that the Ponzi scheme won’t collapse before you get your turn.

Call a spade a spade, I say.

If the government wants to force people to diversify, it could address the problem by requiring certain minimal levels of asset class diversity inside the various tax-deferred retirement saving vehicles as a condition of preserving their tax-deferred status. There’s no need to create a massive federal bureaucracy and an intergenerational wealth transfer to achieve your desired goal. Personally I think people do better at taking responsibility when you actually give them some, but your milage may vary.

You are correct that the payroll tax is technically 6.2% paid by the employee and 6.2% paid by the employer. I think it is quite likely that the employer’s 6.2% would be reflected in an increase in employee salaries, but even if it isn’t there would still be positive economic effects that employees could use. If all companies kept the 6.2%, for example, it would increase average corporate P/E ratios by a small percentage annually, which would drive an increase in their stock prices similar to an equivalent increase in corporate profits from some other source. That increase in stock prices would result in better investment returns on employee’s investments. Whether the net effect was positive or negative relative to giving the money directly to the employees would depend on whether the money wound up better invested by the companies or the employees. (I think this question is similar to the debate over whether lowering capital gains tax rates or corporate tax rates provides a better economic stimulus.)

Personally, I’m against social security privatization. Payroll tax takes 12% of my income, and I put another 18% or so into 401ks and the like. Diversification.

(Most people don’t diversify adequately, and IMHO large numbers of elderly poor has significant negative externalities, so I accept the friction that accrues in socializing that particular decision. This is one of those places where you probably have more reasoned arguments than I do, though, and I’d love to hear them.)

Tom

(Isn’t it 6% of my paycheck and a 6% match from the employer? We can argue over whether in the absence of social security that money would be paid to the worker or used elsewhere by the employer – hard to tell.)