Obama's Economy Deserves Much Rebuke, But Not His MyRA
President Obama has proposed almost nothing that Republicans agree with in his five years as president. Yet, for all their opposition (mostly deserved) of his policies, Republicans should seize the chance to support his proposed MyRA saving accounts. These government-administered, individual accounts promote personal responsibility, will increase the national savings rate, and involve no government subsidies. This set of results sounds like something the Republicans should have proposed; even though they didn't, this is their chance to be bipartisan and agree with the President on something.
Briefly, MyRA accounts will be individual savings accounts held by the government in what is similar to a savings bond. Deposits will hopefully be possible by payroll deduction (this will take an act of Congress) and would earn interest according to a blended rate on government debt of different maturities. A similar fund that already exists for federal government employees (the G Fund) currently pays about 1.4 percent interest. The accounts would be free-no fees-and if a balance of $15,000 is reached, the account holder would have to migrate their account to a private-sector financial firm.
One of the best features of the MyRA accounts is that they are individual. Although the government will hold the money (meaning it will be spent to help cover the deficit), people will be able to see their balance and they will know that Congress cannot suddenly take away their money as easily as they can cut Social Security or other entitlements.
The accounts also show people that what you save is what you get. In this sense, the MyRA teaches personal responsibility rather than reliance on government. Since Republicans are supposed to be the party of personal responsibility, this is a strong reason to support such savings accounts.
The MyRA accounts will increase the national savings rate. Because the U.S. is way below the optimal savings rate, any increase in the amount we save means we will be richer in the long-run as the greater savings allows us to build a larger capital stock. The extra capital makes workers more productive and leads to higher earnings down the road (Robert Solow won a Noble Prize partly for working this out).
Most government policies seek to boost consumption because you can get a quick burst of economic growth. Politicians tend to think short-term since the next election is always right around the corner. Yet increased savings leads to increased investment which boosts GDP by just as much now, but means higher GDP in the future. When a politician does something as surprising as thinking about what is best in the long-run for the country, everyone who cares about the country should embrace it.
If the MyRA accounts prove to be a big success, they could even serve as a foot-in-the-door toward privatizing Social Security. After all, people might start to like the idea of keeping an eye on their own money and tracking the progress they are making toward a secure financial future. Showing the government can handle individual accounts would be a great example in the coming debate on the future of Social Security.
The only real downside to the MyRA account is the nagging suspicion that once the accounts are in operation, Democrats will suggest subsidies for the accounts of people who earn under some set amount, weakening the whole personal responsibility angle for the accounts. The likely proposal (since it has been made before) will be for the government to match the first $500 or $1,000 each year that a person saves. Republicans should strive to insert some mechanism in any MyRA legislation that permanently blocks such a taxpayer-funded match. Such a prohibition on future actions is difficult to impossible to achieve, so this is a real danger. However, the good outweighs the bad on this proposal by a wide margin, so Republicans just need to be wary against this turning into another income redistribution scheme.
President Obama's MyRA proposal has the laudable goals of encouraging savings and promoting personal responsibility. These goals are things that Republicans usually promote, so they should get on board and move quickly on legislation to make these accounts real and easily accessible to everyone. Republicans could dispel the myth that they oppose President Obama on everything by supporting him when presented the opportunity. For once, let's see if politicians can think about the long-term health of the country rather than their next election.