Is Privatization Good Public Policy?

Article excerpt

As Social Security edges toward insolvency and Election Day looms, Republicans -- and, to some extent, Democrats -- are offering reform measures with private components.

It was the dead of winter and the president was standing before Congress and the American people to deliver his State of the Union address. As Social Security privatization wonks, frustrated at the snail's pace with which legislators were acknowledging the endangered system, watched with nail-biting interest, Clinton unleashed a national debate: He called for hearings and a major White House meeting in December to culminate in a January 1999 plan to reform and resolve the Social Security mess.

But wait, there is a political campaign this autumn, a time when Democrats ritually fire their Social Security guns at Republicans on the campaign trail. The president has taken the high road and elevated concern about the beleaguered system above partisan politics. Or has he? "He is being totally consistent with what he originally said" Bill Beach, an economics fellow at the conservative Heritage Foundation, says of Clinton. "He has not used it for political purposes. His spin doctors have not spun it against the Republicans. I believe he sees in Social Security reform a legacy that is more than a footnote in the history books, but more like a major paragraph or two."

Since the president's speech, a series of resolutions urging Congress to pass an amendment to the Social Security Act allowing states to opt out of the system has been attracting attention in state legislatures. It already has passed in Oregon and Colorado.

"I think it will be a good move" an eager Rep. Major Owens, a New York Democrat, tells Insight. "Senator [Trent] Lott gave us [states] welfare to handle. He should take a look at this and block-grant it to the states"

Darcy Ann Olsen, an entitlements-policy analyst for the libertarian Cato Institute in Washington, says that the movement in the states is symbolic. "It is one more way of telling Washington to listen to what is going on in the trenches. Listen to us tell you that we want more control over our retirement. We want to retire with some dignity."

Critics argue that this state-by-state strategy complements a conservative plan that calls for Social Security privatization to allow workers to own their retirement accounts.

The 105th Congress has thrown down the gauntlet, raising the issue in eight bills m all but one of them Republican initiatives. In fact, it may have been publishing executive Steve Forbes who, during his 1996 bid for the GOP presidential nomination, planted the seed that is now germinating. In a Dec. 8, 1997, interview with Insight, Forbes explained that "the way Washington keeps its books, you've got an increase of about $100 billion to $125 billion a year in the national debt that is not reflected in the national deficit because they raid the Social Security trust fund and other trust funds"

Hence the well-received presidential effort to use any federal budget surplus to fund the Social Security deficit instead of giving tax cuts. This politically charged issue is sparking debate because the Social Security program is in dire need of reform as the baby boomers age, promising to break the bank. Heritage puts the cost of keeping the current system at $19 trillion. American Association of Retired Persons, or AARP, spokeswoman Evelyn Morton says the AARP recognizes that modifications are necessary for the long term, but she warns against scaremongering, claiming that for now Social Security is in "good, solid shape."

The excitement results from the fact that such a conversation is taking place, since last year no one was talking about the crisis and need for reform, says Olsen. The question, she says, is how far privatization can and should be taken. Right now, 12 percent of the wages of American workers are siphoned off to pay for Social Security benefits for the current retirees in the 63-year-old pay-as-you-go system. …