[Homestead] Let go that root?r
tvoivozd at infionline.net
Mon Feb 7 21:45:06 EST 2005
A Test of Faith on Social Security
By William Raspberry
Monday, February 7, 2005; Page A21
The old country preacher was out hunting one day when he wandered too
near a steep cliff, stumbled over a stone and fell headlong over the edge.
The end seemed certain. Then he glimpsed a tree root growing out of the
side of the cliff, grabbed it and -- at least temporarily -- saved his life.
He then began to pray furiously for deliverance from his precarious
"Lord," he said, "Please deliver your servant in his hour of need."
Somewhat to his surprise, the response was both immediate and audible:
"Do you believe?"
"Lord, thy servant truly believes."
"But do you really believe?"
"Lord, thou knowest all things, and thou knowest thy servant truly
trusts and believes."
"Then let go of that root."
"Are you out of your cotton-picking mind?"
Which brings me to President Bush's proposal for privatizing Social
Security. He says he believes the U.S. economy will do well enough that
it will be financially advantageous for workers to invest a part of
their erstwhile Social Security contributions in the stock market. And
since the Social Security system is facing an actuarial crisis. . . .
Bush offered some more details in his State of the Union message last
week, including several attractive features. But the heart of the
proposal is his unquestioning faith in the market.
Let me confess: I have faith in it, too. That's why my retirement
savings aren't sitting around in certificates of deposit or other cash
instruments. I expect my little nest egg to grow. I count on it growing.
But I also count on my Social Security check to keep coming, no matter
what. Indeed, the only thing that would make me entertain the
president's proposal is his assertion that there is a crisis in the system.
I'll let others debate whether there is such a crisis looming.
But as Paul Krugman of the New York Times has noted, the economic
assumptions that lead to the prediction of a crisis would also portend a
poor return on the privately invested portion. Conversely, as Krugman
put it last week, "any growth projection that would permit the stock
returns the privatizers need to make their schemes work would [through a
windfall of payroll tax revenue] put Social Security solidly in the black."
If that's too complicated, try this: If the president is so thoroughly
convinced that the market will outperform the Social Security trust fund
(invested entirely in U.S. government bonds), why won't he propose that
the Social Security Administration invest in the market rather than in
government bonds? Wouldn't the bigger return guarantee the actuarial
soundness of the system?
Ah, but if it didn't, the government would be stuck with making up the
difference. It really is hard to let go that root.
Business leaders know it well. That's why corporations are phasing out
defined-benefit pension plans, in which they guaranteed a certain
pension based on wages and longevity and paid for it by investing
company money in the stock market. If managers invested wisely, the
company made money. If not, the company made up the difference.
Now virtually every company is into defined-contribution plans: They
contribute a certain amount of money to an employee's 401(k) or similar
account. The employees decide how to invest that money, along with their
own contributions, but also assume all the risk if the investments go badly.
Is the president's privatization proposal, like corporate abandonment of
defined-benefit plans, simply a device for shifting the risk away from
the "company"? Or does he really think it would be a good thing for the
He asked in his State of the Union message for ideas about how to fix
Social Security. I offer instead this small test of faith: Let the
president ask the Social Security Administration to sell those bonds now
in its trust fund and invest the proceeds in the stock market. The
increased rate of return should pump up the trust fund to the point
where the system could avert the predicted crisis or, alternatively,
underwrite the transition to a privatized system. In either case,
employees would have their pensions guaranteed.
How about it, Mr. President? Will you let go that root?
willrasp at washpost.com
© 2005 The Washington Post Company
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