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The Honolulu Advertiser

Posted on: Sunday, April 11, 2004

COMMENTARY
Politicians still looking for a painless fix for Social Security

By Albert B. Crenshaw
Washington Post

WASHINGTON — The trustees of the Social Security system released their annual report recently, and the good news is that things haven't gotten a whole lot worse: The system's outlays will exceed revenue from the payroll tax beginning in 2018, and the trust fund's "assets" will be exhausted in 2042.

There is debate about how serious Social Security's condition is, but whatever its difficulties, it illustrates the problems that attend the free-lunch theory of public policy.

Now, you may have heard that there's no such thing as a free lunch, but politicians never give up searching for one. To them, a free lunch is a public benefit that someone else pays for, or one that doesn't have to be paid for at all.

Sometimes it's slot machines, or tobacco bonds, or the Laffer curve (you remember that one — if you cut taxes you get more revenue), but whatever it is, it pays for something the public wants without appearing to cost the public very much.

With Social Security, the free lunch was the size of the work force relative to the number of retirees in the population. As long as the work force was large and the retirees few, the system could charge fairly modest taxes and not only cover its own costs but provide a nice piece of change for politicians to spend — all the politicians had to do was drop an IOU into the trust fund's hopper.

But a funny thing happened. After World War II, Americans had lots of babies and then, almost as abruptly, stopped having lots of babies. Social Security faces a much smaller number of workers (2.2 by 2030) per retiree than the program had allowed for.

So now it looks as if 2018 is the date when those IOUs must be redeemed. Though the program won't be technically "broke" until 2042, 2018 is the year it starts sucking cash back out of the government's general fund to cover benefits.

Some fairly modest changes in tax rates and benefits would likely return the program to a stable footing, but that would involve pain. So a number of politicians have cast about and — behold — found another free lunch.

This one is the stock market. You just put money in this end and get a bunch more out the other. No pain, lots of gain.

The Bush administration thinks this would be nifty. Americans could have personal investment accounts that would build up over their working lives and serve them through old age.

But would it work? Well, in 1999 investment accounts looked like a good bet. Employers and employees were turning in their stodgy old pension plans and jumping on the 401(k) bandwagon, which was going to carry them on to wealth and security.

Now things don't look quite so inviting. The market did well last year, but 2000 to 2002 was another story, and so far this year things look kind of shaky. Of course, the market always has ups and downs.

You might, though, want to ask yourself what the experts think. Not the experts in the White House or various think tanks, but the leaders of corporations that have pension plans, the ones who have been trying for years to make this kind of investing for the future work. They are real experts — they have professional money managers to help them pick the best stocks, and their plans benefit from pooling, meaning that retirees who die young leave their money in the pool to subsidize those who live a long time.

And what are they doing? They're getting their companies the bleep out of the pension business as fast as they possibly can. Too risky, too expensive, they say.

There's a lesson in there.