Why Soundbites Aren't Enough to Change Policy
Six years ago, at the Mont Pelerin Society meeting I blogged about recently, Professor Postrel got into a discussion of privatizing Social Security with José Piñera, the charming creator of Chile's privatized program and an indefatigable campaigner for expanding that model internationally. Steve likes the idea, but he's an MIT-trained economist with a critical mind, and he knows the obvious arguments that opponents are bound to make. So he raised them: What about transition costs? What about Peter Diamond's argument that a pay-as-you-go public program makes economic sense? Alas, there was no answer--then, when it didn't matter, or later, when it did. As a reader emails in response to my comments on think tanks:
Social Security is a great example of the practical problems with this model. The conservative think tanks put reform on the map, but it was through a very unsophisticated argument: "Social Security returns 2 percent, stocks return 7 percent, let's make the switch." This made a lot of politicians favor accounts, but it didn't say anything about transition costs or market risk (which reduce/eliminate the benefits of accounts). If you tried to write about those issues you were the skunk at the garden party. The problem is that not writing about these issues doesn't make them go away. They rear their heads when you build policy, so practical reform plans are seen as a bait and switch versus what was originally offered. ("You said the accounts would solve the problem; now we need to cut benefits, maybe raise taxes??") Politicians on the right, as well as the Republican base, weren't prepared for what was really involved with Social Security reform, in large part because no one told them. And we are where we are.