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Something Swedish That’s Even Better Than Lykke Li (Maybe, She’s Pretty Good)

July 17, 2010

So what are these “other means” I spoke of?  Means-testing is progressive, you might say — if you don’t want to fix Social Security by “progressivizing” it, then just what in the Sam Hill do you want to do?  Well, I’ve always preferred means-testing to other fixes like lifting the cap on what wages can be taxed because I thought it could be done in a way that wouldn’t utterly soak the rich and because I figure it’s politically feasible.  There should be other ways, though, to repair the program’s insolvency; it’s not Medicare — a Congress that was less self-interested than our current one is could simply cut payments.  But, since that’s unlikely to happen, something more creative is in order.  I’ve taken a fancy to the second idea expressed in this post by Reihan Salam:

We don’t necessarily have to set a fixed retirement age. The Swedish system of NDC accounts is a good model for reform: 16 percent of income is collected into a notional defined contribution (NDC) account. At retirement, this NDC account is converted into an annuity. The rate of return in the account is linked to economy-wide measures, including the rate of income growth in the working age population — basically, the pension system can’t outgrow the economy, thus guaranteeing that the program will prove sustainable. One can start drawing funds from the account at 61, but drawing funds later on will lead to a larger benefit. This creates a powerful incentive for workers to remain engaged in the labor force. The Swedes also have a means-tested guaranteed pension benefit funded out of general tax revenues that protects low-income workers, an idea that could be a component of a wider reform.

Wow, a Swedish governmental policy that I like — I never thought I’d see the day.  They can add that to “good music” and “hot chicks” as reasons Sweden is awesome.  Anyway, this idea sounds like a really good way to way to do pension reform.  Solvency is preserved by a payment system that’s determined by what the feds can actually afford to pay rather than what they thought they could afford forty years ago.  There’s no reason we can’t add this type of sophistication to Social Security.

The only flaw I see here is that if the feds adopt this idea, and laborers are indeed encouraged by it to keep working in order to benefit from retiring later, then there could arise some kind of old-linebacker-in-Any-Given-Sunday situation where people want to change the system so that people with physically taxing jobs who haven’t saved enough to retire in their early 60s aren’t risking injury just by doing their jobs.  (That’s a pretty obscure reference, I know — the cat in the movie keeps playing football even though he’s old and has sustained several serious injuries because he gets a bonus that he thinks he needs for playing longer or getting a certain number of tackles.  It’d do you to gloss over it; the movie’s not very good.)

But that’s already a feature of our current system.  You have to be 62 or something — even though you’re supposed to have to be 65 — to get public pension payments, so the pressure’s still there.  I just think that pressure would be compounded by an adoption of the Swedish model.  But I still think it’s a great idea.

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