Ask not…

Someone once said:





Here’s the New York Times reporting on President Obama’s remarks today:




Two for those who voted today

Question 1: Was your vote influenced by concern of losing some direct benefit that you are now receiving from the government?

Maybe you believe that your vote will help preserve your Social Security check or Medicare coverage. Or perhaps you’re a teacher who thinks the Federal government will help fund your paycheck. Or you work for a Federal contractor that you expect will get more government work under one administration than the other.

Question 2: At any time recently have you grumbled or thought about ‘how broken our political system’ is because of all the special interests, lobbyists and politicians who promise one thing and do others?

If you answered yes to both questions, have you considered that you are part of the reason  the ‘system is broken’?

Incentives matter

If I was one of Romney’s advisers I would have recommended that Romney not concede anything regarding his remarks.

I don’t think his “not as elegantly stated” concession did as much for him than if he would have simply stood behind his comments and challenged opponents to state their case and have a public debate about it.

I’ll give credit to ABC News last night for at least trying to present a fact-based case against his statement. They showed a pie chart of the recipients of government transfer payments.

Social Security was a slice. ‘People who have a job but make less than $50k’ was another big slice.

But, a pie chart does not make a compelling case.

The question is how many people in the pie chart  have come to depend on their government benefits to the point that it influences their vote out of concern about losing those benefits?

As I mentioned in my previous post, Democrats reveal that they agree with Romney as many of their campaigns do nothing more than tell the folks in the ABC News pie chart  that voting against them puts their government benefits in jeopardy.

I’d like to have citizens cast their votes based on who they think will uphold the Constitution, not based on who gives them the best benefits. In many other parts of society, this conflict of interest would be easily recognized as corruption.

Consider a city councilman who gets to vote on awarding a road construction contract and one of the bidding firms happens to be his own paving company. Nobody would trust the city councilman to represent the people’s best interests in that case, even if he was the most upstanding and fair person.

We would demand that this city councilman remove himself from this vote.

Simple changes for Social Security

Here are a couple of simple changes to SS.

First, make the tax compulsory only for those saving less than 7% (or whatever threshold you’d like to pick) of their income for retirement. For example, if you save 5% in a retirement account, then you pay a 2% SS tax. If you’re saving 7% or more, then you pay no SS tax.

Second, make it actual insurance that you buy, like life insurance. A life insurance company calculates your chances of dying based on your age, health and other factors when it sets its rate.

Perhaps a SS insurance company could calculate your chances of falling short of your nest egg based on your savings and retirement habits, then price a policy to make up the shortfall.

If your savings rate and investment choices are not good, you’d pay more for this insurance. It may even encourage you to figure out why you are paying so much and make changes to lower it.

If your savings rate and investment choices are more sound, your insurance rate would be minimal.

I learned something new today

I didn’t realize Australia had private social security accounts and it appears to work well for them. Thanks to Dan Mitchell for this excellent post.

I like this line (emphasis added):


That’s what I’d call properly aligned incentives. It seems like a good way to turn a Ponzi scheme into a wealth-producer.

Update:  Here’s the Wikipedia article that contains more information about Australia’s pension program.

We’ve cast our safety nets wide

Alex Tabarrok, of Marginal Revolution, pointed to a New York Times piece reporting that the poorest households no longer receive the majority of government benefits.  He quotes from the article:



Alan Blinder, in the Wall Street Journal column featured in a previous post, says that since some folks are set to roll off the 99-week unemployment benefits we have a “serious hole in the safety net.”

We seem to have ever enlarging ideas about what safety nets are, which in turn enlarge our Federal and state government spending budgets, governments’ desire to tax and government bureaucracies.

Most of the safety nets are not necessary.  They’re large transfers of payments, with a cut taken out by the bureaucracies that administer them.

Consider Social Security.  I bet that a large percentage of people who pay in and eventually receive Social Security benefits don’t need it because they’ve done a fine job of living below their means and saving for retirement.

If they had more control of the 12.4% of their wages that were forced into Social Security, they would have done even better.

Bastiat wrote in 1848:
