Economics and the mid-life crisis have much in common: Both dwell on foregone opportunities

C'est la vie; c'est la guerre; c'est la pomme de terre . . . . . . . . . . . . . email: jpalmer at uwo dot ca

. . . . . . . . . . .Richard Posner should be awarded the next Nobel Prize in Economics . . . . . . . . . . . .

Friday, July 22, 2005

More Economists Support a Canadian-Style Pension System

Increasingly, economists in the U.S. are coming to the conclusion that a publicly provided minimal system that provides a very low social safety net, not unlike that provided by CPP and OAS in Canada, is "a good thing". Encouraging private pension planning and saving, either through private accounts or through employer accounts, is also recommended. See Tyler Cowen's postings here, citing James Glassman:

...the president's rhetoric is unconvincing. Yes, he's made the case that Social Security is headed for insolvency -- tax receipts from workers and employers won't cover benefits for retirees starting in 2018. But he has not managed to connect insolvency with his idea of personal accounts.

No wonder. These are two completely separate issues. Personal accounts won't prevent Social Security's impending bankruptcy. Personal accounts are great for other reasons: they will encourage savings, provide a more comfortable retirement, give people a nest egg they can own and increase personal responsibility. But the accounts won't solve the insolvency problem.

Bush should stop talking about these two issues -- insolvency and personal accounts -- as though they are connected.
And Tyler Cowen quotes Robert Barro here:

I once thought personal accounts for Social Security were a good idea but have changed my mind....

Overall the accounts are a bad idea...

Contributions that fund just the minimum cannot go into a meaningful personal account. People would opt for too much risk, knowing they would be bailed out if they fell short. Also, contributions that cover the minimum provide no individual return and, therefore, amount to a tax that discourages work.

Personal acounts have to supplement the minimum payout.
Also see my earlier posting on this topic here, in which I wrote:

I am not entirely optimistic about the CPP investments. If/when the markets have some serious downturns, the reserve fund will dwindle, members of the CPP investment board will come under attack, and politicians will clamour for the use of general revenues to guarantee that pensioners receive payments they had come to expect.

... My own preference is for a minimal gubmnt pension that by itself would allow a very spartan life. I think it is unconscionable not to provide people with the wherewithall to maintain a very basic lifestyle. Beyond that, we have plenty of inducements, encouraging us to plan and save more. In this sense, the Canadian Pension Plan (coupled with our Old-Age Security plan) is preferrable to the U.S. Social Security System.
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