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May 04, 2005

Private Accounts: Add-on, Not Carve-Out

Pandagon is unhappy with Richard Cohen:

Pandagon: Splendiferous: Richard Cohen writes one of those delightfully ignorant faux-centrist pieces on Social Security today, even as Bush's support on Social Security divebombs. Cohen's problem isn't the idea that we should raise the payroll cap.... Cohen's problem is that he tries to be 'reasonable' (read: six of one, half a dozen of the other, even if one is flowers and the other is industrial runoff) by saying that there should be a compromise where we go with the whimsically good idea of private accounts coupled with a plan that acutally does anything to help Social Security.

Moreover, I kind of like the idea of personal investment accounts if funding them does not weaken the overall program or add to the nation's incredible debt. After all, there is something to be said for expanding the number of American worker-capitalists and having a nest egg an heir could inherit, or one that would not be eliminated by death. The idea is not all that radical, after all. It's being done in other countries -- Australia, Sweden, Chile, Britain.... A deal can be made on Social Security. If Bush raised the cap, the Democrats could permit some sort of move toward private accounts. Both objectives make sense.

Note Cohen's logic: raising the cap makes sense because it would stay true to the nature of American taxation and Social Security, make the program solvent, and insure it stays more than a simple bare-minimum welfare program that pays for high-earner tax cuts. Private accounts make sense because they exist and because if we can do it in a way that is actually impossible, they would be super sweet.

From my view, Cohen's major problem is that his message gets lost in the verbiage. A call for "personal investment accounts... [that do] not weaken the overall program or add to the nation's incredible debt" is a convoluted and somewhat obscure way of calling for private accounts that are an add-on to, not a carve-out from Social Security.

Private accounts competently implemented would be very nice to have. They aren't essential. There are four essentials of a good Social Security reform:

  1. It must raise national savings--hence private accounts need to be an add-on, not a carve-out.
  2. It must preserve the valuable defined-benefit nature of the current program.
  3. It must restore long-run balance, and put in place mechanisms for automatic adjustment should the system fall further out of balance.
  4. It must be competently implemented--which means implemented by a group very different from the deranged monkeys who have brought us the 2004 Corporate Hogs Bill, the 2003 Pharmaceutical Profits Boost Bill, our current deficits, and the claim that Saddam Hussein could strike the U.S. with weapons of mass destruction any day now.

Richard Cohen could be a positive influence if he would recognize these four essentials.

Posted by DeLong at May 4, 2005 02:31 PM