Privatizing Social Security Still Good Idea

Investors have yet to fully count their losses, and the corpses of fallen giants like Enron, WorldCom and GlobalCrossing have yet to cool.

But already, opponents of private Social Security accounts are circling the carnage, looking for politically potent carrion.

Two weeks ago, the Democratic National Committee circulated a memo to its candidates running for the House in November, encouraging them to demagogue Wall Street's greedy CEOs -- and the Republicans who would turn those CEOs loose on the retirement security of the elderly.

A DNC radio spot in Minnesota's Sixth Congressional District did just that -- accusing Republican candidate John Kline of wanting to "gamble away Social Security on the stock market."

To his credit, President Bush has stood fast in his support of private accounts -- the ability of Americans to take ownership of the FICA taxes they're forced to contribute with each paycheck, and to invest them as they see prudent.

Unfortunately, the rest of the president's party can't backpedal too far or too fast from the issue. "Privatization" is today a dirty word in Republican campaign circles. National Republican Congressional Committee Chairman Tom Davis, R-Va., has gone to great ends to make Social Security a non-issue in the 2002 campaign -- he considers it a loser. Check the NRCC Web site. "Social Security" is nowhere to be found.

That's too bad. Because practically, philosophically and, yes, even politically, supporters of private accounts have plenty of reason to stand up and be counted.

In spite of the stock market volatility, economic downturn and corporate scandals soiling the headlines, private accounts make as much sense now as they did during the dot-com boom.

Over the past 70 years, the stock market has averaged a real rate of return of about 7.5 percent. Social Security, on the other hand, at best yields 2.5 percent, and today that number falls with the age of the worker in question. If you're under 30, you can probably prepare for negative returns, unless the system is changed.

In fact, the worst 20-year period in American stock market history -- which included the crash of 1929, the Great Depression and World War II -- still saw a return of about 3.35 percent, well above what one can expect from Social Security.

And that's just stocks. Under most privatization plans, more conservative investors would have the option of investing in low-yield, but more secure bonds -- or of staying in the current system entirely.

More importantly, private accounts would give the poorest Americans the chance to accumulate wealth. Black men in particular -- who have the least chance of any demographic group of living to retirement age -- could pass their Social Security accounts (and the returns those accounts have accumulated) on to their heirs. Wealth could develop over generations. Families might escape the cycle of poverty. As it stands today, if a man dies before seeing his first check, his entire lifetime of contributions slips back into the general fund.

But these reasons are merely practical.

Philosophically, opponents of the current system ought to hold firm to the principle that it isn't the job of government to transfer wealth from one generation to another, particularly under the false pretenses of "retirement savings."

The language of Social Security has always been intentionally manipulative. Make no mistake. What you pay each month is not a "contribution." It's a "tax." And the fund itself is not a "trust fund." Trust funds are voluntary, they aren't coercive. What's more, trust funds can't be raided at will by politicians seeking pork for their districts, or favors for high-dollar donors.

But if practicality and philosophy won't encourage allegedly pro-privatization candidates to stick to their guns on the campaign trail, perhaps politics will.

A poll released this month, commissioned by the Cato Institute and conducted by Zogby International, suggests that the conventional wisdom on private accounts -- that they're election-year losers in a down market -- couldn't be more misguided.

The poll was commissioned months ago, and as it turns out, John Zogby's pollsters happened to be in the field for the five days of July 8 through July 12.

Those five days saw WorldCom dominate the headlines and the cable networks. They also saw the Dow Jones Industrial Average drop nearly 700 points. If ever there were a time for Americans to be skeptical -- even hostile -- to private retirement accounts, it would have been for those five days.

The results were staggering.

Sixty-eight percent of respondents favored private accounts, a margin of well more than two-to-one. Respondents aged 30-49 rang in favor of private accounts at 76 percent, ages 18-29 at 82 percent. Democrats favored them 56 to 40 percent. Independents at 67-31 percent. White, black, Hispanic, union, conservative, moderate, even self-described liberals -- all favored private accounts over the current system by a margin of at least 16 percent.

There was no demographic group in which less than 54 percent of respondents favored private accounts. The closest gap was among seniors -- aged 65 and up -- and even they favored private accounts by a margin of 55-40.

Clearly, a tidal shift in public opinion is gathering.

Clearly, older Americans have come to realize that had they had the option to invest early on in life, they'd be living far different lifestyles than their current Social Security benefits allow. Clearly, middle-aged Americans are realizing that there's still time for them to amass a retirement savings that will allow them comfort in old age, not mere subsistence.

And clearly, the country's youngest workers are understanding -- and have understood for some time -- that unless the current system is overhauled, they'll never see the 12.4 percent they're required to pay over to the government twice each month under the deceptive guise of a "contribution."

Clearly, the American public is hungry for change. But voters are faced with one party of politicians who cling blindly to a failed system, and another too cowardly to fight for real reform.

Americans are ready to take control of their own retirements.

Why won't politicians let them?

Radley Balko is the website manager for the Cato Institute. Opinions expressed here are his own. He also maintains a weblog at

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