Editore"s Note
Tilting at Windmills

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March 25, 2005
By: Kevin Drum

BARRO ON PRIVATE ACCOUNTS....Conservative economist Bruce Bartlett emails to tell me that conservative economist Robert Barro has changed his mind about private accounts. They have some virtues, he says in the current issue of Business Week, but "overall the accounts are a bad idea."

Roughly, Barro's argument depends on moral hazard. After a bit of preliminary throat clearing, he observes that government will always provide some minimum level of support for the needy elderly and everyone knows it. Because of this, though, private account holders "would opt for too much risk, knowing they would be bailed out if they fell short." Since this makes private accounts unworkable for minimum support, their only usefulness is to supplement the minimum government payout. But why bother? Beyond the minimum, why not just let people save on their own?

This is a useful point, although Barro and I pretty quickly part company after that, since his idea of "minimum" is rather different than mine. If he had his way, promised benefits would be slashed by upwards of 50% or more over the next several decades.

Still, Barro wields a big stick in conservative talking point land. Even if his support goes no further, it's nice to have him as an ally on the basic issue of the non-workability of private accounts.

Kevin Drum 7:20 PM Permalink | Trackbacks

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