Beware the 'Lockbox': A way into . . . yes, socialism - Brief Article

Are we being "lockboxed" into economic serfdom? The famous "lockbox" has acquired an exalted status unequaled by virtually any public policy in recent memory. Left and Right disagree about almost everything, but every prudent man and woman in Washington, it seems, supports the lockbox. The term itself has acquired such cachet that one might be forgiven for believing that it was invented by the Founding Fathers, if not the Biblical patriarchs.

In fact, the notion first gained political prominence very recently-in the late 1990s. It's easy to see the political appeal of the lockbox: It's really nothing more than a gentlemen's agreement to set aside certain funds for a specific purpose. If revenues are committed to a program, Democrats are pleased because a tax cut is thereby made less likely; and Republicans are happy as well, because Democrats can increase spending only if they can finance it with funds other than those designated for the lockbox. In practice, the lockbox is a rhetorical device-but the politicians have recently upped the ante. The House turned the rhetorical device into a bill, which it passed on February 13.

It's not clear that the lockbox will work; but if it does, it will be dangerous to the Republic-and Republicans will ultimately regret the day they began to support the concept. It poses a serious threat to the intellectual underpinnings of the free-market economy.

In the late 1940s, Friedrich Hayek, Milton Friedman, and the other members of the Mont Pelerin Society set out to identify the principles that gird a free society. At the time, socialism was in its heyday. Socialists pursued absolute equality through government acquisition and management of private assets, and in many places they were beginning to achieve their objectives. Every Eastern European country was socialist, and many Western European nations were moving in that direction as well. Academe preached the inevitability of socialism, but Hayek and his colleagues boldly argued that a central planning agency would never be able to aggregate information efficiently-as prices do in a free- market economy. Over time, citizens would see that their brethren in capitalist countries were more prosperous, and popular support for socialism would disappear.

Of course, history sided with Hayek, but socialism didn't disappear. Economists and philosophers began to devise a socialism that would be immune to the Hayek critique. The cleverest of these scholars is John E. Roemer, a highly gifted academic at Yale University. In his 1994 book, A Future for Socialism, Roemer envisioned a world where the government would distribute coupons that entitle individuals to an equal share of corporate profits. Workers would own the means of production, but the capitalist system would otherwise be left to its own devices. Prices would continue to serve their allocative function, and the most damning weakness of 1940s socialism would thus be eliminated. While Roemer's work has received a significant amount of criticism and subsequent refinement, it is safe to say that the frontier of socialist thinking envisions a society very much like our own-except that the ownership of firms would be distributed by the government equally to citizens.

It is not alarmist to say that we are marching toward a world reminiscent of Roemer's vision-and that the Social Security lockbox is partly to blame.

Here's why. The Social Security Administration currently takes in more in revenues than it spends. Rather than rebate the extra revenues to deserving taxpayers, our officials have chosen to put them in the lockbox. Each month, the Social Security Administration mails the money to the U.S. Treasury, which gives the Social Security Administration an IOU, and then searches for something to do with the money. So far, the Treasury has not had to think too hard about what to do, since there has been plenty of government debt to retire. But that will change: At the rate the government is vacuuming money out of the economy, there will-in just a few years-be no more government debt to retire. The Social Security shortfalls we have all heard about do not begin until far off in the future; so what will the government do with all those extra revenues?

Economists who have studied this problem generally agree that there's only one place where that much money can be spent: the stock market. At that point, the Treasury will have to begin purchasing stocks with the lockboxed surpluses, because the stock market is the only financial arena large and liquid enough to absorb trillions of dollars of capital. Even using conservative economic assumptions, it is easy to envision the U.S. government owning anywhere from a quarter to a half of all equities. Such investment could-in theory-be neutral, but there is a much greater likelihood that taxpayer dollars will wind up being invested in the equities of firms represented by well-connected figures of the Hugh Rodham type.

This vision of the government buying up the private economy might appear implausible, but-because of the lockbox-the Democrats now have the power to make it happen. The lockbox gives them the power to filibuster us to market socialism, and it's hard to see what incentive they would have not to exercise this power.