Thursday, December 02, 2010

Saving Social Security

Paul Krugman is also capable of great clarity of thinking, such as when he is critical of the concept that we must cut Social Security benefits now in order to avoid the need for cutting them in the future. The other very important point he makes in the same article today is with respect to the point about raising the retirement age, and the idea that it’s okay because exceptions are made for people with physically demanding jobs. He calls “bs” on that one, and he’s right.

Chris Matthews was discussing Social Security reform with someone yesterday and raised the point of increasing the payroll limit upon which the Social Security deduction is imposed. He said that it would be unfair because so much would be withheld that it would be, “money that you would never get back.”

That sounds good, but Social Security is not an investment pool, and is not about “getting one’s money back.” Someone who dies before age 65 gets none of their money back, which is an example of why insurance is called an insurance risk pool, which is what Social Security actually is.

Insurance premiums are calculated to cover the anticipated payout requirement, and the division of those payments amongst the policy holders is always arbitrary. Different modes of insurance use different models in an attempt to achieve fairness, but no method is ultimately entirely fair, as illustrated by a Social Security participant who never reaches age 65.

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