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RETIREMENT AND THE REPUBLICANS

11:00 PM, Jan 24, 1999 • By DAVID FRUM
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This spreading public enlightenment was not entirely a spontaneous phenomenon. The third great change that has made privatization feasible is the stunningly successful campaign of public education conducted by advocates of reform. When Ira Magaziner dreamed up his intricate health-care reform, Daniel Patrick Moynihan warned him that bold new policy departures pass the U.S. Senate by a 70-30 margin or they don't pass at all. In the Reagan era, Social Security tinkerers like David Stockman met with disaster for the same reason: They tried to alter the system suddenly and surreptitiously.


To amend an institution that has been around for half a century and that an entire society relies upon for its security in old age, a broad consensus is necessary. The real battle over the future of Social Security will not be conducted on the floor of Congress: It will be fought in newspaper columns and in television debates. Ross Perot used to ask: "Are we going to talk about it or are we going to do it?" In a democracy, talking about something is doing something. After sixteen years of talk, millions of Americans now understand that Social Security is in trouble and must be fixed. That's an incredible achievement; without it, Social Security reform would seem as esoteric a cause as it did a decade and a half ago. And it isn't only the general public that has to be educated: It's the elites as well.


SOCIAL SECURITY HAS OFTEN BEEN CALLED A PONZI scheme, but in one way it's more like a shell game. Social Security works by distracting the eye. As you try to keep up with the motions of the trust funds (the shells), you lose sight of what counts: the money from payroll taxes (the pea), which the government (the con man) has palmed.


Currently, the payroll tax is raising much more money than is needed to pay the pensions of Social Security's beneficiaries. This money is deposited in the federal Treasury and used the way the rest of the money there is used: to pay for cruise missiles, highways, and presidential attorneys. In return, the Treasury gives the Social Security administration a promise to repay the money in thirty years. These promises are collectively known as the "Social Security trust funds." This transaction is -- as most of us have gradually realized -- entirely unreal. The money raised by the payroll tax is immediately spent.


When the time comes to pay the baby boomers' pensions, the money will have to be raised from the taxpayers of the day. The elaborate rigmarole of the trust funds does not alter that simple fact. All it does is blind us to the otherwise glaring truth that the problem begins in 2010, when Social Security's costs will start to outrun the revenues from the payroll tax, not in 2030, when the program's accumulated deficit exceeds the IOUs from the Treasury Department. But so long as Washington was blinded, even a man as lucid as Alan Greenspan was obliged to pretend to believe that by piling up bigger and bigger payroll tax surpluses today, we were somehow contributing to a solution to the problem of Social Security after 2010. It would not be quite accurate to say that nobody believes that sort of nonsense now. But the ranks of those who do have certainly thinned.


So the momentum is with the White Hats. Meanwhile, over at Black Hat headquarters, the situation is bleak. They are not yet convinced that the status quo is untenable. You still hear the old troglodytes whispering among themselves that with just a bit of a tax increase and maybe a dollop of inflation, FDR's creaky old wheels can keep on turning. They have no workable alternative: Their version of a big idea is to have the U.S. government invest some of the trust fund in the stock market on behalf of Social Security recipients, as if the demerits of state ownership of the means of production had not already been thoroughly explored in this century. They are not building a public consensus, relying instead on stoking the fears of the elderly. Nor are they having much better success with the elites, who are not fooled by a president who makes a big show of demanding action on Social Security without ever offering any ideas of his own.