A Deficit of Detail

AT HIS NEWS conference yesterday, President Bush restated his reasons for wanting to reform Social Security. His starting principles are admirable: He assures people at or near retirement that their pensions won't be cut, and he rightly insists that Social Security is projected to go bust and that the best way to minimize the cost of a solution is to respond early. This call to action puts Mr. Bush ahead of many congressional Democrats, who cling to the irresponsible view that little or no Social Security reform is necessary and that all future benefits are untouchable. But the president has yet to build a case for the type of solution he appears to want. He seems determined to stay above the detail and to limit himself to vague statements of principle. Details, however, can make the difference between desirable reform and the sort that compounds the problem.

Some of what Mr. Bush does say is not reassuring. He claims, for example, that private Social Security accounts would equip citizens with nest eggs that could be passed on to their children. But this would probably be true for people who died before they retired. Most workers living long enough to retire would convert their savings into annuities -- contracts that guarantee a monthly payment until death -- because otherwise they would risk outliving their capital. There wouldn't be much scope for buying an annuity while also setting savings aside to bequeath to children, because private accounts would not accumulate vast wealth. By one estimate, an average worker who diverted 2 percentage points of payroll tax into a private account between the ages of 21 and 65 might end up with $100,000 in savings, enough to buy an annuity worth just $500 per month.

Equally worrisome, Mr. Bush said yesterday that the creation of private accounts would boost national savings. But this would depend on how the accounts are structured; without the detail that Mr. Bush has yet to provide, it's hard to have faith in his assertion. The essence of privatization is that part of the payroll tax gets shifted into private accounts, a change that's savings-neutral. If this shift is supplemented with a requirement that workers save, say, an extra 1 percent of salary as a supplement to the payroll tax diversion, then savings go up (at the expense of current consumption). Or if a payroll tax diversion of, say, two percentage points is coupled with a cut in future benefits equivalent to, say, three percentage points, government savings rise (at the expense of retiree benefits). But the politically likely outcome is that Congress will want to sell private accounts by subsidizing them. In that case reform would actually reduce national savings.

For a cautionary tale of how this debate could go, consider last year's Medicare legislation. Mr. Bush started out with a reasonable premise in that case, too: He wanted to add a prescription drug benefit to the program, and at the same time to introduce cost-saving competition. By the time the legislation was completed, its competitive provisions were modest and its cost had soared. Worryingly, Mr. Bush does not appear to have absorbed this lesson. In an aside yesterday, he cited Medicare as a success -- as though enacting reform, any reform, were something to be proud of.