Oh so rarely, the New York Times‘ editorial page make good economic sense, and its position opposing the Bush Administration’s Social Security privatization plans is one of those times. Sure, its motives reflect devotion to winning a partisan battle than to sound economics. Indeed, it would rather have Social Security strengthened and expanded. Nonetheless, its editorial on the subject in yesterday’s paper—entitled “Read the Fine Print”—deserves mention.
First, the editorial writer noted the hidden costs of privatization.
Your Social Security benefit would be reduced, dollar for dollar, by the amount of money you deposit into your private account and an additional charge amounting to 3 percent plus the rate of inflation. All the money that is drained off would presumably go to pay for the enormous upfront government borrowing — $4.5 trillion over the next 20 years — that privatization would require. That means people whose private accounts steadily earned three percentage points over inflation throughout their working lives would wind up with exactly what they would have gotten if Social Security remained untouched. Anyone who earned less than that would end up with less than is offered by the current system. When asked what would happen to the people who would not have enough income to avoid poverty, the administration official said, “I’m not sure if I’m understanding your question.”
The editorial writer also exposes the less-than-forthright claim that privatization allows private accounts to be passed onto one’s heirs. He writes:
That works entirely only if you die before you retire. Under a scheme that is going to take a while for the public to digest, the White House wants to require new retirees to use their private accounts to buy annuities large enough to keep them above the poverty line for the rest of their lives. The most they could leave to heirs, then, would be what is left over after the annuities are purchased.
This forced saving scheme is the area on which Bush apparently wants to spend his much-vaunted political capital. Let’s hope he spends, and wastes, all of it, making his second term at least as harmless as Clinton’s scandal-hampered second term. (If he reaches Clinton’s standard, the state would grow much slower.)
The Times views this plan primarily as a challenge to New Deal mythology, the belief in which is dying out with the World War II generation. It its amusing, and welcome, to find the paper on the side of sound economics, and on the side of liberty, even when the motives are not exactly principled.
