Government is very good at crowding out private sector activities. When government borrows, it can cause interest rates to rise and crowd out more productive private sector borrowing. When government expands welfare programs to help the hungry and homeless, the effect is the crowding out of individual giving to more efficient private-sector programs. And decades ago, economist Martin Feldstein argued that the anticipation of Social Security benefits crowds out private saving.
Thus, it is no surprise then that millennials are getting an early start on retirement saving, according to USA Today. The reasons? First, they have watched their baby boomer parents struggle to prepare for retirement. Indeed, many of the boomer parents who are heavily mortgaged are finding themselves working longer than they originally planned. Second, this age group is not relying heavily on the solvency of Social Security. In fact, less than half of those surveyed plan on relying on public programs for retirement income.
For the majority of lawmakers in Congress who are politically indebted to the AARP, they should listen to this younger generation. If ever there is a time for Social Security reform, it is now. Why not start the transition of allowing young workers to invest some of their payroll taxes into personal accounts? It is no longer a “fringe” idea, and it gives me hope that the younger generation realistically understand the limits of government entitlements.