Social Security: Fools on the Hill


By Howard Gleckman In Washington, the issue of Social Security reform is a lot like the weather: Everybody likes to talk about it, but nobody ever really does anything about it. Now come both political parties with their latest salvos. Unfortunately, most of what they're saying these days is either lame or cynical.

Democrats think they can make political hay by Enronizing the issue of making private retirement accounts a part of Social Security. They claim that the collapse of the Houston energy company's stock is proof positive that such accounts will fail. Republicans, meanwhile, think they can make retirees feel better merely by sending out official-looking certificates promising that they'll be paid in full. As if seniors could use a fancy piece of paper to pay for the Early Bird at their neighborhood restaurant.

WRONG TARGET. Let's take the Democrats first. Their argument seems to be that just as Enron investors lost their shirts, so could workers who invested in stocks through their Social Security private accounts. Now, many issues about these accounts need to be debated. But the fear of one bad stock pick spoiling the barrel isn't among them.

Long before Enron ever came along, no serious private-account plan would allow people to put all their retirement money into a single stock. Indeed, under nearly every plan -- and there are dozens -- workers would be allowed to invest in just a handful of diversified portfolios. Like many of today's 401(k) plans, workers could choose between, say, a stock-index fund, a bond fund, or a balanced fund. But betting your retirement on one company? That's not going to happen.

If Democrats want to take issue with the estimated trillion-dollar transition cost of shifting to private accounts, that's fine. If they want to debate whether basic Social Security benefits will have to be reduced far below today's promised payments to make private accounts work, that's fair game too. But another Enron? C'mon.

WORTHLESS PAPER. Unwilling to cede the low ground in this debate, the House GOP has come up with its own silly idea. Led by Majority Leader Dick Armey (R-Tex.), it wants to mail all retirees a certificate of promise that the government will pay their benefits in full.

This is truly strange, especially coming from the party that for years has argued that the government bonds held in the Social Security Trust Fund are worthless pieces of paper. If those Treasury obligations are the equivalent of Confederate bonds, what would one call these new congressional certificates? You might think of them as the 2002 version of the old lockbox, only flimsier. Or, to make the only credible Enron argument, you might say they're as valuable as a stock certificate issued by the now-bankrupt company.

The Social Security Administration says printing and mailing these misbegotten scraps of paper would cost taxpayers millions of dollars. But this idea is much worse than just a waste of money. Armey, an economist who understands the Social Security issue very well, knows that Washington can't possibly meet its commitment to the baby boomers. Today's retirees will be paid in full, certificates or not. But those retiring a decade from now? Not a chance -- unless some real changes are made to fix the system. And no certificate is going to change that.

FIX IT OR SHUT UP. As I have written in this space before, the problem has nothing to do with the solvency of the Social Security Trust Fund, which is just an accounting artifice. The real trouble is that the government simply will not have the resources -- no matter what account they're in -- to pay the benefits it has promised.

Meeting that commitment will require some combination of the following: Cutting guaranteed benefits, raising taxes, boosting returns to the retirement program, or helping the economy grow fast enough to cover the extraordinary demographic pressures the boomers will create.

Private accounts could be an answer, either as a partial replacement for or as an addition to the existing Social Security system. And they're worth a serious debate. But Democrats aren't going to solve the problem by waving the bloody shirt of Enron. Nor will Republicans help by proposing these silly certificates.

If Washington isn't going to do anything about Social Security, it could at least do us all a favor and keep quiet about it -- until lawmakers get serious about fixing a potentially serious problem, that is. Gleckman is a senior correspondent in BusinessWeek's Washington bureau. Follow his views every Tuesday in Washington Watch, only on BusinessWeek Online


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