The Proposals
Kevin Drum wants to use the collapse of the California Charter Academy as an example of why "privatization" wont work. And is usually the case with Kevin it is abundantly clear he has not read proposals as to how to affect such a change in Social Security.
First off, Kotlikoff's plan is still administered by the government, not by an investment company. Second, the principle is insured by the government. There is no option in terms of investing your retirement savings, you will be forced to invest it in a broadly defined index fund.
Is there a chance the fund could tank and people are left with only the principle? Yes. However, consider fully what that means. It would likely mean the entire economy just tanked hard. People will have alot more to worry about than simply their retirement. We are talking something on the order of magnitude like the Great Depression. Even with the government taking over Social Security such and event would still result in huge problems for Social Security recipients.
Part of the reason for this has to do with the fact that the public school district exists. If it didn't then the only people left to deal with it would be the parents. Also, lets remember one thing here: this is a government funded program. The government is a damn awful adminsitrator/supervisor. Billions are lost every year to waste fraud and abuse (I've blogged on this before.). So is it really shocking that a shady operator has defrauded the federal government? Not in the least. In fact, it is actually to be expected. What kind of oversight is there?
Now, when it is your money, and your 's education might you look into the school's track record more? My son goes to a private school. We picked the school he currently attends because it has been around for decades. Could it go belly up tomorrow? Yeah, but it is unlikely
This is insulting. Kevin is completely distorting the privatization argument (not surprising has when in comes to economics Kevin is a complete dunce). The argument for privatization of Medicare and Social Security is that it will solve demographic problems, and it will remove the incentive for politicians to pander to the elderly by expanding benefits (Bush's Medicare Drug plan anybody?). The market isn't going to suddenly create free lunches let alone turn every retiree into a millionaire. But not doing anything will not solve this problem. Raising taxes provides a disincentive to work (for wages). Higher Social Security/Medicare taxes will induce people to shift to sources of income that do not bear those taxes.
For once it'd be nice if Kevin engaged his brain on economic issues.
Update: Dave Sheridan has an excellent follow up post to this one.