The president's second term will begin today, probably with a flurry of the usual flattery, such as: "My fellow Americans, America is wonderful because you, the people, are wonderful -- the way you wear your hats, the way you sip your tea." But his term also begins with Republicans evidently thinking people must be frightened into accepting sensible Social Security reform, and Democrats invoking chimeric "risks" to frighten people away from a reform that enlarges freedom by reducing the degree to which people are wards of government.
The president says Social Security should be reformed because it is in "crisis." That is an exaggeration. Democrats say it should not be reformed because there is no crisis. That is a non sequitur. Social Security should be reformed not because there is a crisis but because there is an opportunity.
What constitutes a crisis is a matter of opinion, and everyone is entitled to his or her own. But not to his or her own facts. Here are some:
Social Security outlays may exceed revenue by 2018 -- that date almost certainly will recede further into the future, as it has before, as the economy outperforms expectations. After that, the government bonds that Social Security surpluses have bought (money used to fund the government) will be entirely redeemed, as the Social Security Administration calculates, by 2042. Or 2052, according to the Congressional Budget Office, using different assumptions about the rate of economic growth. That depends partly on the rate of productivity growth: Might a growth rate unusually high by historical standards become normal? Immigration rates will affect the ratio of workers to retirees.
Some people warning of a distant Social Security crisis postulate 75 years of 1.8 percent annual growth. But if America has 75 such sluggish years, Social Security's insolvency will hardly be the nation's largest problem -- and personal retirement accounts will reflect, not compensate for, the stagnation.
Changes in life expectancy are certain; what they will be is unclear. Since 1900, life expectancy at birth has increased 30 years (from 47 to 77), mostly during the century's first half, largely from reducing infant mortality by conquering infectious diseases. But since 1950, the most dramatic gain has been in life expectancy at 65. How much more progress can be made there? How many people who live longer will choose to work longer? What unknowable public health developments will intervene? For example, if government succeeds in getting dramatic declines in smoking, some anticipated Social Security savings -- from the early deaths of millions of smokers -- will vanish.
All these are just the known unknowns; there surely are, as Donald Rumsfeld says, unknown unknowns. Which means that today we may be less distant from the enactment of Social Security (1935) than we are from a real solvency crisis in the system.
If Social Security is in crisis, what word can describe the condition of Medicare and Medicaid? Thirteen months ago this administration improvidently enacted a Medicare prescription drug entitlement that by itself adds to Medicare's solvency crisis a sum much larger than the entire Social Security system's shortfall. Given the life-enhancing dynamism of modern pharmacology, no one knows what the menu of prescription drugs will be in even 10 years.
And last year America passed an ominous milestone: Spending by the 50 states on Medicaid exceeded spending by the states on elementary and secondary education. The $4.9 billion gap will widen.
One reason for reforming Social Security is that it is not in crisis compared with Medicare and Medicaid. But the best reasons rise from the philosophy of freedom:
Voluntary personal accounts will allow competing fund managers, rather than a government monopoly on income transfers from workers to retirees, to allocate a large pool of money. This will enhance the economic dynamism conducive to an open society. Personal accounts will respect individuals' autonomy and competence and will narrow the wealth gap by facilitating the accumulation of wealth -- bequeathable wealth -- by people of modest incomes.
It used to be the political left that had an exaggerated confidence in the transparency of the future. The left believed -- because Marx had deciphered history's unfolding, or because the social sciences had new analytic tools -- that the future had become knowable. Hence government could boldly act, sure of society's predictable trajectory. Today some conservatives, beginning their admirable project of Social Security reform, lack the conservative virtue of sobriety about the limits of prophecy. The sober truth is that the philosophic reasons for reforming Social Security are more compelling than the fiscal reasons.