Social Security: No More Choices, Please

On Slate, Thomas Geoghegan makes a key point about Social Security--that very few people actually want to manage their retirement funds. Most people have neither the time, the knowledge, or the desire to make informed investment choices for their old age . . . and the few who do are probably already doing it via IRAs, 401(k)s, Keogh plans, or other tax-advantaged investment vehicles.

The sense of being overwhelmed by the challenge of investing is one of the main reasons that millions of workers who are eligible to participate in 401(k) plans never sign up, thereby forgoing thousands of dollars in matching funds from their companies. Is it smart of them to pass up the opportunity? No, but it's understandable and human. Free-market fundamentalists like to think of people as perfectly rational entities driven by enlightened economic self-interest. But they are much more than this, which is why free-market theories rarely work as neatly, swiftly, and painlessly as theory would suggest.

The most likely result of forcing people to accept retirement management reponsibilities they don't really want will be the emergence of a whole new class of financial losers--people whose retirement funds shrivel due to carelessness, inattention, ineptitude, gullibility, impatience, or just plain bad luck.

This is a major implication of the shift to an "ownership society": A more rigorous, implacable sorting of people into winners and losers. What's more, since the losers will have failed at playing the free-market game effectively, they will deserve their fate, at least in the minds of our neo-Puritanical right wing. Is that comforting? Just the opposite; as H. L. Mencken once remarked, "Injustice is relatively easy to bear; what stings is justice."

Within the last half-hour, I heard personal finance guru Suze Ormond on NPR backing up Geoghegan's point: That expanding people's choices when it comes to saving for retirement will hurt more than it will help. As she puts it, when you give people more choices, they get nervous and paralyzed, and often end up doing nothing. (I'm no different from anyone else in this regard. It takes me months to get around to making decisions about my own retirement investments. And when New York State introduced a plan a couple of years ago to allow residents to choose their home energy supplier, I simply shut down my brain and refused to deal with the idea. I have trouble deciding what color sneakers to buy--you want me to decide which type of electricity I prefer?)

For this reason among others, Ormond wants to maintain Social Security largely in its current form. (She talks about lifting the cap on taxable income to restore the program's viability, which I'd support, as well as the possibility of having some of the payroll tax proceeds invested by the government in the broadest possible stock market fund--not in "personal" or "private" accounts but on behalf of the Social Security program as a whole. Without claiming expertise, this proposal strikes me as reasonable; it certainly wouldn't create the unacceptable level of individual risk that makes the Bush plan so destructive.)

I'm pleased to hear this message from someone who has the ear of millions of average Americans--especially since Ormond says she was personally lobbied by Treasurer Secretary John Snow to support the Bush plan. It's good that Ormond didn't let herself get soft-soaped by the administration's flattery into abandoning her common sense.

One last observation on the Social Security debate: I see that Tom DeLay has denounced the AARP as "irresponsible" for coming out against the Bush plan before its details have been specified. On the other hand, he hasn't criticized anyone who supports the plan sight unseen. Care to buy another pig in a poke from George W. Bush? The last few bargains he offered us didn't turn out so well . . .