A Path Toward Getting Rid of Social Security

– December 20, 2019 Reading Time: 4 minutes

No, UBA for liberty isn’t another fun holiday idea, it is a call to consider a Universal Basic Asset (UBA) program designed to protect Americans’ liberty and transition away from Social Security.

It is nice to see classical liberal thinkers like Mike Munger chiming in on Universal Basic Income (UBI). Libertarians excel at shooting down plans emanating from statists Left and Right but to (re)create liberal society, we have to set forth reforms of our own, hopefully ones that conform to what we know about how human beings react to incentives. The urge to proffer a classical liberal redistribution reform was why Hayek broached the subject of a UBI in his Road to Serfdom.

Many fear that a UBI would induce many people to withdraw from the labor market. That sounds like it might decrease output but decreased labor force participation would increase wages and capital substitution in proportion, so the net effect on output would probably approximate a wash.

My fear is that once implemented we would never be able to get rid of UBI because it would create a group of people dependent on it and the government, as usual, would pretend to be the font of the resources (instead of the real source, private producers). Those dependent on UBI would become the “placemen, pensioners, parasites” so feared by the Founders and UBI would become another untouchable “third rail of politics,” a “Social Security for all.”

Therefore, I would rather consider a modernized UBA, which Americans long enjoyed in the form of free or heavily subsidized land, most of which was indeed nearly worthless until it was worked. A UBA program today might promise every American land, a health savings/retirement account, an investment endowment/business startup grant, an education grant, or some combination thereof, worth a total of $X upon mere attainment of some age Y, or a younger age upon passing a stringent financial literacy test. (Yes, I see this as a Nudge to induce more people to learn more about consumer finance!)

Unlike a life annuity/UBI, UBA would require work to improve the land, run a company, pick and monitor investments, earn a wage until retirement, or attend university or trade school and then develop a career. While lenders may allow UBI recipients to capitalize their annuities in order to fund education, real estate, business, or financial asset acquisition, UBI recipients would remain beholden to the government and hence have incentives to exert political pressure to maintain or increase UBI payments.

Recipients of UBA, by contrast, could sell their land or other assets to buy a life annuity if they so desired, but then would be beholden to the annuity issuer (usually an insurance company), not the government. In fact, those who have already received their one-time UBA grant would have an interest in decreasing or ending UBA so they would not be taxed to fund future UBA payments.

UBA seems riskier than UBI because it encourages work or investment, raising the spectre of unsuccessful UBA recipients seeking a second payout or other public payment. In fact, even UBI recipients could impoverish themselves if they are able to anticipate their annuity stream. While regulators could prevent J.G. Wentworth (of “877 Cash Now” commercials infamy) from buying a person’s UBI the way it buys structured settlements, all lenders would be aware of UBI and could hardly be prevented from making lending decisions based on it, just as lenders currently base loans on Social Security benefits. Lenders, therefore, would constitute another special interest blocking any future UBI reform.

In short, private charity will have to backstop either UBI or UBA because neither is a panacea when it comes to poverty elimination.

Ironically, Social Security is a big reason why many people see a need for a UBI or UBA program in the first place because it systematically strips the working poor of the ability to pass assets to their children or grandchildren. That is because Social Security is a life annuity with very limited survivorship benefits. Many poor people, especially minority males, pay into the system only to die before collecting much if anything from it. Decades of Social Security taxes go for naught as nearly nothing ($255 to be exact) gets passed down to their heirs.

Moreover, a UBI and any form of government-run health insurance or healthcare system are completely incompatible as it is perfectly daft to entrust one’s care to one’s annuity payer. (We have a limited version of this incompatible arrangement already with Medicare and Social Security and, like the rest of our healthcare system, it is not working well!) While hardly a selling point for libertarians, a UBA paid out at a young age would not preclude adoption of some scheme of socialized medicine.

Both UBA and UBI have to be paid by someone. Under our current tax system, repayment of the UBA, which is geared towards investment in financial, human, and/or real capital instead of consumption, will be in proportion to the increased income and capital gains it creates for its recipients. UBI could also be used for investment purposes but likely most of the relatively small periodic cash payments will end up funding consumption, so it stands much less chance of becoming even partially self-funding than UBA.

UBA would also be easier to restrict to natural born citizens than UBI, making freer immigration flows more politically palatable than at present.

Another reason to prefer UBA over UBI is that UBA is friendlier to individual liberty, as it is not as likely to turn people into wards of the state because of its one and done payout structure.

As part of implementing UBA, we could phase out Social Security by continuing to pay the promised life annuity to those already collecting and giving those not yet retired but older than Y the UBA $X plus z% interest in lieu of Social Security payments.

For fear of inducing cardiac arrest, my own or in readers, I will not calculate how much such a buyout would cost and of course cannot do so without knowing $X or z%. Suffice it to say, though, Treasury yields would move away from negative territory. We have to pay the piper for Social Security someday soon anyway and it might be better to engineer a crash landing when interest rates start at historic lows than to wait for crisis to strike the day after Social Security payments are cut, or taxes increased, circa 2035, if not sooner.

Robert E. Wright is the (co)author or (co)editor of over two dozen major books, book series, and edited collections, including AIER’s The Best of Thomas Paine (2021) and Financial Exclusion (2019). He has also (co)authored numerous articles for important journals, including the American Economic Review, Business History Review, Independent Review, Journal of Private Enterprise, Review of Finance, and Southern Economic Review. Robert has taught business, economics, and policy courses at Augustana University, NYU’s Stern School of Business, Temple University, the University of Virginia, and elsewhere since taking his Ph.D. in History from SUNY Buffalo in 1997. Robert E. Wright was formerly a Senior Research Faculty at the American Institute for Economic Research.