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Private-Account Concept Grew From Obscure Roots

By Jeffrey H. Birnbaum
Washington Post Staff Writer
Tuesday, February 22, 2005; Page A01

Twenty-five years ago, Peter J. Ferrara was a Harvard Law School student with what he called "the craziest idea in the world." In a paper he wrote before graduating, he suggested converting the government-run Social Security program into a web of private investments.

The paper caught the eye of Edward H. Crane, a former head of the Libertarian Party who had recently started the Cato Institute, which has a stated mission of encouraging "limited government." To him, Ferrara's idea wasn't crazy at all, but a way to challenge Washington's largest and most revered social program.

Peter Ferrera began writing about personal accounts 25 years ago. (Susan Biddle -- The Washington Post)

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Social Security

With Crane's backing, the proposal by the 24-year-old Ferrara began an improbable journey from the fringes of public policy into the mainstream. Today, far from its origins in the political wilderness, the notion of creating Social Security personal accounts is at the top of President Bush's domestic agenda and stands to spark the year's biggest legislative battle.

None of this would have happened without the persistence of conservative operatives, the explosive growth of the stock market in the 1990s and the eventual adoption of the idea by big business.

The story is peopled with quirky characters such as Ferrara, a brilliant and notoriously unkempt wonk, and Crane, one of the prickliest critics of Washington's bureaucracy. It also has its irony: After years of struggle in obscurity, the free-marketers are now at war with themselves. Crane, Ferrara and the business interests that have become the effort's primary financial supporters are at each other's throats over how to structure and promote the accounts.

"Ed Crane and I don't talk anymore," Ferrara said. "Cato wants to get rid of the entire Social Security system, and I don't."

Cato's privatization effort was aimed from the start not just at dismantling Social Security but also at making major inroads against what it considered an overweening central government. "Social Security," said David Boaz, Cato's executive vice president, "is the linchpin of the welfare state."

To Cato critics like the Brookings Institution's Henry J. Aaron, Cato's goal was to "topple the great monument of 20th-century liberalism."

With its roots so radical, few official Washingtonians paid Cato much heed at first. Crane, after all, was preparing to manage the also-ran campaign of Libertarian Party presidential candidate Ed Clarke, and Ferrara was just another third-year law student about to join a white-shoe Manhattan law firm.

But Crane saw promise in Ferrara's analysis and encouraged him to expand it. In his paper, Ferrara predicted that Social Security eventually would run short of cash, requiring a serious revamping. Crane paid Ferrara $5,000 to elaborate his thesis into what would become Cato's first hardcover book -- "Social Security: The Inherent Contradiction."

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