Social Insecurity
Over the weekend, I have been reading up on the Social Security debate, trying to see if there’s some “compromise position” I could accept as a tactical solution to heading off the President’s effort to “fix” America’s most successful government program in the same way that he’s “fixed” Iraq. The best proposal I could think of is to pass the (sizable) conversion costs from public to private accounts along to each recipient who opts in to the privatization plan, either as an up-front cost or as a garnishment off future benefits. This would go far to mitigate the very worst part of Bush’s plan, which is the $2-3 trillion it is expected to cost to set up and manage the private accounts – a cost Bush blithely plans to pass along to future generations as increased debt. It would also effectively discourage many on the margins from participating in the privatization plan, while leaving the option available to sophisticated and risk-oriented citizens.
The pitch is simple: if you think you can beat the returns on SS, go ahead and try, but don’t expect the public to subsidize you. This appeals to the libertarian base of reform supporters while satisfying the concerns of those who worry (rightly) about the millions of Americans who, through bad judgment, bad luck or bad timing, will wind up far worse off under privatization than under a fixed-benefit system. By making the management costs explicit to the individual, it also creates a constituency to ensure the accounts are managed cost-effectively, rather than just encouraging Wall Street to run hog wild on the public’s dime.
The problem with this compromise is that it fundamentally accepts the position of the anti-Social Security forces, which is that the goal of the system is to maximize returns and encourage equity ownership. Both of these are laudable goals, incidentally. I invest heavily in my own retirement account for these reasons, and hope others who can afford to do the same. However, I’m not in favor of writing my own personal propensity for savings into the law.
Social Security is not a mandatory savings plan, it’s not something you build equity in. It’s a benefit – your entitlement as an American worker who has contributed your labor and tax dollars to the system throughout your productive life – to receive a permanent, guaranteed pension for yourself and a survivor. It’s part of the compact between the workers of this country, their employers, taxpayer and the government. It should not fluctuate on the whims of the market, it should not be at risk due to factors beyond (or even within) the control of the beneficiaries.
Recipients are entitled to the benefit, the government is obliged to make the payment. It’s the job of policymakers and politicians to ensure that the money is there, either by building a trust fund, ensuring incoming contributions equal outflows, or by borrowing from the general fund. Period, end of story.
Life is full of risks and uncertainties. Through the ingenuity of an earlier generation who took the long view on American greatness and prosperity, we were able to eliminate one of the most worrisome: what becomes of the worker too old to effectively contribute to the economy? Trying to “improve” on that concept by forcing risk back onto the beneficiary is not progress, no matter how reasonable the proposal.
Far better in my view is the idea of keeping the benefit fixed, but allowing the Social Security trustees to invest a portion of the trust fund in market index shares. This enables the fund to grow by taking advantage of the equity premium of the markets (while maintaining a core set of low-risk assets), without incurring anything near the astronomical management costs of setting up individual accounts. A certain percentage of benefits could be indexed to overall growth, allowing recipients to take advantage of strong growth but not pay the penalty for poor performance.
Social Security is one of the proudest accomplishments of American liberalism. We own this program, and no one has a greater stake in its success than we do. There is no reason that conservatives hostile to the entire concept of a government-managed pension fund for ideological reasons should be leading this debate, when the vast majority of Americans prefer the certainties of the current system (even if they wish it could offer a better benefit at lower public cost). Proposals with privatization at the center are destructive to social security as well as Social Security – and not by accident. In our zeal to recapture the momentum in this debate, we shouldn’t forget that core principle.
11:45:20 AM 
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