Kudlow on Social Security
Yesterday Larry Kudlow explained in his show why you cannot solve the pending financial storm in social security without personal savings accounts (emphasis mine):
The reason? The private account option would finance benefits through stock and bond market returns. Without private accounts, benefits will be funded only by higher tax payments from the government.
Higher taxes will stall the economy and benefits will suffer accordingly. But the thrift savings account model of benefits throws off a 6.7% yearly inflation-adjusted return, far superior to the 1.8% post-inflation estimate of future social security.
The market is more reliable over the long run than the government. As more and more people choose market benefits from private accounts, fewer and fewer will demand government benefits. Over 50 years, government benefits will shrink from lack of demand. And so will the unfunded future liabilities of the system.
Call it the substitution effect. Not until the White House or Congress moves to private accounts will social security insolvency ever be solved.
I would choose some combination of the Ryan-Sununu bill or the plan submitted by Senator Chuck Hagel. I would reject any and all benefit cuts or tax increases. And if we choose the private account path, the economy will prosper from a flood of new saving and investment, while people get more comfortable and safer retirement benefits.
In other words, choose economic freedom over government entitlement.
Kudlow’s earned himself a warm spot in my heart.