Tuesday, August 27, 2013


If you'll permit me to channel the latest econ-themed Twitter parody account for a moment, let me state bluntly that retirement ain't a public good. Just get that nonsense out of your head right now (maybe something about your kids too).

The most expansive definition of a public good carries with it two criteria (one of which is suspect as-is, and the other is suspect over a long enough time horizon), so let's judge retirement against the most stringent criteria: rivalry and excludability.

I admit to feeling a little foolish for this, but I want you to ask yourself if your consumption of your own retirement prevent others from consuming your retirement? Now, you might claim that state-provided pension funds mean that your drawing from a common-pool fund means that I have fewer funds available for my retirement, but that's not rivalry in retirement, it's an aspect of public funding of retirements. It's a fiscal externality, if you will. Your retirement is your lunch. No one can eat it for you. It's completely rival.

Now ask yourself if (again, apologies for the silliness of the question) you can exclude others from consuming your retirement. Is your snowbirding in Boca Raton tantamount to busking?

Your retirement is rival and excludable. It is not a public good. So it's odd to me that economists so quickly fret over the "sustainability" or solvency of SSI. Worries about unfunded liabilities seem to tacitly accept that it's meet and proper for the state to supply something for which there is no market failure either theoretically or empirically.

Now then, you might claim that retirement planning is non-euvoluntary since we know of hyperbolic discounting and have heard plenty of stories of ex post regret. Okay, well that's another story. Individuals can be unlucky or short-sighted. Perhaps there's some other moral intuition going on outside of the strict economics. And that's cool. But the arguments (for and against!) don't typically start from there. And when they do, it still seems a mighty leap to claim systematic error.

Remember, people: widespread and systematic are two very different things. To be systematic, the decisions of one person must necessarily influence the decisions of other people. You know how to make that happen? Nationalize retirement accounts.

Now, perhaps there is room for coercion in there somewhere. I actually think it would be a fine, fine idea to have opt-out quasi-mandatory personal retirement accounts. This is a perfect opportunity for the nudge folks to shine. But OASDI as is? It's the opposite of euvoluntary, whatever that is.

ULAFT: unfunded liabilities are future taxes, and boy howdy are they ever substantial.

Also recall that a better ratio of fiscal health is (total discounted future liabilities)/(total discounted collectible tax receipts). This debt/GDP ratio is a red herring, and you know it.

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Do you have suggestions on where we could find more examples of this phenomenon?