Ideas Hatched: WSJ.com - Why Does the Government Patronize Us?

Friday, November 12, 2004

The Hatcher Who Was Taught By a Nobel Laureate found this article written by the Nobel Laureate concerning reforming Social Security:WSJ.com - Why Does the Government Patronize Us?

Victor Matheson said...: Well here are three good reasons government patronizes us. First, according to the Nobel laureates from 2002, people routinely make irrational decisions and their ability to make far-reaching important decisions on things like retirement savings is limited at best. Second, even if people make good decisions their ability to protect themselves from risk, particularly inflation risk, is also limited. Social Security becasue of its pay as you go nature (not despite it) essentially perfectly protects current retirees from unanticipated inflation. Third, Social Security is an extremely important welfare system and not just a retirement system. A fully privatized Social Security would not have this welfare feature. One simple example: a woman who works full-time, year round for her entire life at a mimimum wage job, who takes 15 years off to raise children (see I support family values), and earns a 5% real rate of return (the 25 average for Aaa-rated corporate bonds) will accumulate only $125,000 in retirement savings by age 67 at the current 6.2% FICA tax rate + 6.2% employer match. Assuming current life expectancies, this leaves her to retire on $450/month. Ouch. Where she is going to save more out of a $5.15/hour job is beyond me, and without the mandatory 6.2% plus the match she would save no more and perhaps less.; 7:32 AM