I'll let others debate whether there is such a crisis looming.
But as Paul Krugman of the New York Times has noted, the economic assumptions that lead to the prediction of a crisis would also portend a poor return on the privately invested portion. Conversely, as Krugman put it last week, "any growth projection that would permit the stock returns the privatizers need to make their schemes work would [through a windfall of payroll tax revenue] put Social Security solidly in the black."
If that's too complicated, try this: If the president is so thoroughly convinced that the market will outperform the Social Security trust fund (invested entirely in U.S. government bonds), why won't he propose that the Social Security Administration invest in the market rather than in government bonds? Wouldn't the bigger return guarantee the actuarial soundness of the system?
Ah, but if it didn't, the government would be stuck with making up the difference. It really is hard to let go that root.
Business leaders know it well. That's why corporations are phasing out defined-benefit pension plans, in which they guaranteed a certain pension based on wages and longevity and paid for it by investing company money in the stock market. If managers invested wisely, the company made money. If not, the company made up the difference.
Now virtually every company is into defined-contribution plans: They contribute a certain amount of money to an employee's 401(k) or similar account. The employees decide how to invest that money, along with their own contributions, but also assume all the risk if the investments go badly.
Is the president's privatization proposal, like corporate abandonment of defined-benefit plans, simply a device for shifting the risk away from the "company"? Or does he really think it would be a good thing for the workers?
He asked in his State of the Union message for ideas about how to fix Social Security. I offer instead this small test of faith: Let the president ask the Social Security Administration to sell those bonds now in its trust fund and invest the proceeds in the stock market. The increased rate of return should pump up the trust fund to the point where the system could avert the predicted crisis or, alternatively, underwrite the transition to a privatized system. In either case, employees would have their pensions guaranteed.
How about it, Mr. President? Will you let go that root?
willrasp@washpost.com
