Social Security in the "Information Age"

Much has been written about the recent set-to between Joe Klein and Paul Krugman regarding Social Security, when Klein triumphantly left Krugman speechless with the claim, "private accounts [are] a terrific policy and that in the information age, you're going to need different kinds of structures in the entitlement area than you had in the industrial age."

Yglesias and Josh Marshall asked whether anyone anywhere had read or heard Klein explain why the Industrial Age program known as Social Security was irrelevant or unsuited to the so-called Information Age. To-date, Klein apparantely hasn't been forthcoming with any examples.

There's a reason for that. Daniel Gross, writing in the Times on Sunday, explains that to the contrary, private accounts are in fact much less suited to our current times than is Social Security.

The reason is that income volatility -- the change in a family's income from year to year -- has always been pretty unstable, but in the past few decades it has grown even more like a nausea-inducing amusement park ride. And the volatitily is worse for those who can least afford it.

Volatility - the degree to which the value of an asset deviates above or below the general trend - is a concept with which investors are familiar. Some stocks can prove more risky - or more rewarding - than others because they rise or fall by a greater degree than the market as a whole, while others tend to track the overall market's performance closely. But the concept of volatility is less well understood when it comes to income. As we learn more about income volatility in the information age, some scholars say, Social Security - an insurance program designed for the industrial age - may be even more essential.

Economists have long thought income volatility didn't matter much; that families could absorb it by taking a second job or a spouse returning to the work force. Trouble is, that's already the case. Also, in the past families tied up a lower percentage of their income in big ticket debt, such as their home mortgage. Nowadays, though, people are spending as much as 75 percent of their income on paying off mortgages, home equity loans, health care, auto loans, etc. -- which aren't easily shed. As Harvard's Professor Warren says in the article, "If you lose income suddenly, you can't decide to sell off one bedroom or decide to cover only half of your family" with insurance.

Add to that the fact that fewer workers are now covered by employer-sponsored defined benefit pension plans and health insurance, and you've got a pretty obvious need for a program that's appropriate for workers in Klein's "Information Age."

It's called Social Security.