THE DOW OF SOCIAL SECURITY
FRUM, DAVID
The Dow of Social Security by David Frum WE CAN'T READ THEIR MINDS, of course, but the hoary defenders of the Social Security status quo would have had to be superhuman not to cheer as the stock...
...If, on the other hand, the Republicans choose to make an issue of Social Security, tax reform will inevitably sink into second place...
...And last week's market turmoil is a warning that it could vanish with stunning rapidity...
...The planets are aligned: The stock market is booming (dramatizing the superiority of private markets over government insurance), the budget is in surplus (which means that there is cash on hand to pay the costs of the transition from a pay-as-you-go pension system to a fully funded system), and the Democratic party is in one of its business-oriented moments...
...If so, there will be little time and energy left over for Social Security reform—especially since one of the favorite arguments of the radical tax reformers is that their low, flat income tax will so boost the U.S...
...economy that the old unreformed Social Security system will suddenly seem affordable...
...Phil Gramm for just this offense...
...Reform may be most feasible when memories of the bull are still fresh and hopes for its return are strong...
...If Republicans miss the opportunity to reform Social Security now, they may never get the chance again...
...This question of timing becomes all the more urgent if the tax reformers are wrong and it is indeed Social Security that is the most important economic issue for conservatives...
...Tax rates fluctuate...
...So for rear-guard defenders of Social Security, a good old-fashioned Wall Street panic must have seemed the answer to a prayer: A cataclysmic collapse of their 401k plans will teach these greedy youngsters that there are worse things than the slow and steady evaporation of one's Social Security contributions...
...Every year, high schools and colleges graduate a fresh class of Social Security losers, and funeral homes bury another cohort of Social Security winners...
...But it's also true that the nearer the crisis grows, the more costly and painful that "something" will have to be...
...But the end of the bull may very well weaken the political case for privatization...
...In 1999, it may be less obvious...
...Who knows how long those conditions will last...
...Ought it to be radical tax reform and big tax cuts...
...Which is why Steve Forbes's 1996 tax plan, which so dramatically pledged to eliminate income taxes for lower-income families, quietly left in place the much more onerous payroll tax on those families...
...The party is now wrestling with the question of what its next big idea should be...
...Administration...
...Thatcher's sale of council housing—a social reform that will transform millions of voters from dependents into owners...
...Privatizers have tended to believe too that Social Security reform ought to wait for the election of a Republican president...
...The clock is ticking in another sense, too...
...The August '98 stock-market collapse should prompt recognition that there are indeed risks in delay...
...For privatizers, the mid-'90s have been just such an opportunity...
...David Frum is a contributing editor to THE WEEKLY STANDARD...
...Whatever happens on Wall Street, the plight of Social Security is unchanged: Around 2010, the federal government will no longer be able to afford the current level of benefits at the current level of taxation...
...And since the taxreform option is the one most appealing to risk-averse Republicans—Who ever saw his poll numbers drop for proposing to cut taxes?—sheer inertia suggests that the longer Social Security reform is postponed, the less appealing it will become to Republicans...
...The first baby-boomer retirement is now only 13 years away...
...Worse, the nearer the crisis grows, the less time there will be for the money that will be put into the market to compound...
...The partisans of the Social Security status quo understand this: Increasingly they defend the rattletrap old system not in economic terms but as the last bulwark of collectivist ideals...
...Unlike President Clinton's Democrats, the party of Dick Morris's multitudes of mini-ideas, the Republicans are the party of a few big ideas...
...But Social Security privatization is the American equivalent of Mrs...
...Make no mistake: Low tax rates are wonderful things...
...In 1997, it was obvious why it would be better to put 12 percent of your pay into the market than into the palsied hands of the Social Security SOCIAL SECURITY PRIVATIZATION IS THE U.S...
...The Dow of Social Security by David Frum WE CAN'T READ THEIR MINDS, of course, but the hoary defenders of the Social Security status quo would have had to be superhuman not to cheer as the stock market slid through the last week of August and then crashed on the 31st...
...That's why the tax reformers get so grouchy when anyone gets too earnest about fixing the Social Security system: Recently, the Wall Street Journal's Paul Gigot used his column to administer a stinging rebuke to Sen...
...The fact that such a majority happens to be in place now should not blind us to the possibility that it could very well vanish...
...Proponents of reform should be at least as open-eyed—should understand that this is the one reform that will install self-reliance at the very center of the American economic constitution...
...But sooner or later the mossbacks will have their day...
...Yes, it's true that the political clamor for doing something about Social Security will grow louder as the crisis nears...
...Over the past decade, advocates of privatization have acted on the belief that time is on their side...
...THATCHER'S SALE of council housing...
...it will TURN dEPENdENTS INTO owners...
...it's true that the end of the bull will make no difference to the economic case for privatization...
...Alas for the mossbacks, the Dow quickly stabilized at 15 percent or so below its peak, leaving almost all of the fantastic gains of the mid-'90s bull market intact...
...For years they have endured the complaints of young taxpayers that Social Security is a cheat: While private retirement accounts have sometimes grown at annual rates of 30 to 40 percent during the nineties, Social Security will pay out zero percent returns to today's thirty-somethings and sub-zero percent to today's twenty-somethings...
...Like all bull markets, the great bull market of the 1990s will end, either in a terrific crash or simply by petering out...
...In other words, time may not in fact be on the reformers' side...
...Political opportunities are rare and fleeting things, and when they vanish they do not always reappear...
...Advocates of Social Security privatization had better factor that into their plans...
...Why struggle and toil now for reform when in a decade or two it will be politically riskless...
...EQUIVALENT OF MRS...
...But Social Security reform will create a permanent political majority in favor of sound money, corporate profitability, and a free economy...
Vol. 4 • September 1998 • No. 1
