Bryan Caplan has written a smart and convincing take on the perils of trying to reform Social Security and the public schools around what we might call “marketish” principles. After sketching out a scenario in which President Bush managed to privatize Social Security — actually privatize it, not introduce personal accounts — Caplan plausibly predicts that it would have resulted in a political disaster and a massive bailout that “would have made TARP look small.”

This scenario and others like it make me suspect that “constructive” free-market reforms like Social Security privatization, school choice, Medicare vouchers, etc. are largely a waste of libertarians’ political capital. They pose two great risks:
1. If anything goes wrong, the market will receive all the blame. The political backlash could easily lead to policies more statist than ever.
2. In practice, the government will never implement a transparent free-market reform. Even an idea as simple as “give people the freedom to invest their own payroll taxes in a private account” will quickly morph into a kilo-page Congressional boondoggle. This further increases the chance that something will go wrong. And when it does, the market will take all the heat.

Rather than advance ideas like Social Security reform, he calls for a focus on “austerity” policies, or cutting social budgets whenever possible. The result, Caplan argues, would entail heavier reliance on the market without the political downside:

Austerity has two major advantages over more “constructive” free-market reforms:
1. If anything goes wrong, public opinion is less likely to blame the market. Government decided to spend less on X; how is that the market’s fault? Logically, people could simply reframe their complaints. But psychologically, it’s easier to point fingers at markets directly sanctioned by government action than markets indirectly prompted by government inaction.
2. Congress is also less likely to use austerity as an excuse for new kilo-page legislation. Officially expanding market options takes “sweeteners.” Mere budget cutting, not so much.

This is a long-running debate. Many conservatives and libertarians oppose school vouchers on the ground that they will lead to stricter regulation of independent schools. Many instead back tax credits and other strategies that allow parents to spend more of their own money on alternatives to public schools without increasing the level of taxpayer scrutiny.

Something like the Caplan scenario is already happening in education. As households grow more affluent, we’ve seen an explosion of spending on for-profit tuition services like Kaplan and Kumon, services that promise to deliver results that the public schools can’t. We’d likely see more of this if education budgets were capped and eventually reduced. The goal would be for poor students to receive the lion’s share of public resources, while other students rely on a mix of public and private provision with a much heavier emphasis on the latter than is the case today.

Part of the problem with vouchers is that, as Rick Hess of AEI explains in his brilliant book Education Unbound, they don’t actually create a functioning marketplace by themselves. The model remains one in which a single educational provider is supposed to meet all educational needs, which makes specialization and the productivity leaps that derive from specialization very difficult to achieve.

In a similar vein, a better strategy for retirement security would involve making it easier to save, through opt-out retirement savings accounts or other tools. Scott Winship has a smart idea to this effect:

Retirement-savings benefits could be delivered in a similar way. The federal government would sponsor IRA-style plans, and existing IRAs and similar individual accounts would be rolled into them. Individuals could contribute to these new plans but would not be required to. Employers could match their employees’ contributions but would not be required to. They could also continue to sponsor their own retirement plans and match employee contributions to them. The federal government would provide its own match for contributions made by individuals in households earning under 200 percent of the poverty line. All income-tax refunds would automatically be placed in an individual account unless the taxpayer specified otherwise. Also by default, 3 percent of earnings would be transferred by his employer from each employee’s paycheck to an individual account, if the employee did not participate in an employer-sponsored plan or opt out of the default.

Notice, however, that Scott proposes a limited federal role. Caplan dismisses the partisans of “constructive” reform:

I understand why libertarians promote “constructive” free-market reforms. They sound better and feel nicer. Rhetorically speaking, a person can promote SS privatization and still be “pro-retiree,” or promote school choice and still be “pro-education.” The person who pushes for cuts in retirement and school budgets effectively forfeits these rhetorical options. But if you actually want to promote liberty, austerity seems like the option most likely to deliver it.

Yet I think it’s important to think seriously about the transition to private provision.