I'm Only A Social Liberal

For those of you who think I have become a true blue liberal, I offer this.

The NYT's lead editorial today was entitled Will Your Money Last? It starts with the following very comment-worthy (and scary) factoid:

Americans spent more than they made in 2005, sending the personal savings rate into negative territory for the first time since 1933.

In classic liberal style, the Times then goes on to argue that the government should do something about this situation. For the Times, it seems, the solution to every problem is more government. But as is often the case, the "cures" seem worse than the disease.

The Times offers three suggestions for government action, each one scarier than the last.

First, it suggests that since companies are increasingly turning away from defined benefit retirement plans toward defined contribution plans in which employees are responsible for managing their own retirement accounts, the companies should be required to provide employees with professional investment advice. At first blush, this suggestion seems harmless enough, but even here one has to ask "Who pays?" Professional financial advisors are no more inclined to work for free than are auto workers. Thus, requiring companies to provide such advice inevitably drives up the cost of the defined contribution plans. Regardless of who pays these costs in the first instance, the requirement to provide financial advice will inevitably tend to depress the value of the accounts: either it will reduce contributions made by employers or it will increase the costs the employees are required to pay for those accounts. Maybe the benefits would outweigh the costs. But shouldn't such decisions be up to the employees? Not all employees will need such advice and of those who do, many will not utilize it even if provided. Why should we require such employees to pay (one way or the other) for what they either do not need or do not want? Wouldn't it be better for the Company to put the money it would otherwise spend on financial advisers into the accounts and then let the employee decide whether and how much professional advice to get?

The Times' second suggestion is to require employees who leave a job to roll their 401(k)'s into IRAs rather than taking the cash. In most cases, this is clearly the wisest course and the tax code is loaded with disinecentives to taking money out of a retirement account early. But one can easily imagine a situation in which taking the cash would be justified. Should we deprive employees of that freedom just because in most cases a rollover would be wise?

Finally, -- and most scary of all -- the Times suggests that:

Government must help ensure that retirees do not outlive their money. For many retirees, it would be prudent to convert savings into an annuity that would guarantee a stream of income for life. But the average 401(k) balance for people in their 60's is about $140,000, and financial companies cannot profitably offer annuities for such relatively small sums. Research suggests that the government could provide annuities for 401(k) savers who have $50,000 to $200,000 at modest cost.

I have no idea what the Times considers to be a "modest cost." I also have no idea what sort of a monthly benefit such a federally subsidized annuity would pay. But this proposal sounds an awful lot like social security, and the costs of that program can hardly be described as "modest." As with social security, the only way to cover those costs in through taxes on those still working.

As a replacement for social security, what the Times is proposing is something very similar to Bush's private accounts: the worker puts his FICA payments into a private account and, if the private account is insufficient to pay some minimum lifetime benefit after retirement, the government makes up the difference. If that is what the Times is advocating, I am all for it. See this and this. But given the Times' adamant opposition to Bush's social security "reforms", I can only assume that this proposal would be in addition to social security. If that is the case, the proposal is hardly even responsible, much less practical.

The Times ends its editorial with the following:

It simply makes no sense, socially or economically, for each person to increasingly bear the risks of financing old age when that risk is more efficiently borne on the much broader shoulders of Washington and corporate America. What America needs are leaders who understand that asking ordinary citizens to assume ever-greater risks is not the path to greater security.

I do not disagree that government should guarantee people some minimal level of income in retirement. However, one also has to realize two things. First, "Washington" and "corporate America" are not entities separate from the people who comprise them (taxpayers in the case of Washington; employees and stockholders in the case of companies. Thus, the "shoulders" onto which the Times proposes to place the risk of inadequate savings are the shoulders of the very people they are trying to protect from risk. Second, it is impossible to eliminate risk. It is only possible (as the Times seems to recognize) to transfer it from one person or group to another. When we do this, we deprive both the transferor and the transferee of a significant degree of their own freedom.