Tuesday, October 21, 2003

Megan McArdle on Social Security Reform

A very nice piece, which makes the same points I've been making for quite some time now: that no amount of tinkering can abolish the difficulty with any scheme that is predicated on an ever increasing support base of workers. Increasing the retirement age, decreasing payouts, means testing, even increasing the birth rate as well as immigration quotas - none of these things will suffice to eradicate the threat posed to the solvency of Social Security by ever increasing longevity.

Any lasting solution to the problem will have to combine all of the above measures with one tactic that is abhorrent to many on the left today, but is nonetheless crucial, namely the privatization of social security. The importance of this measure lies in the potential it has to divert large amounts of savings from the sorts of largely wasteful government expenditure to which they are currently directed, to investments that will boost worker productivity in the long run, some of the gains from which can then be used to pay the benefits of retirees. What I like about McArdle's post is that she recognizes, as I too have pointed out elsewhere, that increased productivity is the real key to solving the pensions problem.