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Sebastian Mallaby, Columnist

The Missing Proposal

By Sebastian Mallaby
Monday, March 14, 2005; Page A19

Last year Democrats impaled themselves on the Iraq war. They were so anxious to denounce the invasion that they failed to acknowledge the most basic point of all: that, having waded into Iraq, the United States could not leave prematurely. By attacking the Bush policy relentlessly, Democrats sounded negative. By refusing to say clearly that they would finish the Iraq job, they sounded irresponsible.

Now Democrats risk making the same mistake on Social Security. They are so anxious to denounce private accounts that they fail to acknowledge the most basic point: Social Security has a serious deficit. The Post reported Friday that nearly every Democratic senator refuses even to contemplate the Bush proposals. But the Democrats have no proposal of their own. They sound negative and irresponsible.

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Clueless On the World Bank (The Washington Post, Mar 7, 2005)
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_____Special Report_____
Social Security

This is a mistake, first, because it's bad for the country. Social Security's deficit does need to be fixed, and the fix will be harder if we miss the current opportunity. Whatever one thinks of President Bush's personal accounts, he's out there touring the country, trying to open people's minds to the necessity of reform; meanwhile, Republican members of Congress are sticking their necks out with detailed overhaul proposals. If this moment is squandered, it may be years before any politician musters the courage to tackle Social Security.

Those are years we can't afford. As the debate illustrates, reform is salable only if it exempts people near retirement. The oldest baby boomers, those born in 1946, are already almost 60. With each year that passes, the cohort of politically inviolable near-retirees expands sharply -- meaning that the burden of remedial tax hikes and benefit cuts on younger workers will have to be that much heavier.

So Democrats must ask themselves a question. They hope to ride the Republican "attack" on Social Security to victory in the midterm elections, but what if this scheme backfires? What if they get painted as dishonest hacks, who cynically lied to the electorate about the urgency of reform and who thereby condemned citizens to nastier reforms later?

That's the tactical issue, but there's a strategic one also. Over the next couple of decades, entitlement costs will drive government spending upward, leaving precious little room to pursue other progressive objectives. If Democrats want to spend money on the environment, inner-city schooling, or safety nets that cushion the effects of globalization, they had better start thinking about how to control entitlements, or there'll be no money left over.

The Democrats' stock answer to this point is that they will repeal the Bush tax cuts. The cuts are indeed unaffordable and appalling: Their cost over the next 75 years comes to about $11 trillion, or three times the Social Security shortfall. But the coming baby-bust budget crisis is bigger than $11 trillion. There was an entitlement problem before Bush took office, and there would still be one if his tax cuts were eliminated.

So the Democrats face a strategic choice, and the current Social Security debate is just an early taste of it. They can become the party that says no to entitlement reform, in which case they will have to fight that battle over and over again, and in the end the mathematics of the budget will make their fight futile. Call that the ostrich option. Alternatively, Democrats can become the party that seeks to reform entitlements in a way that protects the poor, in which case they may carve out some space in the budget for other enlightened programs. That is the progressive option.

A progressive Democratic Party would introduce its own Social Security reform bill. It could be based on the package designed by Gene Sperling -- a mix of benefit cuts, tax hikes, and add-on personal savings accounts targeted at poor and middle-income workers. The progressives could point out that their plan fixes not only the Social Security deficit but also the national savings deficit, since add-on personal accounts involve extra contributions from workers and extra tax collection by the government.

But progressive Democrats should also admit the truth about Republican proposals: They're a heck of a lot better than leaving Social Security's deficit to get worse. Sen. Lindsey Graham, a Republican, is talking about reasonable benefit cuts coupled with extra taxation and modest personal accounts. This is not a plan to burn FDR in effigy. After all, well-designed personal accounts benefit poor Americans, not the rich. The rich already own stocks, and having a new way of holding shares should logically lead them to switch other savings out of equities and into bonds, so that their overall risk profile stays constant. It is the bottom half of households that stand to gain from the opportunity (not the obligation) to own equities as part of their retirement savings. Democrats who say that any personal accounts are a first step to dismantling the system should recall their own fury at equivalent Republican claims -- that Hillarycare, for example, promised "socialized medicine."

Progressives may prefer Sperling-style add-on accounts, as I do. But a party whose senators unanimously refuse to contemplate carve-out accounts is a party that's closed its collective mind. And a party that refuses to acknowledge the urgency of entitlement reform is a party of ostriches.

After I attacked the administration last week, many readers demanded to know whom I would want for World Bank president. Proven public-sector leaders who understand finance and development are hard to come by -- there's Bob Rubin, hardly a likely pick for the Bush administration. But the field gets wider if you consider non-Americans. Kemal Dervis, a World Bank vice president who went on to be Turkey's finance minister, is my favorite. Dervis is a charismatic, pro-Western Muslim economist who helped the United States by leading the reconstruction of Bosnia.


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