Thursday, August 26, 2010

Even privatized retirement annuities and "social security" lose money to expenses, when compared to extended family care

As I’ve noted before, the Right Wing has sometimes expressed criticism of “hyperindividalism”, in which many adult live entire lives apart from their families or origin and for a variety of reasons often do not have children of their own and find expressive ways to make their lives “productive”. As family lineages become geographically and culturally fragmented, it becomes harder to take care of the elderly, who are living longer and often with longer-lasting disability.

The liberal answer to this was social insurance programs like social security and Medicare. The libertarian answer is that people save for their own retirement (and non-working spouses’ when appropriate), and that generations take care of themselves. And social security is a mixture of the two, because if is largely an annuity paid for by contributory taxes by employees and employers in proportion to wages, up to certain limits related to eventual payout.

It’s true that the original conception of social security was “welfare” and original beneficiaries didn’t contribute. It’s also, and much more important, that as life spans lengthen previously collected FICA “taxes” become inadequate. Increasing the wage base really would amount to a tax (not a self-funded annuity premium) because the increased wage earners wouldn’t get the “annuity” payments for the increased FICA contributions, so here it’s true, the “Right” is “right” in that taxes are suppressing intergenerational family responsibility. In another infrequent circumstance, FICA is a potentially redistributive or expropriative "tax": if someone doesn't pay tax in 40 covered quarters of wages, he or she becomes ineligible to collect any benefits at all.

But some of the FICA and Medicare tax contributions also amount to “taxation” because some of the “tax” goes to paying employees of the SSA and Medicare, toward administrative expenses. But even in a totally private but managed or regulated “forced annuity” system, some of the “premiums” would go to paying insurance company employee salaries or toward insurance company profits as they do now (the Mutuals make for an interesting question).

Therefore, in any system where workers are expected to provide for their own retirement rather than depend on children, there is some loss to administrative expense. So the “Right” is again right.

Of course, a “libertarian” take-care-of-yourself approach does work for many people, the kind who are more introverted and take care of themselves with fewer social bonds. It afford them more freedom. And some closed communities, like the Amish, where extended families take care of their own completely use medical services very little and ironically don’t experience long end-of-life periods with severe disability.

But for most of us, there is a problem. We really need to get a grip on preventing Alzheimer’s and other extreme disability if people are living so much longer suddenly.

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