(Bloomberg Opinion) -- Conservatives in the Trump Administration are reportedly considering a crisis-fighting measure that my colleagues and I have researched: Ease people’s financial strains by allowing them to access Social Security benefits early.
Typically, academics love to see their work put into practice. For me, this is a painful exception.
Social Security plays a crucial role in ensuring the financial security of millions of Americans. It does so by forcing everyone to save a portion of their income, and preventing them from touching those savings until they reach retirement age. By pooling the resources and paying benefits as long as people live, the program creates a system of longevity insurance.
From a purely economic perspective, there can be times when withdrawing savings early makes sense – for example, when interest rates are extremely low and people are facing the worst economic downturn since the Great Depression. Based on this logic, in a recent working paper, Sylvain Catherine, Max Miller and I explored the possibility of allowing workers to access a small portion of Social Security today. We estimated that a cut of just 1% in future benefits would be enough to cover household expenditures for two months.
We concluded that there are merits to allowing people to access their Social Security wealth – particularly when the alternative is high-cost payday loans, credit card debt or in many cases stark deprivation. It doesn’t add to government debt, so can be pursued as a supplement to much-needed measures such as expanded unemployment benefits and direct relief to the households and small businesses most affected by the crisis.
Now, conservatives in the Trump administration are advocating a similar proposal –- apparently based on work by the economists Andrew Biggs of the American Enterprise Institute and Joshua Rauh of the Hoover Institution at Stanford University. But there’s a critical difference: They see it as a substitute for, not a supplement to, government aid for struggling families. Reflecting on the reaction to this proposal and observing the way in which it has been used in the political debate changed my view of the idea’s merits -- not because of the economics, but because of the political economy.
Tapping Social Security to avoid necessary government expenditures is wrongheaded for many reasons. For one, in a world with zero (or negative) interest rates and no inflationary pressures, concerns about a growing government budget deficit are overblown. Also, drawing on Social Security could set a dangerous political precedent: If we cut 1% today, that could open the door to further cuts that would ultimately undermine an immensely valuable program.
That would be a mistake: Social Security should be strengthened, not weakened. As our own prior work illustrates, a broader social safety net helps attenuate large and rising private wealth inequality. Our narrow economic argument about the optimal use of savings is second order relative to the larger, human point that retirement savings overall remain far too meager.
If policymakers are looking for ways to support households today, greater fiscal expenditure is the first-best approach. Empirical evidence shows that the extension of unemployment insurance during a downturn is welfare-enhancing and effectively supports household consumption. Support should be provided as long as it is needed, as proposals like the Worker Relief and Security Act would do. In general, fiscal stimulus should be automatic, triggered by economic conditions, so partisan politics won’t hold up aid to the most vulnerable families.
Social Security has been the progressive success story of the 20th Century, driving the share of seniors dying in poverty down from nearly half to less than 10%. There’s more to be done, and I hope to contribute. This requires speaking out when I fear that our work is being used to advance political causes that will hurt precisely those we aim to help.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Natasha Sarin is an assistant professor at the University of Pennsylvania Law School and an assistant professor of finance at the Wharton School.
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