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Friday, March 25, 2005

Social Security, Moral Right and Experimental Economics
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Robert Samuelson has a typically insightful column on the language of social security. Samuelson notes that by not calling social security and medicare what they are, welfare programs that are transfers from the employed to the retired, we cannot proceed to discuss reforming them honestly. In part, this is because the recipients believe they have a moral right to the transfer payments premised on earlier payment of taxes, notwithstanding that those taxes do not even begin to cover the net benefits being received.
His conclusions are backed by experimental economists

Samuelson's discussion of social security word choice is confirmed by the findings of experimental economics. Specifically, Matt Spitzer and Elizabeth Hoffman began a strain of research that showing the distributional effects when a party to a two party game "deserves" the right being bargained over. In short, the party who believes he possesses a moral rights, bargains harder for a greater distribution of the rents -- and gets it, particularly if the other party believes it too. A google search turns up later experiments about the effects of a party's belief in being entitled to a right here.

In a nutshell, this behavior sums up the difficulty of reforming social security because the recipients believe that it is their desert, and not a welfare payment. And woe be to any politician who tries -- like Samuelson does -- to explain that social security is a welfare program. At the same time, reform will be difficult until the players in this "game" realize there is no moral right to this welfare payment.

Similar dynamics, or instances of mass self-deception, surround welfare programs in communications. We call it universal service, but it is plainly a welfare program. Further, the sense of moral right to receive this welfare resides strongly among rural telecommunications carriers. (Indeed, there is some moral right insofar as these companies were formerly induced to serve with an explicit promise of cost recovery through these welfare programs.)

posted by Ray Gifford @ 12:17 PM | Economics , Universal Service

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