Robert Reich argues that the basic concept of Social Security is one based on trust—which is why the spectre of future generations placing money into private accounts breaks that trust and raises the question of where the money will come from for the next retiring generation. Bush's guarantees that he won't change Social Security benefits for current retirees is highly unlikely under a privatization plan. Refer to the Institute for America's Future campaign to protect Social Security for more information on Social Security privatization and ways to fight it.
Robert B. Reich is the Maurice B. Hexter Professor of Social and Economic Policy at Brandeis University, and was the secretary of labor under former President Bill Clinton.
There have been, and will be, equally dumb ideas emanating from the Bush administration, but privatizing Social Security surely will be in the qualifying round for the first prize.
Start with the irrefutable fact that Social Security is a pay-as-you-go system. The payroll taxes of today’s workers go to today’s retirees. And when today’s workers retire, they’ll be supported by the next generation’s payments into Social Security. In other words, Social Security is a compact between generations, based on trust. I pay into Social Security to support my parent’s generation in their retirement because I trust that my children’s generation will pay into Social Security to support my generation in our retirement.
If their Social Security payments are diverted into their own private accounts, their money won’t be there for my generation’s retirement. The compact will be broken.
It’s theoretically possible for the federal government to bail out my generation by drawing on general tax revenues. But that won’t happen because there won’t be any spare revenues. The federal budget deficit, already over $400 billion this year, is projected to be more than $5 trillion over the next ten years.
To make matters worse, my generation of boomers, born between 1946 and 1964, is huge. It’s so big, in fact, that our payments into Social Security have been more than enough to pay the retirements of my parents’ generation. But instead of investing the surplus, the federal government has been using the extra funds to pay for the war in Iraq and everything else the government’s doing. Remember the Social Security lock box? Well, boomers, I hate to break it to you this way, but the lock box has been raided. This means we’re doubly dependent on the next generation’s Social Security payments. If those payments are diverted into private accounts, 76 million boomers are in deep doo doo.
Quite apart from it breaking the intergenerational compact and being unaffordable to boot, privatizing Social Security would expose retirees to huge risks. Anyone who wants to put away some extra savings—over and above your Social Security payments—into a private investment account can do so right now. The whole point of Social Security is to spread the risk, so you don’t end up with no retirement savings if you’ve made bad investments, or if you’ve been caught in the down-draft of a bad economy. Anyone ever hear of a bear market? That’s why it’s called Social "Security." Duh.
On all grounds, a terrible idea—which is no guarantee it won’t become law.
This commentary originally appeared on Marketplace, public radio's only daily business news program, and is reprinted via a special arrangement between TomPaine.com and Robert Reich. Marketplace is produced by Minnesota Public Radio and is heard on 322 public radio stations nationwide. More online at www.marketplace.org.