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The Honolulu Advertiser

Posted on: Sunday, January 23, 2005

There's no crisis at Social Security

If President Bush is correct that Social Security faces a crisis that requires drastic surgery, we'd submit that it's a crisis as old as Social Security itself.

Consider the history:

"A cruel hoax" is what Alf Landon, Franklin D. Roosevelt's Republican opponent in 1936, called Social Security. "The so-called reserve fund," he railed, "is no reserve at all, because the fund will contain nothing but the government's promise to pay."

Henry Ford said Social Security could cost Americans their basic freedoms, like the right to change jobs or to move from one town to another.

Barry Goldwater wanted to repeal it. Milton Friedman called it an unjustifiable incursion on personal liberty. Ronald Reagan's budget director, David Stockman, called it a "monster" and sought to cut benefits to early retirees by one-third.

Ideology at war

Social Security, in other words, has been successfully defying this "crisis" for 70 years. Indeed, the issue is one not of solvency but of ideology. It's an ideology that has always eschewed a basic safety net for the poorest and most vulnerable among us; an ideology that today finds expression in Bush's plan to change the United States "from an entitlement society to an ownership society."

Social Security is not a handout. We pay for it through payroll taxes. Mainstream Americans clearly want and need Social Security. Studies show that a startling 48 percent of Americans over 55 would be below the poverty line if it weren't for Social Security.

But the Bush administration's scare campaign is potentially self-fulfilling: If it persuades enough people that Social Security is going bankrupt, it could lose public support.

Tweaking will help

It is not going bankrupt. It faced a worse crunch in the late 1970s, from which it fully recovered. Now, as fewer workers pay into the system to support those who receive benefits, it assuredly needs tweaking. By raising the ceiling on incomes that are taxed for Social Security, or a slight increase in payroll taxes, we'll weather this crunch, too.

If the White House is looking for a real crisis, it need look no further than its exploding budget deficit — which would be increased by the estimated $2 trillion cost of Bush's proposal to privatize Social Security.

It's important to use long-range projections to plan for Social Security's viability far into the future, but we mustn't let worst-case scenarios panic us into destroying what should be recognized as one of the most successful government programs in American history.

The American Association of Retired People recommends that your retirement security structure consist of four pillars: Social Security, pension and savings, continued earnings, and adequate health insurance. Bear in mind that Social Security is not intended to do the whole job, as it typically pays about 40 percent of one's pre-retirement paycheck.

The real problem is not Social Security's reliability, but the failure of most Americans to pay attention to the other three pillars. Personal saving is at an all-time low, and personal debt is at an all-time high.

Meanwhile, let's learn from the experience of other countries that have substituted private savings accounts for government retirement benefits. Britain's Pensions Commission warns that at least 75 percent of those with private investment accounts will not have enough savings to provide "adequate pensions."

British failure

Britain's 20-year experiment has demonstrated that the high administrative cost of running private investment accounts has reduced earnings for most retirees below what they would have made before privatization. Another problem, of course, is risk: Many pensioners bought at market peaks and retired as prices dived. Finally, many were sold badly designed retirement plans on false pretenses.

That won't be a problem here, the American securities industry, salivating over the prospect of millions of new investors (and so recently beset by corporate book-cooking and mutual fund manipulation scandals), assures us.

The chief executive of Britain's National Association of Pension Funds speaks with admiration about a foreign system that "delivers efficiencies of scale that most companies would die for."

That system is Social Security.