When I read this column by Gene Sperling over at Brad DeLong's site, I did a double-take when I got to the last sentence in this part:
What non-political reason, I am often asked, could there be for someone like myself who supports Universal 401(k)s outside of Social Security to so stubbornly refuse to even consider private accounts within Social Security?
The answer is twofold. First, Social Security is simply the wrong vehicle for pushing the worthy and important goal of increasing ownership and savings among working Americans. In our three-legged retirement system -- which includes market-sensitive private savings, home equity and pensions -- Social Security is the only leg free of market and economic risk.
Did he just write that Social Security is free of economic risk? That's clearly not true, even if all benefits scheduled in current law are eventually paid. The amount I get from Social Security will rise or fall with the growth of the average wage in the economy (literally, the average wage in OASDI covered employment) over the rest of my career. This is obviously a growth rate that is subject to economic risk. And it is not likely that all of the benefits scheduled in current law will eventually be paid--the extent to which they are likely to be cut depends on how well the economy does, since that helps determine how much revenue there will be to pay benefits. Victor over at the Dead Parrot Society has two excellent posts showing the fallacy of Sperling's statement. The first is "Risk in the Current Social Security System" and the second is "Here We Go Again."
I think it is kind of ironic for Gene to be overstating the security of the current system in a post where he goes on to say:
That is why those of us who support new investment incentives like Universal 401(k)s should be the ones most adamant about the importance of keeping the Social Security leg of our retirement system completely risk-free.
The second substantive rationale for a hard "no'' on privatization is that virtually every private-account plan is designed to make Americans undervalue the social-insurance benefits of Social Security and overvalue their private accounts.
But I don't want to be too hasty to judge. I don't know Gene, and he didn't actually write anything that would be at odds with, say, this plan. I'd give up personal accounts if he'd give up tax increases--maybe there is room for compromise. And his sin is overstatement more than anything else--there is both less risk and less return in a system tied to the growth in average covered wages than there is in a system tied to financial market returns. The risk is just not zero. This is certainly not as bad a misrepresentation as suggesting that the bonds in the Trust Fund have no value.
But I wonder what the strategy is for Sperling, following similar advice given by Robert Rubin a week earlier, to admonish the elected Democrats in Congress not to engage in the policy process. Here's an interesting excerpt from the Hill News, covering Rubin's speech to Democrats:
“Putting out a Democrat plan on Social Security would be a horrible mistake because right now it’s the president’s principles against our principles,” Rubin said, according to a Democratic leadership aide. The aide added that Rubin told his party colleagues that it would be hard to win a battle of specifics.
You don't want to put your principles up against the other side, and you don't think you could win a battle of specifics? And your compelling reason for the American electorate to return you to office is what?
I wonder what future electoral success the Democrats are contemplating that would allow them a better shot at restoring solvency to Social Security than they would get by engaging today. Suppose that they win control of both houses of Congress in 2006. They would then have more bargaining power with a President intent on legacy-building in Social Security. But that seems like a slim possibility. Suppose that, by 2008, they have control of both houses of Congress and win the Presidency. Even then, Democratic majorities in Congress would be slim, and Republicans would have as much bargaining power as the Democrats have now. So compromise is inevitable if any reform is to get done, and that compromise is likely to include personal accounts.
So why not engage now, and look for a deal that included these three elements:
- Accepting personal accounts, but getting the President to agree to smaller accounts (like 3% up to a ceiling),
- Accepting reductions in the growth rate of future benefits, but smaller or more progressive than what the President has suggested,
- Insisting that, as a trade for the first two points, the President raise the maximum taxable earnings or impose a surtax above it to fund a portion of the accounts.
And then we could move on.