From: Joseph Marsden <marsden.joseph@att.worldnet.net>
Subject: Follow-on Comments
Walter Hart and Ken Diamond took issue with my assessment that the intergenerational transfer of Social Security is fair.
Mr. Hart pointed out that median incomes have been stagnant, so perhaps current workers are not really benefitting very much from the past efforts of those currently retired. I have two comments on this. First, I think that the stagnation of median incomes is probably exagerated by faulty assumptions about inflation. I think that quality of life has improved quite a bit for almost everyone, albeit more for some than for others. Which leads to my second point, which is that what happens with the wealth made possible by the efforts of earlier generations is really a separate question from the matter of how much such wealth has been created. That our economy may be becoming extremely lopsided, as far as distribution of income, is not the fault of earlier generations.
Mr. Diamond acknowledges that the WWII generation contributed immensely to our current well-being, but still suggests that they might be being overcompensated for it. I guess that's really a matter of opinion, and my perspective is that they ought to be able to expect to live about as well as those currently in the workforce. They are probably living just a hair better than this, so I can see the argument. Mr. Diamond also raises the question, regarding investment in equities, of whether or not a security exists that places a claim on future productivity, as opposed to something more dependent on market forces, such as the price of a stock. I think that Social Security's tax claim on future compensation fits this role almost exactly, and it is also the most important part of SS's funding.
A final point on intergenerational transfers -- if there had not been some claim, such as Social Security, on the future productivity of the nation as a whole, would prior generations have been willing to undertake such massive public projects as the highway system, or would they instead have invested only in private enterprises where they had clear claim on the return? A national retirement system may be the only realistic way to make massive and long-term infrastructure investments, without overtaxing people's good will toward their children.
Also, Steven Head made some claims about administrative expenses in Social Security. I think he claimed that only thirty cents on a dollar was ever paid out. I'm not sure where he came up with this figure, but the fact is that Social Security is extremely administratively efficient: only something like 0.5% of either taxes collected or benefits paid is consumed by administrative expenses. The equivalent figure for private life insurance and annuities is around 9-10%. And charities are usually even less efficient than this -- I recall that the United Way used to claim that its administrative expenses were only around 9%, but you have to remember that the United Way is only a conduit of grouped contributions into specific charities, and the specific charities have their own administrative expenses. The primary reason for Social Security's efficiency, it should be noted, is not teh fantastic efficiency of government employees, but rather that, because the system is universal, there are no marketing costs.
