Saturday, March 14, 1998

Taking scare tactics out of the Social Security debate

By BERNARD STARR / For Scripps Howard News Service

The "Great Debate" about what to do with Social Security is going on the road with President Clinton kicking off town hall meetings and forums across America in April. But despite extensive discussion of the crisis and excruciating examination of alternatives over the past few years, Congress seems paralyzed in its inability to act.

The current pay-as-you go system of active workers supporting retirees is heading toward red ink. No one disagrees with that. When the red ink will begin to appear is somewhat arguable, but most economists target 2013 as the turning point. Others say it could be sooner depending on life span extension, and economic factors -- both matters of guesswork.

Those who want to change the present Social Security system that has served the elderly so well for more than half a century insist it will not work anymore. They argue it's all a matter of simple arithmetic. A system initiated with more than 40 workers for each retiree will self-destruct with the current less than four workers and eventually less than two workers paying retirement benefits to a huge army of retirees with ever increasing, perhaps indeterminate, life spans.

To maintain the present system, the active workers would have to pay more to keep benefits at the present level, or the benefits would have to be cut back. A third possibility would be to raise the age for collecting benefits (already increased to 66 for those born between 1943-1954, and 67 for those born after 1960).

And of course you could have a mix of the three -- raise taxes, cut benefits and raise the age.

Others see a solution by investing the Social Security taxes in securities -- stocks, bonds, mutual funds, etc., or a combination of investing and the present system. Each person would have an individual investment account (much like a 401K) with the presumably growing value of these securities for use at retirement. Advocates of this approach say had this been done all along, the present Social Security Trust Fund would be many fold richer and viable well into the next century.

The Cato Institute, a group favoring privatization of Social Security, has produced computer generated tables going back to the beginnings of Social Security showing that whichever way you cut it with different mixes of securities, investing the Social Security funds in stocks and other financial instruments would have produced two to four times better results than investing solely in U.S Treasuries -- the current restriction on investment of the Trust Fund.

Alarmed at the prospect of tampering with the present system, opponents shout: "But what if the stock market crashes?" Investments, they point out, go up and they go down, and if they keep going down you can loose everything, forcing many elderly into poverty stricken old age -- the very possibility FDR wanted to prevent with the Social Security Act of 1935.

In response to the proposal to invest Social Security taxes in retirement accounts, supporters of the traditional system cite what they perceive as a "guarantee," as has been voiced by Horace Deets, executive director of AARP: "Do we want our children's and grandchildren's futures to be built on the firm foundation that Social Security provides, or do we want to pull it out from under them, reducing their income insurance and forcing them to invest with no guarantees?"

This pitting of total disaster against total security is a serious psychological barrier to reform that is injecting intense emotions into the Social Security debate, emotions that feed the political "third rail" mentality -- touch Social Security and you die. No wonder politicians will not act. The extreme dichotomy of collapse (investments) versus salvation (the present "guaranteed" system) needs to be carefully examined.

Let's play out the disaster scenario.

The stock market crashes -- worse than 1929. General Motors declares bankruptcy. Intel and IBM fold. Microsoft goes out of the technology business, and Bill Gates, clever fellow that he is, invests his remaining fortune in apple orchids in preparation for the greatest depression ever.

With huge unemployment (25 percent were unemployed after the crash of 1929), where will the funds for the pay-as you-go Social Security benefits come from? Remember, pay as you go also means: No pay, no go. Where is the "guarantee" now?

If we could banish the term "guaranteed' from the Social Security debate, we might find it possible to rationally weigh the facts without paralyzing emotions. It might then be possible to choose the best solution given what we know about the new global economics, demographic changes, increased life expectancy, and the likelihood that science will make significant breakthroughs in the genetic aging code, possibly extending life to levels previous thought to be science fiction.

Lets face it, does anyone really believe in guarantees? So now let's talk.

Bernard Starr, Ph.D. is a psychologist/gerontologist.