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would be an obligation due when the individ-

that they would receive the means-tested

ual would have been eligible to receive benefits

amount."

under the current system. And the maturity

The paternalism of the first reason and the

value would equal the present value of the ben-

reliance on the extreme cases of the second are

efits the person would have been entitled to,

equally unattractive. More important, Prof-

less the present value of the person's future tax

essor Feldstein does not even refer to the clear

liability, both adjusted for mortality.

injustice of a mandatory plan.

The result would be a complete transition

The most obvious example is a person with

to a strictly private system, with every partici-

AIDS who has a short life expectancy and lim-

pant receiving what current law promises. Yet,

ited financial means, yet would be required to

aside from the cost of distributing the new

use a significant fraction of his or her earnings

obligations, the total funded and unfunded

to accumulate what is almost certain to prove

debt of the United States would not change by

a worthless asset.

a dollar. There are no "costs of transition." The

More generally, the fraction of a person's

unfunded liability would simply have become

income that it is reasonable for him or her to

funded. The compact between the generations

set aside for retirement depends on that per-

would have left as a legacy the newly funded

son's circumstances and values. It makes no

There are no

debt.

more sense to specify a minimum fraction for

"costs of transi-

How would that funded debt be paid when

all people than to mandate a minimum frac-

it came due? By taxing, borrowing, creating

tion of income that must be spent on housing

tion." The

money, or reducing other government spend-

or transportation. Our general presumption is

unfunded liability

ing. There are no other ways. There is no more

that individuals can best judge for themselves

would simply have

reason to finance the repayment of this part of

how to use their resources. Mr. Feldstein sim-

the funded debt by a payroll tax than any other

ply asserts that in this particular case the gov-

become funded.

part. Yet that is the implicit assumption of

ernment knows better.

those who argue that the "costs of transition"

In 1964, Barry Goldwater was much reviled

mean there can be only partial privatization.

for suggesting that participation in Social

The payroll tax is a bad tax: a regressive tax

Security be voluntary. I thought that was a

on productive activity. It should long since

good idea then; I still think it is.

have been repealed. Privatizing Social Security

I find it hard to justify requiring 100 per-

would be a good occasion to do so.

cent of the people to adopt a government-pre-

scribed straitjacket to avoid encouraging a few

"lower-income individuals to make no provi-

Should Social Security Be

sion for their old age deliberately, knowing

Mandatory?

that they would receive the means-tested

amount." I suspect that, in a voluntary system,

many fewer elderly people would qualify for

Should a privatized system be mandatory?

the means-tested amount from imprudence

The present system is; it is therefore generally

or deliberation than from misfortune.

taken for granted that a privatized system

I have no illusions about the political feasi-

must or should be as well.

bility of moving to a strictly voluntary system.

The economist Martin Feldstein, in a 1995

The tyranny of the status quo, and the vested

article in the Public Interest, argued that contri-

interests that have been created, are too strong.

butions must be mandatory for two reasons.

However, I believe that the ongoing discussion

"First, some individuals are too shortsighted

about privatizing Social Security would bene-

to provide for their own retirement," he wrote.

fit from paying more attention to fundamen-

"Second, the alternative of a means-tested pro-

tals, rather than dwelling simply on nuts and

gram for the aged might encourage some

bolts of privatization.

lower-income individuals to make no provi-

sion for their old age deliberately, knowing

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