By Don Bodreaux
A revealing peak at the worldview of Phishing for Phools authors (and Nobel laureates) George Akerlof and Robert Shiller is found on page 155 of their book. It is a paragraph written in response to a proposal to give Americans greater individual control over how their Social Security funds are invested. (Here’s how Akerlof and Shiller describe the proposal: “The modified program would give more freedom to choose. Employees would be allowed to withhold up to 4 percentage points of their own 6.2 percent Social Security contributions. They could invest that money in an approved mutual fund of their choice. At retirement, the retiree would own the money in his fund; but he would also have to pay back, to the Social Security system, the money used to purchase it.”)
Here’s Akerlof’s and Shiller’s reaction:
We confess considerable admiration for the plan’s use of free-to-choose logic; but we also confess that we think it is, to be blunt, daffy. It is like giving the most vulnerable part of the population a loan to speculate in the stock market, or the bond market, with government money – with payback on this loan beginning, at a quite high rate of interest, at the date of retirement.
Note the presumptions that saturate this paragraph:
– The money that workers earn, but that government takes for use in a program meant to ensure minimum retirement income for those workers, is “government money.” The money isn’t the property of the workers who earn it.
– It’s “daffy” – hilarious, off-the-table ridiculous, absurd, unthinkable, utopian – that individual citizens are likely to wisely invest the money they earn (evenwhen government confines the available choice set to pre-approved – by government – investment options). Most ordinary people are irresponsible incompetent phools.
– All American workers who are forced to ‘participate’ in the Social Security system are “the most vulnerable part of the population.” Most Americans are helpless, hapless, and in such danger of falling into a condition of severe material deprivation that carving off a few percentage points of the funds they are currently forced to ‘contribute’ to Social Security, so that these Americans can invest these funds differently, poses too great a risk for these people.
Further, Akerlof and Shiller mention not a word about Social Security’s own notorious irresponsibility. It’s a pay-as-you-go system (which is the chief reason why Social Security’s informed advocates oppose any plan to allow Americans to invest some of their Social Security funds privately). None of the ‘contributed’ funds are invested; they’re immediately spent.
Making matters worse, when the above facts are pointed out, some of the ultimate phishermen for phools say “Oh no, Social Security has lots of investments! It holds in a ‘lockbox’ U.S. Treasury securities to back its future obligations.” Please. Only phools (and fools) fall for this daffy claim, for only phools (and fools) believe that an I.O.U. that an entity writes to itself with its right hand and holds in its left pocket is a genuine asset held by that entity. Perhaps the greatest irony in a book chock-full of unintentional irony is Akerlof’s and Shiller’s express regard for Social Security as a program that protects Americans from being phished for phools. (On page 154 Akerlof and Shiller write, apparently sincerely, that “Social Security thus goes a considerable distance in offsetting phishing-for-phools overspending.”)
Bottom line: Not only are Akerlof and Shiller remarkably uncritical of Social Security, they think it “daffy” that anyone regards ordinary, individual Americans to be competent enough to take greater responsibility for making their own investment decisions.
Akerlof’s and Shiller’s elitism is elephantine.
Te above originally appeared at Cafe Hayek.