Rachel ZaporowskiECN 30411/4/12Social Security Argument

“Your good friend Paul was ranting the other day and resenting the fact that the government taxed the earning from his hard work to pay the benefits for the retired people. He believes people should take responsibility for planning their own retirement and Social Security is an unnecessary program that creates moral hazard and increases people’s dependency on the government, let alone contributing to the federal budget deficit and national debt problem. If you need to convince Paul that Social Security is necessary, what would you say to him? (Your response should include the ‘myopic’ argument and the ‘adversity’ argument we discussed in class.)[10 pts]”

It’s rather easy for me to sympathize with your beliefs in regards to Social Security. I

know how it feels to work hard six days a week at the lowly wage of $8.00 an hour, only to tear

open that check on payday and see the massive chunk of change to which Uncle Sam has helped

himself. When I think of all I could’ve purchased with that lost income, I too wish for a more

privatized system. I too wish that all the senior citizens sitting comfortably in front of their TVs,

leeching off the benefits of my tedious labor, could be entirely responsible for their own

retirement planning. However, when you humanize the issue, Social Security is a necessity that

transcends payroll tax disgruntlement.

Famous economist John Maynard Keynes once said, “in the long run, we are all dead.”

His quote provides the fundamentals of the myopic argument; that basic human nature leaves us

near-sighted, living “for the now” in colloquial phrasing. In terms of consumption, people tend

to have the short-run mindset and spend without once pondering the opportunity costs that will

surface decades later. At age 21, I’d much rather use my summer income as spending money

than invest it in a mutual fund that’s not to be touched until my days in the workforce are over at

age 71. We must also consider the diverse spectrum of financial savvy and responsibility. You

say people should take responsibility, but that suggestion is overly optimistic. To assume all

people will save sufficiently for life after retirement is to assume everyone that gets intoxicated

will choose to not get behind the wheel. Just as the government attempts to protect you from the

externalities of drunk driving, it attempts to protect you from the externalities of fiscal

irresponsibility. Contrary to your claim that it creates moral hazard, Social Security provides a

cushion to moral hazard already incurred by common consumer behavior.

To illustrate my next point, I’m going to set up a hypothetical scenario. Let’s pretend

that you are a very financially conservative, retirement-cognizant member of the workforce.

You spend your disposable income on the bare necessities, very rarely indulging yourself in

luxury items. Any leftover income goes directly into your investment portfolio and/or savings

account. If all goes according to your carefully crafted plan, you should have a perfectly cozy

retirement awaiting you. Once again, we cannot be overly optimistic, because life is a wildly

unpredictable experience for us all. Let’s assume you encounter major gaps in the road that

challenge your ideal outcome. What if the stock market tanks and depletes your small fortune?

What if a natural disaster destroys everything you own and forces you to tap into your savings?

What if you make it to your retirement unscathed, but then fall victim to an array of costly health

problems? All of these what-ifs demonstrate the adversity argument; when life is unfriendly to

savers, they can’t always re-enter the workforce to recover their financial security. For the

irresponsible and responsible alike, Social Security is the hammock that stretches over the

canyon of uncertainty.