The Inevitability of Social Security Reform

economicprincipals cites "a mild-mannered professor of economics at Harvard University named Martin Feldstein" as the "expert opinion" behind Bush's proposed Social Security reform, and notes that Feldstein has recently

recommended a combination of forced individual accounts and government insurance for all the major forms of social insurance - not just personal retirement accounts, but medical savings accounts and unemployment insurance as well. If ever there was an intellectual blueprint for the "ownership society," this was it.

One reason Feldstein is pushing the reform is the negative effect that a generous retirement insurance program might have on individual savings. economicprincipals also notes,

By the 1990s, even leading Democrats had begun to chime in on the virtue of adding a thin layer of personal investment accounts on top of the existing system, N.Y. Sen. Daniel Patrick Moynihan, and University of Michigan Edward "Ned" Gramlich (who chaired a Social Security panel ten years ago) among them. And President Bill Clinton himself tentatively embraced the idea of investing some social security taxes in the stock market, instead of parking them in government bonds. But no Democrat has expressed any willingness to alter the most salient underlying characteristic of the current system, which is the income transfer from the well-to-do to the poor implicit in its guarantee to provide all retirees with a certain reasonable level of benefits regardless of how little they have saved or how long they live.

So what's the problem?

The haste with which Bush is trying to stampede his party to a vote with a phony Social Security "crisis" is strongly reminiscent of his ill-considered campaign in Iraq. The administration's "Hail Mary" tactics, if they are implemented, are as likely to backfire just as badly in the domestic arena as in its ill-conceived occupation of Iraq.

That doesn't mean that thoughtful Democrats can afford to ignore Feldstein's important ideas about what can be done to improve social insurance. They are more durable than the Bush administration. Many of them will stand the test of time. Indeed, probably it will be the Democrats who ultimately put them into practice.

Note it's basically a good idea, according to current economic theory. That's certainly not the impression one receives from a lot of the media. For instance, this morning Cokie Roberts concluded her report on Bush's Social Security reform by citing Democratic opposition to the "ownership society" which would say "...it's a gamble; don't gamble with Social Security; don't help, uh, equities traders get rich...." (At about the 3:55 point.) That is indeed the position of some Democrats, but it's nonsense to suggest that the stock market is mere gambling, or that equities traders get rich at the expense of ordinary investors.