Jay Ackyroyd at Eschaton flagged this interesting Matt Yglesias piece about the rationale of Social Security haters.  It's worth a read.  Here's the money bit, as Ackyroyd quoted:

"You've got this big scheme to levy taxes on working people who are participating in The Economy and transfer money to people who've dropped out of The Economy. They take that money and use it to pay the electricity bill and buy a cookie for their grandkids. If they didn't get that money, they'd probably have to work longer and spend more years being part of The Economy. And they'd have to spend their working years being thriftier, and amassing more savings that (via the magic of the financial system) finance private sector investments in The Economy. So not only would lower taxes on The Economy spur more growth, but the mere fact of not sending your grandma those checks is good for The Economy. The Economy thrives on incentives (if you work, we'll give you money) and desperation (if you want money, you have to work) and Social Security is a double-wammy, reducing the incentives of workers and reducing the desperation of the elderly."

Yglesias is being descriptive, not prescriptive, but he basically agrees with this economic formulation.  It's just that, when making policy, Yglesias takes more than just the demands of "the Economy" (his satirical capitalization) into account.  I'd bicker, though with some of the economic reasoning here, though I don't dispute that influential people think exactly as Yglesias describes.

First, most people don't view Social Security as a scheme of, "taxing working people and giving money to retired people."  If it were that, then there wouldn't be a surplus in Social Security's account.  Social Security is more like a group pension.  Everybody pays in, everybody gets paid out.  If you want, you can imagine that the money you pay today is being taken away by your retired parents or grandparents.  Or, you can think of it as an investment in your own future and the future of other workers in and around your generation.

If you think of it as a giant transfer payment, you're bound to hate the whole scheme, especially if you're Millennial, Gen Y or Gen X -- smaller generations who shoulder the bills and won't get the rewards.

If you think of it as an investment in yourself and your peers, though, you have another mission -- force the government to pay back the money raided from Social Security's coffers and stop the government from going back to the till again to pay for more great foreign adventures.  How you view it is kind of up to you. I can see arguments both ways though, as I said, the existence of a surplus definitely suggests something more like a pension than a transfer payment.  Make the government a better steward of that pension and you can be more comfortable with the latter formulation.

My other quibble is with the notion that retirees are people who have "dropped out of the Economy."  This implies that only workers participate in the Economy.  This forgets that consumption is a vital part of the Economy.  Without consumption, without demand, most of what goes on in the economy is just empty wheel spinning.

Matt writes that without Social Security, people would have to save more (true, see China.)  Those savings he says, would form the basis of bank capital that could be productively invested (also true, in the abstract).  But, two problems: 1) increased savings, especially in conservative investments like bank accounts and real estate are contractionary in the short run and 2) banks are not hurting for capital, they are hurting for viable lending opportunities due to depressed aggregate demand.  There's a good chance that, in the current economy, ending Social Security and forcing people to be more frugal would tip us right back into a recession.  It certainly wouldn't encourage banks to finance new business ventures because if the demand for that doesn't exist now, it will certainly not exist if we have a 10% plus average savings rate.

Finally, without Social Security's guaranteed annuity, there will be more senior level poverty and near-poverty in the future.  Some people will not be able to save what they must.  Some will try but will lose some money to bad or even fraudulent investments.  Some people will not be financially ready to retire but will also not be welcome at work.

One thing that the Great Recession should have taught us is that it is extremely expensive to run a country full of poor, near poor and struggling people.  Unless we are prepared to adopt the coldest Darwinian attitudes, we will have to pay for government programs to take care of these people.  That's one reason why deficits doubled after the Financial Crisis.  So how is that good for the economy, long-term?