Government Is More Efficient Than The Private Sector In Biggest Social Services, Contrary To Right-Wing Claims

This point has to be repeated as conservatives target Social Security and Medicare.

Photo Credit: Image by Shutterstock, Copyright (c) zimmytvs

As much as some folks might hate this fact, the government is sometimes more efficient than the private sector. This is true in the case of providing a retirement income to workers. It is also true when it comes to providing health care insurance. This is one of the main reasons that we have a government-run Social Security and Medicare program.

This means that because we have a large population of retirees we will have a relatively large government, since it costs a fair bit for tens of millions of retirees to live and get health care. Furthermore, as we get more retirees, we will get a larger government.

This troubles Washington Post columnist Robert Samuelson greatly, but not in a way that makes a great deal of sense. Social Security is modestly redistributive. Adjusting for differences in life expectancies, those at the bottom of the wage ladder get a somewhat higher return on what they pay in, while those at the top get a lower return. If we consider this redistribution valuable, we can do it through a separate tax and transfer system and then have the whole Social Security program run through the private sector with the government mandating savings.

In Robert Samuelson's world, this would be great news because we now have a much smaller government. (The private savings system doesn't count as government.) It also is far more inefficient, since privatized systems cost 20-30 times as much to run as our centralized Social Security system. Also, the expenses of a privatized system are revenue for the financial industry, but no reason to discuss that one. So, in the world of mandated private savings people have no more control over their money than our current system, but somehow we are supposed to be happy because we have a smaller government.

The other part of the Samuelson story that is worth noting is the idea that we can somehow play with the money paid into Social Security and Medicare and use it for other purposes. That is implicit in his discussion of the idea that we should decide where our money is best spent. Samuelson makes it quite clear that he doesn't want to see retirees get the Social Security and Medicare they paid for. (AnUrban Institute study shows that workers on average will pay slightly more into Social Security than they get back in benefits. Medicare benefits exceed taxes by a substantial amount, but this is primarily due to the fact that we pay our doctors, drug companies, and other providers twice as much as any other country.)

As a practical matter, people are willing to pay these taxes because they value the benefits. They are not paying Social Security taxes so folks in Washington can stage wars around the world. We could view the money paid out in interest and principle on government bonds as being available for other purposes also, but most people would recognize the legal and moral obstacles to not repaying bondholders. Similarly, most people would probably see a serious issue with not giving benefits that they had paid for, even if Samuelson apparently does not.


Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). His most recent book is Plunder and Blunder: The Rise and Fall of the Bubble Economy. He also has a blog, Beat the Press.

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