The public is understandably puzzled by President Bush's recent appointment of a 16-member Social Security commission, whose members favor some form of privatization of Social Security and who would also cut benefits for workers, except for those now retired or near retirement.
If privatization is adopted, the world's biggest 401(k)-type plan will come into being: Up to 156 million workers would have an amount equal to about 2 percent of their taxable pay go into individual investment accounts - perhaps $80 billion-plus annually.
The president is either unaware of, or remains undaunted by, the illogic of privatization and its potential for mischief. While the projected long-term Social Security deficit is cited as the reason for this radical change, the cost of the changeover will exceed the amount needed to pay off such a deficit, so why bother?
Also, one can reasonably anticipate that a host of problems will arise from having to manage the data for up to 156 million accounts, from the destabilizing effect on the securities market of the great sums that will be added to it, from the politics of dealing with market downturns, and from the opportunities for fraud. Mr. Bush, however, continues to press on. His zealousness raises the question of what motivates Social Security privatization and benefit cuts.
A most compelling motivating factor is clearly the huge sums of money coming regularly into the Social Security trust funds. Contributions now total about $500 billion a year and benefit disbursements about $400 billion. The US Treasury receives the moneys, pays the benefits, and invests the surplus. Not surprisingly, these are functions the mutual funds, insurers, banks, and stock brokerage firms would like to relieve the Treasury of - for a goodly price, of course.
Assuming 2 percent of workers' taxable pay goes into individual accounts, the financial community's gross income could be augmented by more than $100 billion in the next decade and escalate rapidly from there.
The financial community also has to be discomfited by the fact that the government is not only running the mammoth Social Security program, but it is doing so efficiently and at a cost far below what the private groups would charge. Moreover, many of the financial companies have made a big investment to promote privatization. They have paid more than $60 million to the political campaigns of the president and numerous members of Congress. They have also given a tidy sum to conservative think tanks to come up with and heavily publicize messages that I call "think bombs," which worry the public about the soundness of Social Security and which are largely untrue (e. …