You're too stupid to manage your own money

Larry Elder

1/20/2005 12:00:00 AM - Larry Elder

Former Democratic vice-presidential contender Geraldine Ferraro inadvertently revealed the real reason behind Democrats' resistance to the president's proposal of Social Security partial privatization. " . . . [I]f you don't have the knowledge [emphasis added] and the wherewithal [emphasis added] to manage your own private funds," said Ferraro, "well, you know, you're gonna be out of luck."

Now, Americans possess the ability to make the money. Ferraro's comments parallel the Americans-are-too-stupid theme embraced by former President Bill Clinton. Speaking in 1999 about the $70 billion budget surplus, Clinton said, "We could give it all back to you and hope you spend it right. . . . Do you really want to run the risk of squandering this surplus?"

Congress never intended for Social Security to grow into something on which people solely relied for their retirement. Even its patriarch, Franklin Delano Roosevelt, said, "We shall make the most lasting progress if we recognize that Social Security can furnish only a base upon which each one of our citizens may build his individual security through his own individual efforts." But decade after decade, both Republicans and Democrats kept adding to the program, making it increasingly more generous, much to the delight of the ever-motivated older voter.

The Social Security "trust fund" doesn't consist of any real assets. The government "borrows" fund money for other federal spending, replacing it with IOUs. The remainder of the "trust fund" is merely accounting entries attributing interest to the IOUs. Thus, current workers paying in support current retirees drawing out. According to the Social Security Administration, in 1945, 41.9 workers supported each individual retiree, while today only 3.3 workers support each retiree. This system cannot continue.

Now Democrats say, "What crisis?" Senate Democratic Leader Harry Reid, D-Nev., recently said, "For heaven's sakes, they're crying wolf a little too regularly here. There is not an emergency on Social Security."

Tell that to former President Bill Clinton. In 1992, the Wall Street Journal asked President Clinton, "Let's run a couple [of deficit cutting schemes] by you just to see if you would entertain them: raising the retirement age for Social Security benefits." Clinton answered, "I think it's something we ought to look at, I sure do. When Social Security was instituted . . . the retirement age was pegged at an age that was higher than the average life expectancy of the people paying into the system. The average person that actually drew retirement benefits spent about five or six of their adult years in retirement. Now, with the fastest growing group of the population over 80, by the turn of the century the average person could literally spend 20 years in retirement. . . . "

To examine the system, Clinton appointed a Social Security Advisory Board. They came up with three options: a Maintenance of Benefits plan, which involved tax increases; an Individual Accounts plan, which mandated an increase in employee contribution that would be allocated to government-held individual accounts; and a Personal Security Account, with privately managed, fully funded individual accounts to replace a portion of Social Security.

No matter what the president proposes, expect Democrats to object. For example, the White House recently floated the notion of indexing Social Security benefits to inflation, rather than wages. (By indexing to inflation, the expected so-called guaranteed benefit decreases, but the worker would more than make it up through expected greater returns with money put into a personal account.)

Foul, cried House Democratic Leader Nancy Pelosi, D-Calif. " . . . Recent press reports suggest that your administration favors a privatization plan that includes 'price indexing,'" said Pelosi, "which would reduce Social Security's progressive benefits by up to 46 percent for future retirees. These benefit cuts are the equivalent of asking today's seniors to live at a 1940s standard of living."

Are these the same guys who tell us that workers keep falling further and further behind consumer prices?

Former Democratic presidential candidate John Kerry said that many Americans are being "squeezed" as wage gains fail to keep pace with a rising cost of living. Then-vice-presidential candidate John Edwards said last year, "It made the front page of the paper today, but it's not news to many Americans that wages are not keeping up with inflation." But if inflation outpaces wages, as Sens. Edwards and Kerry argued -- why not index the benefits to the higher number, inflation? Historically, wages outpace inflation, and Democrats -- despite their whining about the "Bush economy" -- know this.

It's gonna be a long four years. Let's hope we have the knowledge and wherewithal to endure.