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Sebastian Mallaby, Columnist

Trouble With Choices

By Sebastian Mallaby
Monday, December 20, 2004; Page A23

The economics of Social Security privatization get plenty of attention: how to think about transition costs, the effect on national savings, the risk of equity investment. But the political philosophy of privatization is often taken for granted: It's just assumed that, if the economics were neutral, people would be happier with private accounts than with a public program. Do we really know this to be true? Is an "ownership society" preferable to a "big government" one?

People want control over their lives; they value their freedom. But the first reason to wonder whether "ownership" is always good is that it can be stressful. It may be true, as promoters of ownership like to say, that nobody ever washed a rented car; but renters are very happy not to have to get the hose out. If it's up to you to choose how to invest your pension account, agonizing over health stocks vs. Asian bonds may not be such a privilege.

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Flaws of Private Accounts (The Washington Post, Dec 13, 2004)
Zoellick's Lonely Path (The Washington Post, Dec 6, 2004)
How Africa Subsidizes U.S. Health Care (The Washington Post, Nov 29, 2004)
About Sebastian Mallaby

It's not just that financial planning is a dry topic to most folks. It's that modern life is overloaded with choices. In "The Paradox of Choice," the Swarthmore College psychologist Barry Schwartz shows how a certain measure of choice can be liberating but how too much is a treadmill -- sometimes even triggering depression. Freedom and choice are wonderful things that allow us to realize our human potential. But there's a limit to how many choices each of us has time to make, and most people in the rich world are pretty much maxed out already.

You see this truth in the behavior of the affluent, who actually pay to avoid choices. They hire home decorators so they don't have to stare glassily at 200 kinds of curtain rail. They hire marriage planners so they don't have to fret about cream napkins vs. white ones. There are said to be 10,000 wedding consultants practicing in the United States. If the rich are deliberately avoiding choice, why are we so sure that the majority want more of it?

Ownership does not merely involve choice; it involves risk also. A certain measure of risk is fine; indeed, if you want a dynamic society it's positively essential. But just as the modern economy threatens Americans with choice overload, so it also piles more risk on the shoulders of the average citizens. The risk of not being able to afford health care has risen, albeit because health care has more to offer than it used to. Fewer people have risk-free "defined benefit" pension plans that guarantee a fixed proportion of salary upon retirement. An index devised by Yale's Jacob Hacker shows that income volatility has increased sharply since the 1970s. Given that risk is already on the rise, perhaps public policy should avoid adding to it?

Maybe because they want some insulation from the uncertainty of the market, people sometimes prefer government solutions to private ones, even if they are no more efficient. In Britain, a study led by Michelle S. Mahoney of the University of Exeter found that people were satisfied with the privatized water distribution system but still thought it ought to be run by the government. In Michigan, Lyke Thompson of Wayne State University surveyed attitudes to 14 different services; a majority of respondents favored government provision of 10 of them. Jonathan Baron, a University of Pennsylvania psychologist, has surveyed attitudes on government provision, private provision and various intermediate subsidy options. He finds that people tend to want government to do the things it's doing now. They don't favor more big government, but they don't favor less of it either. They are against privatizing Social Security.

What to conclude from this discussion? The fact that freedom triumphed over the totalitarian systems of the 20th century should not be read as proof that people want all freedom, all the time. The East Europeans who overthrew communism were escaping from an anti-choice extreme. But the American system, which features more risk and inequality than any other advanced society, is over at the opposite end of the spectrum. It shouldn't be assumed that Americans want to embrace individualistic risk more than they do already.

It follows that pro-market, government-cutting schemes cannot be justified by a presumed moral superiority. When it comes to their retirement, most Americans probably want a mix of a government safety net and the opportunity to accumulate their own savings. The current system, featuring a government program that guarantees a pension equal to about a third of the average worker's salary, plus a variety of tax-favored opportunities to save individually, may already be quite close to most citizens' sense of the right balance.

In the absence of the moral-superiority claim, a reform that adds to the stresses of the modern world must hold out the compensating hope of more prosperity. There's no case for Social Security privatization unless it brings a serious economic payoff.


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