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How to fix Social Security… and why we won't do it
By Andrew Davies March 24, 2005

The debate on Social Security reform has been going on for decades. This debate boils down to very different definitions of what Social Security is, and especially what it should be.

The left is primarily concerned about a reasonably guaranteed safety net for the poor and elderly. For many Democrats, private accounts open up the possibility of someone losing a great deal of their retirement money and having little or nothing to fall back on. After all, part of the reason investment is more profitable than savings is because of risk. To them, an impoverished retiree in our nation of plenty is a horrific, immoral image.

On the other hand, the right is concerned about the long-term sustainability and efficiency of the Social Security system. They see that every dollar that goes into government programs gives far less than a dollar's worth of value. The current Social Security system is undeniably "bad business" from any real measure of efficiency. Republicans know that as the baby boomers retire it can only get worse, leading to horribly high tax increases or huge slashes in benefits.

So what to do? The answer is really quite simple. Make Social Security a mandatory investment. Not just 10% of it. All of it. You can put it in a special savings account, invest in conservative portfolios, etc. But whatever you decide, it will be taken out of your paycheck. No choice. However, the money will be yours, not some vague pool of money distributed to others. And if you die before using it all, it will be passed on to your family.

Of course, the understandable question from the left is, "But what about the impoverished retiree?" Easy. The federal government will guarantee your investment, plus whatever a small return would have produced. For the small minority whose investment produces less than that, the government will make up the difference. Absolutely no one would be getting any less than the current system, and the overwhelming majority would get far more.

But is that secure enough? Well, how many of you put your money in your mattress and not a bank? Of course not, that would be silly. Bank deposits are guaranteed by the federal government. When a bank is robbed, not one penny of any individual account is lost. The cost is spread out over so many others that the cost is negligible. Would it be any more secure to let the federal government completely take over all the banks? Such a scenario wouldn't secure your money any more than it currently is. But it would definitely lead to serious inefficiencies.

Even if the market crashed, do you really think the government would have any easier of a time covering current retirees under the current system? It would be tough in either system, but far more difficult under the current one. In the new system, the government only has to cover the net loss, not the whole kit and caboodle.

But how will we pay for current retirees who haven't saved under the new system? Give them the current system. And yes, pay more for a while. Will it be costly? Absolutely. But we do have that trust fund, a fund that has no real use under the better system. If we cashed out that fund over the transition period, it would dampen the effect considerably. As in our bank example, the productivity of the American people will guarantee their investment. And that is a far more reliable guarantee than any trust fund that can be raided for other short-sighted budget priorities.

So why isn't anyone talking about making Social Security a mandatory, conservative, personal investment guaranteed by the federal government? Frankly, because it suits neither of the parties' ideological bases. The ideological left is correct in not trusting us to save properly for ourselves. But they go too far by not trusting that we know better how to save it. The far left has an inherent distrust of aggregate human progress in a free society, and is far too concerned with saving us from ourselves.

The ideological right is correct in not trusting the government to efficiently handle our money. But they go too far by not even trusting in the brilliance of the rule of law. The mere legal requirement to invest can be a truly positive force. Again, banks are a perfect example. The government regulates how banks do business, but it does not make business decisions for them.

And unlike the current system of contribution without personal interest, it does not strip away our freedom. Like taxing to pay for law enforcement, it frees us from the shackles of our own short-term interests which often harm us in the long run. We are freed from the tragedy of the commons by making sure everyone contributes and has an interest in their own contribution.

But frankly, the left's ideology is the bigger problem here. Their ideologues have taken a position that allows them to use the most influential motivation: fear. And the only way to fight it is to relentlessly insert this assurance: you will get your money plus a small profit no matter what. By shouting that from the mountaintops, we might just have a chance. However, the right seems far too fearful of losing their position to do such a bold thing. And to that extent, they are equally to blame.

We can either create a good system for our children, or let them inherit a bad system because we didn't want to make the hard choices for them. Even if we "fix" the current system, it will require constant maintenance, like an old car that costs far more to fix than if we junked it in favor of a newer, more efficient model. The cowardly band-aid approaches that both parties push won't do it.

Let's make 100% of Social Security contributions a mandatory investment, guaranteed by the federal government. And let's allow our children and grandchildren to reap the benefits of a system that recognizes our imperfections and short-term nature, but acknowledges our ingenuity when driven by our own self-interest. It addresses the safety net concerns of the left, and the freedom and efficiency concerns of the right. Let's do the right thing. At the very least, let's start talking about it.

Copyright © 2005 by Andrew Davies

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