The Freeman's Burden:

To defend the principles of human liberty; to educate; to be vigilant against the ever expanding power of the state.

Thursday, March 10, 2005

Why Social Security reform will fail and why that may not be a bad thing

I have predicted failure for George Bush in the past and have almost always been stunningly wrong. However, I think we can agree that Bush's government takeover of the financial markets on the premise of creating "private" accounts to solve the inevitable collapse of the Social Security system is in a lot of trouble. There are a number of reasons for this. Obviously, the fact that the private accounts will do nothing to aid in the solvency of the system is one big problem. They will cost two trillion dollars to establish at a time of massive spending deficits. This is also a problem. As a libertarian, the idea of bureaucrats having any hand in picking investment vehicles for individuals is very troubling. And what happens if the market takes a nose dive and people see their portfolio tank? Will the government be able to resist the urge to insert themselves into the markets and create price controls, or selling freezes, in order to stabilize stock or bond values? These are all huge concerns that the President has failed to address. On the other hand, if the current models hold true (they won't, but you need assumptions in order to discuss fiscal policy), the Social Security system will begin paying out more then it takes in in about 13 years. If one remembers the 'Lockbox" debate from 2000, the Social Security trust fund is nothing more then a tall stack of IOU's to the general fund. This means that in 13 years, money will have to be taken from general revenue in order to pay Social Security benefits. Therefore, the Congress and President of 2018 will be faced with either massive, open-ended tax increases or deep cuts (and I do mean real cuts, not cuts in the rate of increase) in spending. Since increasing taxes arithmetically every few years to continue paying benefits would be unfeasible and deeply unpopular, the more likely course would be spending cuts in the short run and a real effort at reform in the long run. It may be unsatisfying, but it seems that opponents of both the Social Security system and Bush's non-reforming reforms would do well to sit back and relax. Neither the system (in its current manifestation) or Bush's efforts have the legs to last.


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