Social insecurity: what happened to `privatization'? - Of Several Minds

If candidates live up to what they are saying, the 2002 campaign has already resolved a central issue in our politics: Social Security privatization is dead. At least, it ought to be if candidates mean what they are telling the voters. Do they?

If you doubt that the privatizers are losing, consider an impassioned memo sent in September to Congressman Tom Davis (R-Va.) who is overseeing his party's House campaigns. Stephen Moore and Thomas L. Rhodes, officials of the right-of-center Club for Growth, wrote in the memo that Republicans "risked being perceived as unprincipled flip-floppers on the Social Security issue." Their memo was in response to advice Republican candidates were getting from their Washington wordsmiths on the need to avoid being seen as in any way advocating the "privatization" of Social Security. The word is now verboten.

Let's tip our hats to Moore and Rhodes, who would prefer that privatization be debated honestly. "We now have a number of candidates in close races who are forced to explain why they were once for private investment account options and now they are against it," they wrote Davis. "That is a losing proposition."

Referring to the Republican candidate for U.S. Senate in South Dakota, Moore and Rhodes continued: "We are concerned that if Republicans denounce this crucial economic reform (as some candidates like John Thune are doing), even if we win in November, the victory will be to what end? We will set back the move to modernize Social Security by five years or more."

Exactly--if the Social Security flip-floppers stick by their latest positions. Social Security privatization is losing ground because most voters want some guarantee that if their investments go bust, or if they earn too little to save enough for retirement, the government will provide them a decent minimum through Social Security.

Voters fear that this minimum could be eroded by the inevitable gyrations of the stock market. And we are talking about a lot of voters. As Robert Ball, a former Social Security commissioner, has pointed out, the poorest two-fifths of people over sixty-five get 82 percent of their income from Social Security; the middle fifth gets 64 percent.

The stock market slide has underscored the risks of privatization. Someone who retired on, say, January 1, 2000, might have lucked out. But what of someone retiring on, say, October 1, 2002? The picture would be far less pretty. Moreover, it turns out that Senator John McCain (R-Ariz.)--a privatization advocate--was prescient during his 2000 presidential campaign when he said the country couldn't afford both partial Social Security privatization and a large tax cut.

Why? If current benefits are to stay where they are, as the privatizers promise, the transition costs of privatization would run to about $1 trillion. That's because letting those currently working to invest a couple of percentage points from their Social Security taxes would drain that money from the system. Where will that cash come from now that we are running deficits instead of large surpluses? And how can privatizers keep their main promise: that their new system would leave individuals better off than they are now? They can't.

Social Security defines a fundamental philosophical difference. Market advocates (Moore and Rhodes are among the more candid) dislike it when government plays a large role in people's lives, as it now does because of Social Security and Medicare. But Americans have always favored a mixed economy. They welcome the benefits of the market but want government to temper its inevitable failures and inequities through social insurance. To have a debate about this difference is not to engage in "scare" campaigns--unless, of course, advocates of privatization are scared by the political impact of their own positions.

It appears they are. Steve Schmidt, a spokesman for the National Republican Congressional Committee, recently acknowledged to the Washington Post's Jonathan Weisman that his party's current flight from privatization was dictated by electoral politics. "In order for there to be an honest debate on Social Security, Democrats have to lose this election," Schmidt said. "Only after they've lost another election where they've put all their chips on the Social Security issue will honest-minded Democrats step forward to work on the issue."

Which makes you wonder: Even if Democrats lose this election because of Iraq, will Republicans--no matter how hard they try to kill the Social Security issue--choose to interpret the Democrats' defeat as reason to revisit Social Security privatization? Personally, I prefer Moore and Rhodes. They are willing to make their case without evasion and to say the same thing both before Election Day and after.

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