Give Adults the Money

The clever and brilliant (the two don't always go together) Charles Murray throws down a paradoxical challenge to America: use its flood of money to end the welfare state by giving money to Americans. His new book (In Our Hands: A Plan to Replace the Welfare State) comes out this week. A snapshot of his thinking was in last Sunday's WSJ. Murray has all sorts of ideas, like giving each American adult $10,000 a year. He says it'll ultimately save us money. Another idea:

Let's say that we have a 21-year-old man before us who, for whatever reasons, will be unable to accumulate his own retirement fund. We accumulate it for him through a yearly contribution for 45 years until he retires at age 66. We can afford to contribute $2,000 a year and invest it in an index-based stock fund. What is the least he can expect to have when he retires? We are ridiculously conservative, so we first identify the worst compound average growth rate, using constant dollars, for any 45-year period in the history of the stock market (4.3% from 1887-1932). We then assume our 21-year-old will be the unluckiest investor in American history and get just a 4.0% average return. At the end of the 45-year period, he will have about $253,000, with which he could purchase an annuity worth about $20,500 a year.

Murray admits that these cash substitutes for welfare have problems (one he doesn't mention, though, is that the $10,000 will probably become $30,000 within a few years, as voters vote themselves more money), but his premise is that the welfare system is broken. That's obvious. When everyone talks about "reform," what they're admitting is, "the thing is broken." They just don't want to be that blunt.

But Murray is. I look forward to seeing his ideas get tossed about. I doubt they'll get very far (some say it takes new, good thinking 40 years to get into the mainstream), but it's good to see Murray back in action.