# Is the USA a "welfare state" like the right claims? **URL:** \ **Category:** Great Debates\ **Created:** [April 24, 2012, 12:07am UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764 "2012-04-24T00:07:39Z")\ **Posts on this page:** 20\ **Page:** 3
**Author:** ![erislover](https://avatars.discourse-cdn.com/v4/letter/e/71e660/32.png) [@erislover](https://boards.straightdope.com/u/erislover)\ **Post date:** [April 30, 2012, 2:21am UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/41 "2012-04-30T02:21:30Z")
> [@John\_Mace](#): > > Why? Why is taking that exact amount of risk the optimal situation? How do you know it’s either too much or too little? You don’t. And truly the costs to taking too little risk could be large… if you’re willing to live with the alternative. But I know you don’t want to live with the alternative: that people actually fail. So… I don’t get it. I don’t like subsidizing businesses because I expect businesses to take risks and I expect them to fail and that’s life—don’t start a business if you can’t stand the thought of failing. I don’t mind subsidizing people because I don’t want people to fail. But to refuse to subsidize people until they’ve failed seems misguided. Why wait until the house is burning before you consider buying a fire alarm? Everyone will be old and anything could happen to their savings; if we’re not going to let them fall off the bottom then just… don’t let them. But that’s exactly what we’re doing: not letting them. 😕 > [@](#): > > This is like the whole birth control thing. Some small percent of women can’t afford birth control, so we decide to provide it “free” to everyone. If you don’t want birth control, you don’t take it, and no one else is paying for it. If you never retire, you never get your SS and no one has paid for you, either. Right? I mean, they’re not sending you SS checks and birth control that you just throw out, right? ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [April 30, 2012, 2:29am UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/42 "2012-04-30T02:29:09Z")
> [@John\_Mace](#): > > I have no problem with the government taking care of the poor. What I have a problem with is forcing everyone into a system designed to take care of the poor. And we’re into adverse selection again. Without a mandate, those who can take care of themselves will; and the poor? There is a reason they are called, “The Poor”. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [April 30, 2012, 2:39am UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/43 "2012-04-30T02:39:38Z")
> [@Fear\_Itself](#): > > And we’re into adverse selection again. Without a mandate, those who can take care of themselves will; and the poor? There is a reason they are called, “The Poor”. The mandate is required 401ks, or join the SS program if you want. The poor are taken care of from the general fund (SS). ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [April 30, 2012, 2:58am UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/44 "2012-04-30T02:58:43Z")
> [@John\_Mace](#): > > The poor are taken care of from the general fund (SS). You don’t see any problems with that? When the economy dips, and conservatives start looking for cuts? Not to mention outgo will always exceed income. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [April 30, 2012, 3:06am UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/45 "2012-04-30T03:06:17Z")
> [@Fear\_Itself](#): > > You don’t see any problems with that? When the economy dips, and conservatives start looking for cuts? Democracy is a bitch. You don’t always get exactly what you want. > [@](#): > > Not to mention outgo will always exceed income. I don’t understand. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [April 30, 2012, 3:11am UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/46 "2012-04-30T03:11:15Z")
> [@John\_Mace](#): > > Democracy is a bitch. You don’t always get exactly what you want. I don’t think that will work out well for those with the comfort of a 401k, either. > [@](#): > > I don’t understand. So the intent is to bankrupt SS? ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [April 30, 2012, 3:12am UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/47 "2012-04-30T03:12:10Z")
> [@Fear\_Itself](#): > > I don’t think that will work out well for those with the comfort of a 401k, either. Why not? > [@](#): > > So the intent is to bankrupt SS? No. ---
**Author:** ![Fear\_Itself](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/fear_itself/32/19637_2.png) [@Fear\_Itself](https://boards.straightdope.com/u/Fear_Itself)\ **Post date:** [April 30, 2012, 3:19am UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/48 "2012-04-30T03:19:39Z")
> [@John\_Mace](#): > > Why not? What percent of the population will have the income equivalent from their private investments? And the rest are a destitute drag on the economy, spending nothing? > [@](#): > > No. I don’t see any other outcome. No payroll taxes going in, massive benefits being paid out. It is a deliberate plan to render SS insolvent. And that is not good for the rich, either. ---
**Author:** ![MsRobyn](https://avatars.discourse-cdn.com/v4/letter/m/90ced4/32.png) [@MsRobyn](https://boards.straightdope.com/u/MsRobyn)\ **Post date:** [April 30, 2012, 11:58am UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/49 "2012-04-30T11:58:35Z")
> [@John\_Mace](#): > > Well, now you’re making a completely different argument. Your original claim was that the market crash of 2008 proved privately managed investment accounts were no good. Now you’re saying people are too stupid to read about how to invest for retirement. I say “read” because no one needs to access professional money managers-- there are dozens of books that you can read. > > And of course some of your objections are purely artificial (that is, created by Congress), and could be changed by legislation allowing people to invest more of their own money. Especially since you were specifically responding to someone’s post about Social Security monies being outside the reach of individuals to choose to invest as they see best No, I was merely pointing out that people don’t have access to personal financial advice, tend to listen to bad advice from people they know or have heard of, and act on that bad advice. I wasn’t making any argument; I was simply responding to your post. > [@](#): > > So, no, the market crash of 2008 didn’t tell us anything that we didn’t know before. > > And if you look at the plan Bush tried to set up, and which got absolutely nowhere even with his own party, it had exactly the kinds of limits built into it that address your objections. Whatever flaws it might have had, investments were limited to 5 broadly diversified index funds and a life cycle fund. The latter would be a very conservative fund invested in bonds and cash which the person is required to start transitioning to at age 47. Thus taking the “stupid” out of the equation. As others have pointed out, people _are_ allowed and encouraged to save additional money for their retirement, and there are incentives to do so; many of these accounts are tax-advantaged in one way or another. You can walk into just about any financial institution and open an IRA or similar account, save some money each month, and invest it however you wish. The bonus here is that there is a human handling your account and who can make valid recommendations based on your goals and wherewithal so you don’t keep your money in a fund that won’t meet your needs. There are, however, some disincentives to doing that, many of them having to do with human nature. If I’m contributing the maximum of (say) 5% of my pre-tax earnings toward the company 401(k) in order to get the maximum match, I may not really want to devote much more to a private retirement account. I may not be able to contribute more because of where I am in my life. I may also be relying on some online calculator or personal finance guru that tells me that what I’ve got in the 401(k) is enough and that I don’t need to add more. That said, people don’t make financial decisions based on what economists and policy wonks say. They make decisions based on what they know and understand. They suffer from confirmation bias. They understand the advice given by their favorite guru or brother-in-law, and they act on that. To pretend otherwise is to deny millennia of human nature. ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [April 30, 2012, 2:30pm UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/50 "2012-04-30T14:30:42Z")
How can you say “no”, and then go and write more about how people are too stupid to made their own investment decisions? That would be “yes”. And you completely ignored what I wrote about the government being able to restrict the kind of investments people make in such retirement accounts. Sure, most people have access to this in addition to SS, but there’s no reason to assume we have found the perfectly correct balance of the two. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [April 30, 2012, 5:03pm UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/51 "2012-04-30T17:03:04Z")
> [@John\_Mace](#): > > How can you say “no”, and then go and write more about how people are too stupid to made their own investment decisions? That would be “yes”. > > And you completely ignored what I wrote about the government being able to restrict the kind of investments people make in such retirement accounts. Sure, most people have access to this in addition to SS, but there’s no reason to assume we have found the perfectly correct balance of the two. Stop using the loaded word “stupid.” We know full well that there are many psychological factors that cause many people to make bad investment decisions. Defaults, loss aversion, for instance. Remember how before investing in 401Ks became the default lots of people didn’t do it? That didn’t happen because they were stupid, but because they took the default choice. Experiments showed that when investing became the default option, numbers skyrocketed. One interesting discovery - if they made the default investment amount something below the max, say 2%, money invested actually went down. An obvious retirement strategy is to have a guaranteed base income, and then take more risks beyond that level if you have the money. which is exactly our current system. Your assumption that the government would make good any losses by the poor is just laughable. I can just hear the conservatives bemoaning the big deficits during a time of reduced tax revenues. Plus, having most Americans not part of the Social Security system will hurt support for it. I can just hear that p.o.s Ryan bloviating about how unfair it is for people who made good decisions to bail out those who made bad decisions. I’m really surprised that you’ve taken up residence in that libertarian fantasy land where almost everyone is a financial expert and a medical expert and we don’t need government to make decisions for us. I posted the average 401 K amounts. Is $155K enough to live on for 25 years even given social security? ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [April 30, 2012, 6:46pm UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/52 "2012-04-30T18:46:34Z")
> [@Voyager](#): > > Stop using the loaded word “stupid.” Feel free to read “stupid” as “uninformed” if that makes you feel better. > [@](#): > > We know full well that there are many psychological factors that cause many people to make bad investment decisions. Defaults, loss aversion, for instance. > Remember how before investing in 401Ks became the default lots of people didn’t do it? That didn’t happen because they were stupid, but because they took the default choice. Experiments showed that when investing became the default option, numbers skyrocketed. One interesting discovery - if they made the default investment amount something below the max, say 2%, money invested actually went down. > An obvious retirement strategy is to have a guaranteed base income, and then take more risks beyond that level if you have the money. which is exactly our current system. Your assumption that the government would make good any losses by the poor is just laughable. I can just hear the conservatives bemoaning the big deficits during a time of reduced tax revenues. Plus, having most Americans not part of the Social Security system will hurt support for it. I can just hear that p.o.s Ryan bloviating about how unfair it is for people who made good decisions to bail out those who made bad decisions. > I’m really surprised that you’ve taken up residence in that libertarian fantasy land where almost everyone is a financial expert and a medical expert and we don’t need government to make decisions for us. I posted the average 401 K amounts. Is $155K enough to live on for 25 years even given social security? Stop throwing up strawmen. What part of “you are required to invest ‘x’ amount of money in only a few, conservative index-fund type investment vehicles pre-approved by the government” do you not understand? ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [April 30, 2012, 7:09pm UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/53 "2012-04-30T19:09:02Z")
> [@John\_Mace](#): > > Feel free to read “stupid” as “uninformed” if that makes you feel better. > > Stop throwing up strawmen. > > What part of “you are required to invest ‘x’ amount of money in only a few, conservative index-fund type investment vehicles pre-approved by the government” do you not understand? many of the experiments done on this were done with business majors, often in MBA programs. Uninformed? I don’t think so. People are uninformed, but being informed is no guarantee that you are not going to fall into the trap. Diversification is fine - until a person notes that part of his portfolio is underperforming and decides to move it into the better performing part - because why give up the money? homo economicus is as mythical as Bigfoot, yet so much of conservative economic policy depends on his existence. If people do such a good job managing their IRAs and 401Ks, where is the money? ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [April 30, 2012, 7:22pm UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/54 "2012-04-30T19:22:51Z")
> [@Voyager](#): > > many of the experiments done on this were done with business majors, often in MBA programs. Uninformed? I don’t think so. People are uninformed, but being informed is no guarantee that you are not going to fall into the trap. > Diversification is fine - until a person notes that part of his portfolio is underperforming and decides to move it into the better performing part - because why give up the money? homo economicus is as mythical as Bigfoot, yet so much of conservative economic policy depends on his existence. > If people do such a good job managing their IRAs and 401Ks, where is the money? Well, then we’re back to “stupid”, I’m afraid. 🙂 But yeah, there’s a reason that if we talk about privatization of a government run program that the government has a say in the type of investment vehicles that are allowed, since they’ll have to bail people out if they make [del]stupid[/del] bad decisions. ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [April 30, 2012, 8:35pm UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/55 "2012-04-30T20:35:53Z")
Wouldn’t a federally-mandated 401(k) contribution managed by a private third-party investment house run afoul of the same Constitutional limitations that the individual mandate of the ACA is currently up against? ---
**Author:** ![John\_Mace](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/john_mace/32/185_2.png) [@John\_Mace](https://boards.straightdope.com/u/John_Mace)\ **Post date:** [April 30, 2012, 9:09pm UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/56 "2012-04-30T21:09:53Z")
> [@Jas09](#): > > Wouldn’t a federally-mandated 401(k) contribution managed by a private third-party investment house run afoul of the same Constitutional limitations that the individual mandate of the ACA is currently up against? Not if you are allowed to opt out and stay in the SS system. That was part of Bush’s plan, too. Not that I think his plan was the be all and end all, but it actually had much more going for it than you would think be reading all the hysterical reactions. It was to be phased in slowly, didn’t affect anyone over (IIRC) 45 or 50, and was only intended to replace a part of SS. ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [April 30, 2012, 9:57pm UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/57 "2012-04-30T21:57:51Z")
So really we’re just arguing about the size of SS then, right? And only the retirement income insurance part? Because SS + private retirement accounts (with tax incentives) is exactly what we have now. You’re basically just arguing for an optional SS reduction (I cut my SS contributions by 20%, say, with a commensurate reduction in benefits). ---
**Author:** ![Jas09](https://avatars.discourse-cdn.com/v4/letter/j/d07c76/32.png) [@Jas09](https://boards.straightdope.com/u/Jas09)\ **Post date:** [April 30, 2012, 10:00pm UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/58 "2012-04-30T22:00:43Z")
To put my cards on the table, that type of system (public funds invested in private accounts) sounds like as bad a half-measure as the ACA’s system of public funds for private health insurance. I much prefer my entitlement programs to remain wholly public or wholly private. Let the public sphere handle the cases that the private market can’t (provided a basic level of retirement for anyone who works their whole life regardless of their investing prowess and market conditions at the time of retirement) and let the private market handle everything else. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [April 30, 2012, 11:17pm UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/59 "2012-04-30T23:17:50Z")
> [@John\_Mace](#): > > Well, then we’re back to “stupid”, I’m afraid. 🙂 > > But yeah, there’s a reason that if we talk about privatization of a government run program that the government has a say in the type of investment vehicles that are allowed, since they’ll have to bail people out if they make [del]stupid[/del] bad decisions. So I’ll ask again - do you really think that Republicans in Congress would get behind an increase in the deficit to bail out people? And I have no doubt that they would call these people stupid. ---
**Author:** ![Voyager](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/voyager/32/133_2.png) [@Voyager](https://boards.straightdope.com/u/Voyager)\ **Post date:** [April 30, 2012, 11:22pm UTC](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764/60 "2012-04-30T23:22:24Z")
> [@Jas09](#): > > So really we’re just arguing about the size of SS then, right? And only the retirement income insurance part? Because SS + private retirement accounts (with tax incentives) is exactly what we have now. You’re basically just arguing for an optional SS reduction (I cut my SS contributions by 20%, say, with a commensurate reduction in benefits). If you remember, the deal was that putting the money into the more general market would increase returns, with the implication that there would be no more risk. In fact, around here a lot of people posted about how the Dow went up over every ten year period. This was of course just a few years before it didn’t. Totally ignoring the ironclad rule that higher returns always involve higher risk is exactly the kind of blindness I was discussing. There are also problems about what happens when you pump all that money into the market, and about fund selection, but that is secondary. The Swedish economy is a tad smaller than ours. I agree with you about mixing public and private. We did that with Fannie Mae, and that didn’t work very well. [Previous page](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764.md?page=2) [Next page](https://boards.straightdope.com/t/is-the-usa-a-welfare-state-like-the-right-claims/619764.md?page=4)