Wednesday, December 16, 1998

Social Security

Clinton makes move toward privatization

President Clinton has made a historic decision, one that should give his future biographers something to contemplate besides Monica Lewinsky and impeachment.

In a move that should not only save Social Security but eventually give Americans of all income levels an opportunity to accumulate wealth, he has agreed to partial privatization of the system.

It wasn’t that long ago that proponents of individual retirement accounts as part of Social Security were mainly greeted with guffaws. They had something going for them, though, namely that their arguments made extraordinary practical sense.

Investing portions of payroll tax contributions to the system would earn returns far greater than what people get back under the present system and would sustain the program over the long haul, whereas other options would be more painful and probably need repeated re-fixing.

But what about the transition costs of going to this new system? Well, they exist, but are no greater than other means of trying to salvage a system that will begin running deficits in little more than a decade.

But aren't stocks and bonds risky? No, not over a career, and besides, all serious privatization proposals include a governmental safety net in case of prolonged market turmoil.

But won’t recipients have to become stock experts? No. The government under most plans would insist on choices being limited to balanced, reliable portfolios.

Vaguer argument

A final argument against privatization has been vaguer, something to the effect that it’s more communal, more "social," to tax workers to pay for the Social Security benefits of the retired than to convert to a system of less dependency on each other.

The argument overlooks the obvious fact that, for most of the program's existence, the fiction has been successfully propagated that workers were saving their own money in government accounts. At any rate, what matters is providing ample financial security for the elderly in a way society can afford, not attempting it in some inefficient fashion socialists adore.

There remains a chance the president will want the government to do the investing. That would be a huge mistake that, among other misfortunes, could tempt the government to manipulate the stock market for political ends. If the president avoids this pitfall, it seems a real possibility that the Republicans will join with him and other Democrats in reshaping one of the most popular and important social programs of 20th century America, and that could be this administration's crowning achievement — provided Clinton remains in office long enough to see it happen.