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January 13, 2002 at 07:00 PM
Social Security–Still Adrift
To the Point by Jack Bobo
I guess my worries over what the 16-member blue ribbon commission might do to Social Security were somewhat in vain. It appears that after months of deliberation the commission brought forth not a solution, but three non-plans for Congress to consider.
It is also becoming more and more apparent that the widely acclaimed idea of privatizing a part of Social Security is losing its appeal as reality beings to set in. To use an expression popularized by Alan Press, “There is no right way to do a wrong thing.”
One of the major stumbling blocks to making a change from the present system to one that provides funded and vested accounts is the transitional cost. A distinguished professor from M.I.T. speaking on a major TV program observed that there is no money to accomplish this. He noted that you cant borrow the money from the Social Security system for it has none to loan.
The U.S. Treasury is in a similar bind and, therefore, cannot make the cash infusion needed. The recession and the war on terrorism all but eliminate this as a possibility. Thus, the only source of funds would be the American people. We borrow from ourselves to provide benefits that will likely be used to repay the loans.
In a sort of simplistic way, it is like the fellow who is tired of paying term insurance premiums and would like to convert to variable lifebut he doesnt have the money to do so. Using the commissions logic, all he has to do is find someone willing to lend him the money to execute the conversion, and he can repay the loan with interest later. A lender would have to question whether this was Social Security or social speculation.
This, of course, raises the question of the risks involved in non-guaranteed funding. The idea of assuming or sharing risks grew popular in the 90s when the perils associated with investment risk were largely masked by logarithmic portrayals of the performance of mutual funds. The whole idea was not only deemed acceptable, but exciting as well.
The proliferation of 401(k)s, many of them replacing defined benefit pension plans, was an obvious and direct manifestation of our love affair with the stock market. But today, one does not have to read many publications to find articles detailing the growing disaffection among workers with their 401(k) plans.
A lead article in the Dec. 24, 2001 issue of U.S. News and World Reports entitled, “The 401(k) Stumbles,” points out that only 75% of eligible workers now participate in a 401(k) as compared to 79% in 1997. The article also states that the average workers account balances fell from nearly $47,000 in 1999 to $42,000 in 2000.
