Unfortunately, I find myself agreeing when Grouchy Old Cripple writes that some people are too stupid to manage their own money; however, when it comes to reforming Social Security, I don't think his conception is correct.
Private accounts would be a boon to many young workers today. They would be a much better deal than the current system and they would allow the money to be passed on to descendants.Unfortunately, they would not work with stupid people. Many of the poor in this country are that way for a reason. They made bad choices. They dropped out of school. They had children at an early age. Some of them continued to have children even though they couldn't afford the ones they had. Private accounts would not work for them because they would make the same type of bad choices with the accounts as they made with their lives. If they did manage to even have anything in their accounts at retirement they would probably take all the money and blow it and then cry because they didn't have any money.
My understanding of the privatization proposal is that people would be allowed to select from among several goverment managed investment portfolios, and then only allowed to withdraw the money when they retire. I don't think people would be free to immediately waste the money, we'd just be more free than they are now. Eric the Viking explains that the similar system currently available to government employees is doing quite well -- 12.1% per year for the past 17 years.
Even aside from that, though, GOC identifies the real problem in the next paragraph.
Now we would have a whole shitload of stupid poor people and guess what we would have to do? We would have to support them. And where would the money come from? The same place it always does. It will come from the people who made good decisions. That will mean higher taxes. It always does.
The problem is that GOC doesn't see any solution other than government intervention... and that's the difference between statists and libertarians: statists think problems should be solved by the government and higher taxes, whereas libertarians think problems should be solved by the free will of the people. If people make bad decisions and end up poor, should the government help them? That's just one way to phrase the question; another would be, "If people make bad decisions and end up poor, should we stick guns to the heads of smart people and force them to hand over their money to help the stupid people?" The answer is obviously no.
So what's the solution? Stupid people rotting in the streets? I hope not. In fact, I bet a lot of smart people -- even those without compassion -- wouldn't want dead bodies everywhere. We wouldn't need the government to force us to help poor, stupid people, we'd just need to exercise private charity. The best way to help poor people isn't via the government, it's via churches and other privately funded charity groups.
The only problem with that is, many people have too much "pride" to accept charity. When they're on the government dole, they feel like it's something the government OWES them... something that they're entitled to. However, when they receive private charity (whether from churches or individuals), it makes it strikingly clear to them how much they are dependent on the good will of others. It makes them feel indebted. It makes them feel... poor. And nobody likes to feel that way. Even if we could rouse more people to individual charity, we would never get most people to accept it.
JS: Then maybe they'd work!
In a society that's becoming more and more about "what's in it for me?", I don't expect charity alone to solve the problem.
Michael, how comfortable are you with the government managing the portfolios? That's an awful lot of money for the gov't to be throwing around and it seems to me that there is a lot of leeway for social policy to get itself involved ("we don't invest in non-union companies" or tobacco companies or "gay-friendly" companies like Disney).
I'm in favor of privitization on the whole, but am not particularly comfortable with this aspect of it.
Mark: To the best of my knowledge, there's no evidence that charitable giving is any lower now than ever. And America is the most charitable of all nations (partially because we have some of the lowest taxes).
RA: True, that's a concern. I don't know how Congress' system is managed.
Regardless of whether or not charitable giving is lower.. and regardless if America is the most charitable nation.. charity alone won't solve the problem.
More charities would have to be created or existing ones expanded. This requires more giving on the part of those who are charitable. There's no practical reason to expect this to occur like it's automatic.