The current Social Security system is an unfunded liability. It is without investments to back it up. It is headed toward bankruptcy or toward becoming a tremendous burden on the economy. David Malpass, the chief economist of Bear Stearns and, for my money, one of the country's sagest economic minds, argues that Social Security reform ought to be selling itself -- it is that desirable. In the April issue of The American Spectator, he offers eight reasons. Allow me to pass along four.
With expanded use of personal accounts, there will be "less risk, more benefits." Malpass goes on to argue that the insolvency of the present system "creates an immense risk for the young." As for benefits, "the current benefit system offers an assumed return of 3 percent per year, but that is completely dependent on the beneficiary living long enough to collect." Whereupon Malpass cites "Jeremy Siegel, one of the world's experts on long-term equity performance," who "forecasts real equity returns (before inflation) at 6 percent per year over the next 44 years ? Personal accounts clearly offer the likelihood of more benefits than the current system, without the risk of the government voting them away."
Another obvious benefit from Social Security reform is job growth. Says Malpass, "The current Social Security system imposes a gigantic tax on jobs -- 12.4 percent of pre-tax income including the employer and employee portions." By reducing the tax and allowing workers to invest more of their income, jobs will be created and the economy's growth rate will increase. A third benefit from Social Security reform will be an increase in "fairness" for the "frail or minorities, who tend to die earlier and lose their benefits." Moreover, the present system is "unfair to those who want to work past 62 or start working young, since the benefit formulas ? give minimal extra benefit for working more years." Finally, Malpass sees Social Security reform freeing Americans from "dependence on Washington. Retirees now rely on Washington largesse for their checks," which distracts elections from wider issues to questions of Social Security's benefits. "For now, every election has to be first a vote on the size of Social Security payments, then a vote on other issues."
So it is time to get Social Security out of politics and onto an economically sound basis. That is Malpass' message, and it ought to be the Republicans', too. It ought to even be the Democrats' message. Yet their political libidos will not allow it. Thus we have this one great campaign being waged by the president. He could benefit from reading the whole of Malpass' argument.