It looks like I have to drag out the only Andrew Biggs piece that ever got something right. Why?
It seems that Human Events has featured Congressman Paul Ryan’s (R-Wis.) latest plan to destroy Social Security:
Ryan: There’s a safety net underneath the accounts, which means you’ll get what you would have otherwise gotten with Social Security. The reason we can afford that is because Social Security grows at such a miserable rate of return and the markets do so much better that that’s a fairly low safety net.
Human Events: So if your investments pay only $1,000 a month and Social Security would give you $2,000 a month, the government would make up the difference?
Ryan: Exactly. The government makes you whole. It’s affordable because the government benefit grows at a certain pace and the market grows at a much better pace.
Human Events: Now what if the government benefit was $2,000 and your investments are paying you $2,400?
Ryan: You get all $2,400, and the government’s off the hook….
Human Events: Some people say you then create a moral hazard. How do you deal with that?
Ryan: The investment parameters are regulated by Social Security just like the federal employees’ thrift savings plan. You can’t pick and choose any stocks and bonds within your account. They are very conservative investments.
Congratulations to Human Events for mentioning moral hazard. Now if Ryan’s plan is to regulate investments so the individual does not take risk, then doesn’t it follow that there is no extra return either? I wish these privatization proponents would make up their minds as to which free-lunch plate they are putting forth.
And to any regular reader of the Angrybear, it is true that I have found the idea of regulated investments of interest as it does reduce the moral hazard risk, but note it still shifts the losses away from households towards the Trust Fund. In a word, the free-lunch menu is a mythology.