Wednesday, March 23, 2005

A simple explanation why you fix Social Security now 

Someone pointed out to me this AARP ad against Social Security reform. My answer was, "So I'm driving down a highway at night and see a deer standing in the road 200 yards away. When do I start steering away from the deer?"

Alex Tabarrok is more elegant.
But almost inevitably a fix to social security will involve tax increases and the longer we wait the larger the costs of those increases will be. The technical explanation is that deadweight loss increases more than proportionately with an increase in taxes. The common sense explanation is that you don't want to take all your hits at once - instead, if you must take a hit, it's best to spread it out over time. Thus, the sooner we deal with the problem the lower the total costs will be.

A simple way of explaining some hairy public finance I had to learn long ago.