Missing the Point on Social Security

A Response To: Flaws of Private Accounts

By Sebastian Mallaby
Monday, December 13, 2004; Page A21

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My Response:

While I found your editorial interesting, I think you are missing the point.

You are buying into the premise that Private Accounts are equitable in spirit to the Social Security Program as well as the dubious premise that the problem with the Social Security Program is an acute problem in need of an immediate fix. By jumping over more fundamental questions, you are inadvertently promoting the need for such a fix when, in fact, such a fix may neither be warranted or necessary...much less wise.

Slow down.

The idea of Social Security was NEVER to be a retirement account as we know them today. It's a last resort, a safety net. In order for it to maintain its ability to be a safety net, it must be free of the swings and vagaries of the free market. Remember, it was the crash of the market in the 1920's that was at least partially the reason it was developed in the first place. By placing the money in a market-driven account, the protection afforded to the "annuity" of social security is gone. If the government were to guarantee the funds to ensure this safety, then we are back at square one as the funds to ensure such a guarantee would have to be set aside at some level. If they choose to NOT back up the money, than its nothing more than a forced investment, which is definitely NOT the spirit of the program.

Lastly, virtually every expert is in agreement that the program will be completely solvent for at least the next 25 years. This give us a lot of time to research and come up with a sensible plan that is not ideologically driven. Again, let's slow down and define the problem FIRST, and then we can appropriately address the solution possibilities.

Anyone who is even thinking about privatizing Social Security should ask themselves and seek answers to these questions:

1. What is the intended purpose of the Social Security program?

2. Is the program in immediate trouble?

3. How will the transition to private accounts, expected to cost 2 Trillion Dollars, be funded? I'm looking for a DEFINITE plan, not some pie-in-the-sky sound bite or guess that a rising stock market will cover the costs. Given the fact that the President PLANS to cut the deficit in half and make tax cuts permanent, from where is the money going to come? Hope is NOT a planning tool.

4. What is the expected fee for management of these funds by private companies and will it be limited and who will pay it? I don't think that I should have to pay the usual fees for management of a fund to which I am forced to contribute. Who is supposed to gain from this, me or the fund management companies?

5. Social Security was never meant to replace a pension or a retirement fund, what happens if the stock market dips or even crashes? Is the government going to cover the losses and if so, how? Will there be a minimum return imposed? The idea of social security was that it was a fall-back that was kept safe from the vagaries of the business cycle and free market. It was a safety net, not a retirement income or investment.

6. How does privatized social security solve the original problem of a shortfall in paying for what is owed in the coming years? Isn't this SUPPOSED to be the goal or objective of social security reform?

These are just the most basic questions you should be asking and I suggest it would be more informative to write about these questions first and then about the proposed solution's merits.