Socialism's Last Redoubt

Pete DuPont weighs in on why the left is so opposed to allowing you to divert a small amount of your earnings into a private retirement account. To hear the left whine, you would think that Americans are far too stupid to handle their own money. Considering the ROI in Social Security, I would suggest that the left is too stupid to handle the Sailor's money. - Sailor

OUTSIDE THE BOX

Socialism's Last Redoubt

Why do Dems oppose Social Security reform? Because they're committed to government control..

BY PETE DU PONT
Wednesday, February 16, 2005 12:01 a.m. EST
OpinionJournal.com

In 1945 Clement Attlee led the British Labour Party to victory over Winston Churchill's Conservative Party. He then proceeded to socialize much of the British economy, for he believed that "the creation of a society based on social justice . . . could only be attained by bringing under public ownership and control the main factors in the economic system." Labour's goal was to get rid of the waste and irrationality that, in the socialist view, doomed market economies to failure.

Fast forward six decades, and you hear an Attlee echo--Sen. Hillary Clinton telling a California audience last summer that taxes must rise because "We're going to take things away from you on behalf of the common good."

American socialist Noam Chomsky made the same argument concerning Social Security: that allowing people to invest in markets is a bad thing, for "putting people in charge of their own assets breaks down the solidarity that comes from doing something together, and diminishes the sense that people have responsibility for each other."
So the 2005 Social Security argument is an old and familiar one: government decisions versus individual ones, government control of assets versus individual ownership. In short, socialism versus individualism.

There is agreement on Social Security fundamentals. Because of increasing baby boomer retirements, in 13 years Social Security will be paying out more than it takes in. A few decades after that, there will only be enough cash to pay about 75% of promised benefits. These problems could be solved in various ways--by gradually increasing payroll taxes from 12.4% to 18%, or gradually decreasing benefits by about one-third, or by borrowing about $11 trillion.

President Bush has proposed solving this problem in a different way--with personally owned market accounts to which working people could contribute 4% of their income that now goes to Social Security payroll taxes. The Washington Post last week concluded that the growth of these accounts would give the average worker retiring in 2075 "a monthly pension worth half of [his] currently scheduled benefit," while his Social Security benefit would be reduced by 30%. That's a nice profit--a fifth of the scheduled benefit--a profit that "exists because equities outperform bonds over the long term." The Post concludes that Social Security's annual return is about 3% above inflation, while the return on personal accounts would be 4.6% above inflation.

Aside from greater retirement benefits, private accounts differ from current Social Security in two important ways. First, with personal accounts a worker's payments are invested in the market, creating the growing wealth from which benefits can be paid. Under the current system there is no investment of Social Security taxes in anything; the government spends your money as soon as it receives it, partly on benefits to others and partly on general government programs.

Second, with private accounts the individual owns the pension he has paid for; it is a real asset that belongs to him. Instead of paying taxes to the government and waiting decades for the money to be paid back, you own your retirement assets from day one.

There are some existing models for such accounts in the marketplace. One is the government's Thrift Savings Plan, which allows government employees to contribute up to $12,000 each year into a personal account. Three and a half million people have chosen to do so and own real retirement assets.

Then there are public employee pension plans, more than 100 of them, which the Federal Reserve Board reports contain $2 trillion in assets. The biggest is the California Public Employees Retirement Fund, containing $149 billion. Their collective assets are invested 55% in corporate stock equities, 36% in bonds, and the remainder in cash. Union retirement funds--the Teamsters', for example--are similarly invested.

Then there is AARP, which offers a choice to its 35 million members among 38 investment funds--stocks, bonds, small-cap, large-cap, foreign and domestic funds of all shapes and sizes. Its Web site joyfully advertises "the only investment program specifically for investors 50 and over . . . to help you prepare for whatever may be on the horizon."

What's interesting about these investments is that many of the organizations offering them and individuals participating in them are the staunchest opponents of allowing the rest of Americans to create similar accounts within Social Security.

AARP opposes individual Social Security investment accounts, running advertisements saying they are "insecure" and characterizing them as "gambling." So market accounts are sound for their 35 million members but not for the 154 million who pay Social Security taxes?

The AFL-CIO's Web site argues that "the stock market is too unstable" to allow working people to have Social Security market accounts, and the American Federation of State, County and Municipal Employees opposes such "risky investment accounts." Yet both organizations' employees can participate in exactly such retirement investments. Why is it all right for them and too risky for other Americans?

Senate Minority Leader Harry Reid says market Social Security accounts are playing "roulette"; House Minority Leader Nancy Pelosi calls them a "guaranteed gamble"; Sen. John Kerry that the market account idea is "a rip-off." Sen. Olympia Snowe (R., Maine) is opposed, having "serious concerns" about individually owned accounts; Rep. Jo Ann Emerson (R., Mo.) opposes allowing individuals to invest their Social Security payments in "risky investments."

And yet each of these individuals owns just such marketplace investments, either through the Thrift Savings Plan or other accounts. The question is, why won't they let you do the same in your retirement plan, the one called Social Security?

Ultimately the argument isn't about investment accounts, or stocks or bonds or "gambling" or "insecurity." It is about socialism versus individualism, about Attlee's social justice and Hillary's common good and Chomsky's economic solidarity. AARP CEO William Novelli is in favor of allowing the government to invest Social Security surplus funds in the stock market, but against allowing individuals to do so--exactly the socialist argument, that government should control the distribution of the nation's wealth.

When you increase an individual's wealth, he becomes less dependent on government, and his attitude towards government changes. Socialists can't allow that, for it erodes their fundamental principle that social justice can only be achieved when important segments of the economy are under government control.
And that is why today's very liberal Democratic Party is so vehemently arguing against personal ownership of Social Security market accounts. The government's Social Security system is socialism's last redoubt, and must be preserved at all costs.

Mr. du Pont, a former governor of Delaware, is chairman of the Dallas-based National Center for Policy Analysis. His column appears once a month.