Brett Arends's ROI: A radical idea to rescue U.S. households now—without adding to the national debt
Brett Arends’s ROI
Experts say: Let people tap their biggest asset
It’s hard to believe that so many have become so broke so fast.
While stock market investors may have taken a haircut from the coronavirus crisis, waitresses, bartenders, store clerks, restaurant chefs and millions of others on Main Street have been scalped.
For some, their income has slowed down. For many it’s stopped altogether. With no money coming in, they’re dependent on stimulus checks, unemployment benefits, and savings—if any.
About a third of the country didn’t have enough in their savings accounts to last more than a month.
Now three finance and law experts from one of America’s top universities have come up with a clever way of helping people out at minimal cost. And let’s hope it at least gets a hearing in Washington.
Their answer: Let everyone tap into their Social Security account—today.
It wouldn’t have to be a big amount, write finance professors Sylvain Catherine and Max Miller and law professor Nastasha Sarin at the University of Pennsylvania. They don’t want to add to the country’s looming retirement crisis down the road. They’re talking about letting people withdraw just 1% of their future benefits.
Doesn’t sound like much? It’s more than you might think. They estimate the median withdrawal would be $4,300 per household. Added to existing unemployment benefits, it would allow three quarters of U.S. households to survive three months of unemployment without cutting consumption, they estimate.
“[E]ven to provide workers $2,500 today, future benefits will be cut by on average 0.5%,” they write.
And Social Security is proportionately more important to us the less we earn, so the policy would be progressive, helping more vulnerable households the most.
“Under this policy, the bottom 25% of the marketable wealth distribution have an additional 88 days on average until they are no longer able to cover their consumption,” they write.
Oh, and as a big bonus: It won’t add to the national debt. Anything the government borrows now to pay the money out now just gets deducted from the “Social Security” line in the debt table.
“From the point of view of the government, this policy transforms implicit Social Security liabilities into public debt but leaves its overall long-run obligations unchanged,” the authors point out.
(As long-term Treasury bond yields are negative in inflation-adjusted dollars, one wonders if the government could, in theory, end up making a profit on the deal.)
Even a 1% withdrawal of future Social Security benefits could be repaid by delaying retirement by just six weeks, they add.
It would surely be a controversial proposal if it ever made it to Washington. Critics might warn that it would create a dangerous precedent. If we can tap into Social Security for this, why not for other things? And Social Security already faces a disastrous funding crisis. This proposal would move us in the wrong direction, even if by very little.
It will be interesting to see what conclusions other academics come to when they run the numbers.
Nominally, the Social Security trust fund currently holds $2.9 trillion in investments on our behalf. But the future liabilities, as everyone knows, are far greater. Catherine and his colleagues put the true value—meaning the liability, if you’re the government, or the asset, if you’re a retiree—at more than 10 times as much. However it’s calculated, it’s a substantial chunk of most people’s true wealth. And that’s especially true for people further down the economic pile.
It’s a remarkable idea. It might also cushion the economy against the rolling catastrophe of the lockdown, which is having vast, unplanned and cascading effects.
Many can’t pay their bills, even with their $1,200 stimulus checks. Credit card debts and rent delinquencies will inevitably rise the longer this goes on. Some renters are being given “rent holidays” by generous property owners. (Some others are just not paying.) But there are two sides to that equation. When a property owner loses his rental income, he may be unable to pay his own bills, pay his workers or spend money. And that, in turn, hurts other businesses.
Meanwhile there are other bizarre economic distortions. “For more than 50% of those displaced, unemployment benefits now exceed normal wages,” the professors estimate.
Our 401(k) plans allow “hardship withdrawals,” because the people who wrote the law recognized that if you can’t eat today, your “retirement plans” are going to be pretty moot. But fat—or even mildly plump—private retirement accounts are largely the preserve of wealthier households. Maybe the same logic should apply to Social Security for everybody.