There's been a lot of talk in the blogosphere about how to fix Social Security (and not enough about how to fix Medicare). I won't name names, but what I've read has not made me happy.
This is not to say that this commentary is wrong or misguided. Further, I recognize that a lot of the discussion is driven by the concepts coming out of the Bush administration that might have a chance of making it through Congress.
Anyway, I feel deeply the need to shout out that Social Security is not a pension system! Have you all forgotten this?
Much of the criticism being leveled at social security revolves around the idea that - when compared to a pension system - social security performs poorly.
Duh! Everything performs poorly when compared to an inappropriate metric. A social security system is based around transfer payments, and should be compared to other transfer payments schemes like unemployment insurance - not against pension systems based on investment.
Further, the problems with social security have little or nothing to do with receiving the proceeds of your own contributions, personal accounts, choices of investment vehicles, or whether calls for institutionalized investment on a national scale are frought with moral hazards.
Rather, there is only one real problem with social security: the declining ratio of earners paying in to receivers of payments.
This problem results from Congress and social security administrators treating the rules governing individual eligibility for entry into those two groups as two compartmentalized decisions, rather than the single joint decision which is necessary to make the scheme work.
In principle this is an easy thing to fix. If Congress stipulated that the ratio of earners to receivers would remain at some fixed ratio (say 3 to 1), and that eligibility to join the group of receivers would be determined by the availability of slots that did not decrease that ratio, then social security would be sustainable forever.
The beauty of this proposal is that it does nothing to diminish the importance of a national pension system for those who favor such things. I daresay that there would even be a clamor for such a system if voters understood that receiving social security wasn't a right, but rather something that you had to wait your turn for.