COUNTDOWN TO REFORM: The Great Social Security Debate

By Chait, Jonathan | The Washington Monthly, April 1999 | Go to article overview

COUNTDOWN TO REFORM: The Great Social Security Debate


Chait, Jonathan, The Washington Monthly


Giving Away the Farm

Why privatization won't solve Social Security's problems

SOCIAL SECURITY'S CRITICS MAKE MUCH OF the program's age. It is a relic of the New Deal, designed during a depressed era when people died younger, and trusted the market less, than they do today. And if you really want to make Social Security look dated, you point out that its basic blueprint comes from Otto yon Bismark. The implication of these historical references is perfectly clear: If we could reconstruct our retirement system from scratch, would it really be the same as the Social Security designed for dusty-faced Okies and spiked-helmeted Prussians? Brookings scholars Henry Aaron and Robert Reischauer take up this conventional question, but their unconventional answer is, Yes, pretty much.

That might not sound like such a radical notion. But step back into the debate as it existed before they produced this logical, fair, and persuasive primer, and the apostasy of the book becomes clear. Everybody knows that, when the baby boom generation retires, Social Security will begin to face large deficits unless it is reformed. And everybody also knows that Social Security is the third rail of politics--an entitlement so popular that politicians dare not propose the reforms necessary for its survival. These things have been true for so long now that they have come to define the program entirely. When you think of Social Security, you do not think of a successful system of social insurance that has kept millions of people out of poverty. You think of a budget-gobbling entitlement program propped up by greedy geezers and feckless or demagogic politicians. Social Security--due, in large part, to the excesses of its own defenders--has become a bit tacky.

This intellectual evolution has given conservatives an opportunity. They have always detested Social Security, both for its collectivist nature and the political benefits it bestows upon the Democratic Party, but never had the guts to say so in public. Now Social Security's declining prestige, and the generally agreed-upon need to reform it, have allowed conservatives to say out loud what they have always thought in the comfort of their seminars and college newspapers: Social Security should be privatized, in whole or in part. What began as the hobby-horse of a few isolated rightwing intellectuals has become a clamor for private accounts from think tanks and members of Congress. The question of reforming Social Security has become a question of privatizing Social Security.

Now, you may detect an incongruity here. Social Security's ailments derive from the fact that, without changes, it will eventually pay out more in benefits than it collects in taxes. This is not a problem of philosophy, it is a problem of application--one that can be fixed with some tweaks. Privatization, though, is not a change in application, it is a change in philosophy. It is not away to solve Social Security's fiscal shortfall; rather, it is designed to convert it from a system of social insurance into a system of atomized personal accounts much like IRAs. This distinction is the key to reforming the program. There is a consensus that Social Security needs some sort of change to stay out of the red, but only the right-wing believes it is fundamentally misguided. Privatization advocates, realizing this, carefully couch their proposals in the language of fixing Social Security rather than replacing it.

The privatizers have succeeded in this so well that they have brought their ideas to the center of the political debate with few people understanding what is at stake. Aaron and Reischauer's main contribution is to disentangle these two matters, to consider the merits of social insurance and the problem of closing Social Security's deficit as separate questions. And by doing so in a careful and systematic way, they demonstrate that social insurance--that is, a system like the one we have now--is vastly preferable to a privatized one, and they also lay out a more than adequate proposal to save it from insolvency. …

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