Modigliani and the Common Sense of Social Security

["John Gelles" <indexed-savings@xxxxxxxxxxxxx>]

Some members have discussed the late revered
Franco Modigliani's view of funding social security's
future payments. There are many things that can be
said in favor or opposed to a funded versus a pay
as you go system.  But some of us voice great
concern that there is a bomb ticking -- and its name
is social security. I see it not as a bomb, but as a
matter deserving of some common sense.

The following is from a co-authored Modigliani
paper. the URL to paper is below it:

"We conclude with a plea that the lucky occurrence
of a large surplus not be used to cut taxes or increase
current spending, or to temporarily fix the inefficient,
unreliable, poorly designed Pay[as you] go system.
Instead, we propose using the surplus in a productive
way, in the best interest of the country, both for the
present and especially for the future, by making the
transition to the more efficient and reliable funded
system. And let us remember that while the Social
Security bomb has a long fuse, the remedies suggested
here have a fuse at least as long.  The time for a decision
is right now!"   http://web.mit.edu/francom/ssecurity/

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Let us review the common sense of the matter:
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Social Security has two obvious components:
(1) the  THINGS  that pensioners (and other
beneficiaries) need and acquire to live from day
to day (shelter, sustenance, care, amusement, etc,
etc.),  and (2) the money (or authorization) to
sustain the flow of  THINGS  from a source
to individuals living on social security.

Now before the overwhelming majority of
Americans knew of social security, the flow
of   THINGS  to the above type individuals
was paid for by their private estate, their family
or other personal benefactor, or a private or
public charity.

To contemplate a return to the old system is
nuts. Not that it couldn't happen if a nuclear
war impoverished a nation -- but in any nation
where production of these  THINGS  is a
normal part of the national economy, you may
rest assured that the flow will be improved
every year -- from now till kingdom come.

Social security as a financial system can take any
of many forms. It can be paid for from general
revenues, the way we pay for defense and the
national public health service.  Or it can be paid
for through a separate form of taxation, as it is
today . Or it can be paid in kind from sources of
supply to individuals against tax credits or a
central government procurement system.

There are an infinite number of ways to ensure
the flow of  THINGS, including total privatization
of the economy -- where every individual has a
good job or business and retires with a substantial
private estate.

I do not know what would possess a person to
imagine America will return to a system of old
age poverty. Who would vote for it?  Sure we
could degenerate into a society of desperately
poor people -- with the old being shot or eaten
(or used for animal feed),  But there is no
evidence that suggests the old are getting
poorer.

Seniors are generally very well off -- and having
seen the promise for adult children profiting from
care of seniors, as do the doctors today, there is
every chance that the voters will give their beloved
parents even more  THINGS  so that in middle
age they can make a lot of money making a lot
of   THINGS.

And, of course, these voters do not have to take
on the burden of aged parents themselves -- nor
live in fear that they will become a burden to their
children.  Social security  IS  free lunch-- paid for
by producing  THINGS  at a profit, probably with
the help of automation.  The money is not the
issue.

We used to say, "Shoot the lawyers". Now there
are too many of them. So let's shoot all the
economists while there is still time.

John Gelles