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Social Security

Needed: A New System

By William Raspberry
Friday, August 14, 1998; Page A25

What, I asked in a recent column, is the population issue we are supposed to be worrying about? Is it the graying of much of the Western world, with the resulting loss of economic vibrancy, that should concern us? Or should the youthfulness of a place like Turkey, where nearly a third of the people are 15 or younger, set us worrying about an economically disastrous population explosion down the road?

Is it better to have an older population, or a younger one?

Roy Kienitz offers this helpful answer: No.

It is his way of suggesting that I'm not getting the right answers because I've been asking the wrong questions.

"It seems to me that neither a 'young' nor an 'old' society is inherently preferable," he told me when we talked the other day. "Turkey's youth gives it the potential for economic vibrancy, but its demographics will ultimately have less effect on whether it achieves this potential than a host of other factors."

And then Kienitz launched into a fascinating discussion of Social Security.

Never mind that his usual topics (as executive director of the environmentalist-oriented Surface Transportation Policy Project) involve such questions as the optimum mix of mass transit and highways, or how to find the balance between green space and new development. Never mind that he is, for heaven's sake, 35 years old.

The problem, he says, is not to figure out which population trend is better -- whether, for instance, Germany is moving from a "better" age profile to a "worse" one -- but how to shape programs and policies to the populations we have.

"Our old-age pension system is very well-designed -- for the population that existed 60 years ago when it was developed. With more than 40 workers paying in for every beneficiary, it was perfectly reasonable to tax current workers to pay the pensions of current retirees. It amounted to a small burden on a large population.

"But now with the population having changed dramatically (the number of workers per retiree has been dropping steadily to the present ratio of 3.4 per beneficiary, with projections of still further declines), we need once again to find a broad base on which to place the burden."

The logical place? On the shoulders of the workers themselves -- each active worker funding his or her own future retirement.

As is by now widely understood, that isn't the way it works today. Under the present system, the Social Security taxes of current workers pay the benefits of current retirees. The worry is over what happens when the ratio of retirees to workers becomes too large.

"Obviously we need another system to replace the intergenerational transfer we now have," says Kienitz, who got interested in such questions when he was a member of Pat Moynihan's Senate staff. "And in fact, we've been gradually creating that new system -- the growth of the 401(k) plans being the prime example.

"The real problem isn't to figure out what kind of system is best for the population we now have, or the population we're going to have in the years ahead. The problem is the transition from the old to the new."

People now in their forties and fifties understand quite clearly that they need to save money from their current income for their own retirement, he notes. Unfortunately, they also are taxed out of that same current income for people already retired.

"We keep having these debates over how to save Social Security -- people nearing retirement age are justifiably concerned about that -- when what we really should be discussing is how to make the transition to a more appropriate system," Kienitz says. "For me, this means we should make sure to ease the transition for people caught in the middle, but we shouldn't try to hold off changes that are inevitable.

"But first we need to understand the fundamental problem with Social Security, and that is the question of trying to extend social arrangements designed for a young society to run an old one."

© Copyright 1998 The Washington Post Company

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