What? Let People Control Their Own Money?

Edward C. Prescott, co-winner of the 2004 Nobel Prize in Economics, asks, Why Does the Government Patronize Us?

...let's begin by dismissing the notion that individual savings plans are somehow dangerous to U.S. citizens. Some politicians have vilified the idea of giving investment freedom to citizens, arguing that those citizens will be exposed to risks inherent in the market. But this is political scaremongering. U.S. citizens already utilize IRAs, 401Ks, PCOs, Keoghs, SEPs and other investment options just fine, thank you. If some people are conservative investors or managing for the short term, they direct their funds accordingly; if others are more inclined to take risks or looking at the long run, they make appropriate decisions. Consumers already know how to invest their money -- why does the government feel the need to patronize them when it comes to Social Security?

...The beauty of individual savings accounts is that each person decides how his money will be invested and, with the advent of the Internet, he can then monitor those investments at any time and easily make changes to react to changing investment news. Individual savings accounts are transparency in practice.

The benefits of such reform extend beyond the individual retirement accounts of U.S. citizens (although that would be reason enough for reform) -- they also accrue to the economy. As noted above, national savings will increase, as will participation in the labor force, both to the benefit of society. On the first point, more private assets means there will be more capital, which will have a positive impact on wages, which benefits the working people, especially the young. More capital also means that the economy will have more productive assets, which also contributes to more production.

Regarding labor supply, any system that taxes people when they are young and gives it back when they are old will have a negative impact on labor supply. People will simply work less. Put another way: If people are in control of their own savings, and if their retirement is funded by savings rather than transfers, they will work more. And everyone is better off. These are the type of win-win situations that politicians and policy makers should be falling over themselves to accomplish.

Emphasis mine. I find this far more convincing than Daniel Altman's fears.