in his Friday New York Times column, titled Where Government Excels.
He begins by noting that some Dems are FINALLY talking about such an approach, then offers two general arguments in support of such a notion:
First, the specific case for expanding Social Security is quite good. Second, and more fundamentally, Democrats finally seem to be standing up to antigovernment propaganda and recognizing the reality that there are some things the government does better than the private sector.
It is the latter context that is most important.
Krugman phrases this in the context of the basic economic term of "public goods" -
Every economics textbooks talks about “public goods” like national defense and air traffic control that can’t be made available to anyone without being made available to everyone, and which profit-seeking firms, therefore, have no incentive to provide. But are public goods the only area where the government outperforms the private sector? By no means.
He starts with health care, noting the much lower costs of operation of both Medicare and Medicaid than health care through the private market (even under the Affordable Care Act) - and he could have strengthened the argument by pointing at both the military and Veterans Administration systems.
He then pivots to retirement security, and I will continue my exploration of this column below the cheese doodle.
First, again in general economic terms, he deals with the normal economic presumption of rational actors
Maybe we wouldn’t need Social Security if ordinary people really were the perfectly rational, farsighted agents economists like to assume in their models (and right-wingers like to assume in their propaganda). In an idealized world, 25-year-old workers would base their decisions about how much to save on a realistic assessment of what they will need to live comfortably when they’re in their 70s. They’d also be smart and sophisticated in how they invested those savings, carefully seeking the best trade-offs between risk and return.
Of course, as one considers economically theological concepts like Smith's "invisible hand of the market" that presumes not only that all actors are rational, but also that all actors have perfect information, something that is very far from existing in our economy.
And then there is the further problem that were one attempting to manage one's own retirement investments that the motivation of investment firms is different - they want to maximize their fees. Krugman provides a link on this from a recent White House report. Here we might note recent stories about the damage done to public pensions in both New Jersey and New York with excessive management fees to investment firms in theory managing the billions of public pension funds.
The heart of Krugman's argument comes in a long paragraph shortly before the end of the column:
And in the real world of retirement, Social Security is a shining example of a system that works. It’s simple and clean, with low operating costs and minimal bureaucracy. It provides older Americans who worked hard all their lives with a chance of living decently in retirement, without requiring that they show an inhuman ability to think decades ahead and be investment whizzes as well. The only problem is that the decline of private pensions, and their replacement with inadequate 401(k)-type plans, has left a gap that Social Security isn’t currently big enough to fill. So why not make it bigger?
Before I turn to Krugman's conclusion, allow me to expand the thinking somewhat. The Conventional Wisdom on Social Security has been to cut benefits and to raise the retirement age. Krugman is only addressing the former. In this piece he also does not point out (although he has done so before) that any threat to the financial viability of Social Security can be addressed without either raising the rate (6.50%) by simply raising ceiling ($118,500 for 2015) on which such taxes are applied. Oh, and it is worth remembering that for many at the wealthier end most of their income is NOT subject to Social Security or Medicare taxes because it is not from wages/salary.
I think that one can argue for an automatic indexing of that salary cap, perhaps tying it to Congressional pay raises, the same way I think the Federal minimum wage should be similarly indexed. Those most dependent upon the social safety net of such programs are certainly at least as entitled as those on Capitol Hill, especially at a time when our elected federal legislators (a) do not work very hard (except at raising money for reelection) and (b) do not actually get very much done.
I would also argue for LOWERING the age. I will soon be 69. Assuming I can persuade school officials that I can still perform satisfactorily in the classroom, there is absolutely no reason I should have to retire. Yes, I am currently drawing Social Security as well, because I had BRIEFLY tried retiring, and also yes, I pay into Social Security for every time of salary I receive. But I am doing a kind of work for which there is not necessarily an expectation of not being able to function well into my 70s. Yet think of all those workers whose employment wears them out, sometimes well before the early retirement age of 62, and definitely before the current retirement age of 66. We are dependent upon the work they do, yet we basically force them to continue working sometimes beyond the point of their physical resources.
We SHOULD be expanding Social Security. The amount of benefits is the only part of the equation that Krugman chooses to address in this column. Then again, he does want to make that argument clear.
As he does for me in his concluding paragraph:
But true seriousness means looking at what works and what doesn’t. Privatized retirement schemes work very badly; Social Security works very well. And we should build on that success.
Indeed.