Friday, May 13, 2005

Economists for Personal Accounts

A new release from the Cato Institute tells that over 450 economists, including many Nobel laureates, are endorsing an ad that calls for Social Security personal accounts. Link.
More than four hundred-and-fifty of America's top economists, including Nobel laureates Milton Friedman, Robert Lucas, Robert Mundell, Edward Prescott and Vernon Smith, are calling for the nation's troubled Social Security system to be reformed by giving workers the option of shifting all or part of their payroll taxes into privately invested accounts.

In ads sponsored by the Cato Institute in tomorrow's Roll Call newspaper and The Washington Times, the economists argue that America's Social Security system is facing a financial crisis because of its flawed pay-as-you-go structure. They say that any solution "must uphold the time-honored principles of ownership, inheritability and choice." [...]

The ads will appear just hours before the House Ways and Means Committee holds a hearing into Social Security reform. Among those testifying before the panel will be Michael Tanner, the director of the Cato Institute's Project on Social Security Choice -- widely considered the leading intellectual impetus for transforming the soon-to-be-bankrupt system into a savings program that would allow Americans to invest their payroll-tax contributions in individual accounts.

For an economist, this call should be a no-brainer. The Social Security was set up as a lottery. Few workers in 1936 lived to 65, and so they lost everything they had paid in payroll taxes. Those who lived beyond 65, were unlikely to live for very many years. Today, the vast majority of workers live long enough to collect, and many of them collect for more than 30 years. A system based on robbing the many to pay the fortunate few cannot survive these demographic changes. Only a system that puts part of the payroll tax into an invested account can allow today's young workers to collect anything when the retire. Luckily it appears that most young workers know this. Very few of them believe that Social Security will be able to pay them anything when they retire.


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