Managing Risk

Josh Marshall has written a rather long but absolutely essential post about the upcoming debate on Social Security and how the Democrats should approach it. You should go read the whole thing. I do want to make one comment, though.

Marshall argues that Democrats should not make this a fight about the virtues of the market or about risk. That's what the GOP wants, he says, and they'll win if that's how the debate is framed. Instead, Democrats need to stress that Social Security is a different kind of program: it's a guaranteed insurance system, not just a big collective 401(k).

The issue is balance and commonsense. A breadwinner with dependents who gets a lump sum salary at the beginning of the year and invests it all in a few hot start-ups doesn't believe in the market; he or she is just a fool. A wise investment portfolio is balanced between riskier and more conservative investments. The best way to make this argument (and the most valid one) is to make it clear that Democrats want people to be able to invest. That really is the path to wealth. But Social Security is different. It is, among other things, a baseline of guaranteed retirement security and income for everyone. You get it whether you retire in boom times or bust times, whether life has dealt you good cards or bad cards. The two things are simply different.

I don't think Marshall goes far enough here. Social Security isn't just different, it's essential — the guaranteed portion of a retirement package that makes riskier investing a rational thing to do. By preserving Social Security, we maximize the power of the market. Without a social safety net, the more aggressive investments that we want to enable people to make for the long term just aren't sensible.

Thus, contra Marshall, I think that part of the Democratic argument has to be about risk. As Kevin Drum has been arguing for a while now, individuals are assuming more and more of the economic risk under the GOP. The Republican laissez-faire ideal does indeed increase personal risk, but it doesn't allow individuals to manage that risk. Democrats need to offer the vision of an economy where individuals can make relatively accurate predictions and manage their own level of risk accordingly. Social Security is part of that vision and proves to be a program that empowers both individuals and markets.