The Magazine


The Political Case for Privatizing Social Security Now

Jun 22, 1998, Vol. 3, No. 40 • By DAVID FRUM
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These days, a Washington journalist who evinces an interest in Social Security is likely to find himself in the same predicament as someone who buys from a mail-order catalogue: 72 hours later, the Post Office will need a forklift to deliver all the bales of printed matter to his doorstep. Proposal after proposal! Plan after plan! And appended to each, a phone book's worth of numbers! It's dazing, it's daunting. Who can possibly hope to understand all these alternatives? Much less, choose one?

Everyone knows that the condition of Social Security is desperate. A system created for an America in which most people died soon after reaching 65 is breaking down in an America in which life expectancies approach 80 and the average woman gives birth to only two children. When the system was established in 1937, there were 42 workers for every beneficiary. Now there are three. Soon there will be only two. Sometime after 2010, the money raised by the Social Security payroll tax will no longer suffice to pay the benefits the federal government has promised. The gap between what the tax will bring in and what the system requires is enormous: Nobody can say for sure how enormous, but even the most optimistic projections reckon that the shortfall will be in the hundreds of billions of dollars. Without Social Security reform, we are 12 years away from a financial emergency more expensive than World War II.

Again, that much everybody knows. But they also know the immense political risk of attempting to solve the problem. The American public hungers for Social Security reform about as much as one of Trollope's gouty squires hungered for reform of the House of Lords. There is no appetite for change, and no trust in the politicians who will have to effect that change. The voters brutalized the Republicans in 1982, when the GOP considered stiffening the rules governing early retirement, and they punished the Democrats even more harshly in 1994, after Bill Clinton's budget deal taxed a big chunk of the Social Security income of the better-off elderly.

Under the circumstances, then, it might seem recklessly bold for anyone to propose a radical, free-market transformation of Social Security. In 1995, the Republicans got walloped by President Clinton for proposing a few-bucks-a-month increase in the Medicare premium. If that was too much for the American public, how can Republicans be expected to stake themselves to the cause of Social Security privatization? Wouldn't that be the same as putting the bullets into the gun, putting the gun into the Democrats' hand, and saying, "Shoot us"? Why on earth even tinker with the single most popular program in the vast federal repertoire, the famously dangerous third rail of American politics?

And the answer is, because there is no better choice. For all the seeming abundance of plans to reform Social Security, there are really only four possible types of solution. And as scary as privatization is for Republicans, the other three solutions are even worse.

Solution one is to do nothing, wait, and hope that something will turn up. The energy crisis went away on its own, so did the acid-rain problem, and so probably will global warming. Who knows? Maybe something similar could happen with Social Security. Those who advocate standing pat point out that while revenues from the payroll tax will begin to fail to keep pace with Social Security spending a dozen years from now, that doesn't mean immediate bankruptcy: The system has plenty of money in the bank. In fact, by the time the baby boomers begin retiring, it will have almost $ 3 trillion, all of it in U.S. Treasury bills. That's the fabled Social Security "trust funds," and the crisis can be avoided for 20 years simply by spending it.