Food for Thought on Social Security

Great stuff over at Greg Mankiw's blog today (every day really). I want to highlight this post where he highlights new work on the risk inherent in the defined benefit nature of the Social Security System. It is a great point indeed, but it seems rather obvious, that the security of benefits is subject to or akin to "political risk." It is no different from investing in assets in, say, Venezuela several years ago. There is always the risk that the country's politcal system will move away from democracy toward authoritarianism and property rights will erode. Naturally, we face less risk of that here in the US, but we do face a high risk that fiscal pressures will change the political calculus that supports the status quo on Social Security. The debate over SS reform was really about substituting market risk for political risk, although that is not the way the rhetoric framed it. It is had to tell what type of risk Americans really want. We are much more broadly and deeply exposed to the markets than we have ever been, so we appear to be quite comfortable with market risk, yet it seems politically we are desirous to keep the status quo, I assume because we are comfortable with the political risk too. Advocates of personal accounts (of which I am one) seemed to feel that Americans' obvious comfort level with market risk signified their desire to shift all there risk to market risk. This could be a misreading of the collective psyche, as it appears we are more interested in a deversified portfolio of risks. This poses an interesting question - is the expansion of the philosophically capitalist 'investor class' a phenomenon that is actually making the status quo of the collectivist social security program more secure? Food for thought, definitely.