Changes in the Government-Supported Social Security Policy (Essay Sample)

Economics History
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Institution
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Economics History
Some changes in the government-supported social security policy will become necessary in order to handle the burden of having to pay for the retirement benefits of the baby boom generation. If no changes are carried out, it is likely, and unfortunately so, that the present payroll taxes and pension benefit levels will start to exceed the revenues collected from payroll taxes. In fact, many baby boomers have reached retirement age and such an increase will continue to at last 2029 (Romig 2017). Thus, some economics commentators have come out arguing that social security might go bankrupt making it difficult for old people to receive their social security pensions. Although such kind of belief is not supported by all experts, more people in the general population hold it due to the fact that the subject has been a hot button topic for several years. While a large portion of the general population beliefs that there is going to be a crisis in social security if nothing is done as soon as possible, experts in economics understand that the impact will be insignificant (Walker, 2019). Nevertheless, these experts have often suggested a solution for the problem entailing calls for privatization of social security to shield government from overspending its financial resources on what the private sector could easily manage.
A critical assessment of the probable impact of privatization of social security must examine the form that such privatization would take. Most of the proposals that have been suggested call for the government to embrace some form of partial privatization rather than a complete paradigm shift in social security management. To some commentators, full privatization involves completely doing away with the current social security program which will require individuals to make decisions as to whether or not they will purchase private insurance to provide for their retirement or even disability (Walker, 2019). However, to most commentators and the general public, full privatization has to come with replacing the current social security program with mandatory private insurance options. For example, it means that the old-age element of social security would entail paying contributions to an individual’s investment account. Thus, for most of the arguments by commentators, the federal government will not be able to manage those contributions, but it will get involved in the regulation of the industry and perhaps also insure a fraction of workers to shield them from instances of default by the insurance providers (Kim & Svensson, 2018). . However, although there are people who would like to see such a shift due to the frustrations that they have faced with the current social security programs, even the most ardent supporters of the idea understand that it might not be economically and politically feasible to embrace the change at this time. Most people would settle for partial privatization at the moment and gradually proceed towards full privatization once all things have been tested.
From an economic perspective, privatization of social security is poised to cause an increase in the economic growth rate. Essentially, this particular argument is that there will be an increase in the rate of national savings. Based on (Kant, 2018) such an increase would further cause an increase in the rate of investment which will spur growth of the economy. Therefore, if privatization of social security is undertaken, it is likely that there will be a broader national product when the baby boomers come into retirement. From an economic point of view, reducing the burden of giving retirement benefits to baby boomers today by privatization is to increase the national savings rate hence increasing the future national product. If the national product is larger in future, it means that those who will be retiring will find it easy to meet their consumption needs (Mercille & Murphy, 2017). While this argument is supported by everyone who supports privatization, even the critics of privatization accept it although they continue to oppose privatization on other different premises. Nevertheless, although there is evidence that privatization of social security has a positive impact on the rate of national savings hence boost the rate of economic growth, this particular belief must be thoroughly qualified. The fact is that it is possible that the anticipated savings might not be satisfactory because some people might reduce the amount of contributions that they make towards their retirement (Altiparmakov, 2018). Therefore, there will be no economic net gain if people tamper with the amounts of money they contribute towards their retirement if privatization would entail simply substituting a particular source of savings for a different one.
Besides, it is evident that socials security contributions that are currently in the hands of the government are sometimes spent on financing government consumption. Therefore, if privatization is embraced, such spending would be eliminated. There is always a fraction of social security beneficiaries who experience delay in receiving their pension benefits upon retirement. The reason for such delay has been established to be the fact that government often spends the money on its consumption and very little of that money is consumed in ways that lead to long-term economic growth (Bures & Carrapico, 2017). Sometimes the funds are invested on bonds, but it is not always done in a manner that can spur economic growth. Ardent supporters of privatization argue that if a fraction of those funds is sidetracked to private sector investments, the move would cause an increase in national investment levels hence contributing further to the economic growth of the country and a higher GDP by the time the baby boomers are retiring (Gechert et al., 2021). Since the funds will be in the hands of private sector players, it will be difficult for them to be spent on government consumption in case of budget deficit. That way, parliament will be forced to handle the issue of budget deficit more honestly as it will realize that there are no extra funds at the disposal of the government.
Moreover, it has also been suggested that privatization will cause an increase in the competitiveness of the country in the global economy. The current high costs of pension and health benefits in the country make it hard for most companies to compete with other producers in other nations where wages are lower and the amounts spent on benefits are also lower (Bures & Carrapico, 2017). If partial privatization is embraced, producers in this nation will easily lower prices for them to remain competitive in the global marketplace. As a result, it will lead to long-term economic growth which will further make it easier for the government to sustain the retirement requirements of the baby boom generation. Critics of such a move will often respond by arguing that our country is already competitive at the global level because its expenditure on pensions and health care for its workers are lower compared to other industrial countries. Howbeit, privatization of social security could lead to further economic gains with regard to the competitiveness of the country, there are costs associated with such gains (Aarts & de Jong, 2018). For example, there will be more spending on supplemental security income. The poverty rates among senior citizens might as well increase which means that the said competitiveness at the global level will be counterproductive.
In light of the above merits of privatizing social security, commentators have also taken note of a number of demerits. First, starting a private social security system is going to be a costly idea (Ambrosius, 2017). The transition that would involve creating new personal accounts, while also providing benefits to the current social security beneficiaries, will need trillions of dollars to implement. Furthermore, it should also be noted that private accounts will cause a reduction in special insurance protections such as survivor’s insurance, which are also provided for by the current social security programs. There will be cuts made to such insurance programs in order to finance private retirement accounts. Besid