Thomas Sowell

MANY PEOPLE were amazed when Governor George W. Bush proposed reforming Social Security because Social Security was considered to be "the third rail" of American politics. But Social Security has now reached the point where it is going to give us all a big jolt if we fail to touch it. The money just isn't there to pay all the pensions when the huge baby boomer generation starts retiring.

You might think that this would reflect badly on those who set up this system in a way that allowed generations of Democrats in control of Congress to keep adding to the goodies provided by Social Security, without putting enough money into the system to pay for those goodies. That was a real "risky scheme," to use Al Gore's favorite pat phrase.

But, so long as Republicans stood around twiddling their thumbs, afraid of touching the political third rail, Democrats were able to ignore the risks of a system that is literally trillions of dollars short of covering all the promises they have made. Now Al Gore and his fellow Democrats have the nerve to claim that it is "risky" to change a system that is doomed to default if nobody changes it.

Privatizing Social Security is not some untested new idea. Among the countries that have already done it are Australia, Chile, Poland, Sweden, Hungary and Argentina. But will the Democrats or the liberal media tell us that? And are the Republicans capable of articulating the issue?

The crucial distinction between Social Security as it stands now and a reformed system that would allow younger people to put some of their retirement money into the private sector is that the private sector uses that money to add to the total real wealth of the country, by building things and manufacturing products. As it stands today, Social Security does not add one dime to the country's real wealth.

The Social Security money that comes into Washington from our paychecks gets spent, not invested, despite creative accounting to the contrary. When the politicians spend the money, they give the Social Security "trust fund" I.O.U.'s in the form of government bonds. But this paper transaction changes nothing, except for creating the illusion that something is being saved when it isn't. You can't spend money and save it at the same time -- no matter how creative your accounting may be.

Future taxpayers are going to have to pay off the government bonds that have been issued to the Social Security system in exchange for the money that was spent. If no such bonds had ever been issued when that money was spent, we would still have to depend on future taxpayers to come up with the money for the baby boomers' retirement. The bonds in the "trust fund" change nothing economically.

Thomas Sowell

Thomas Sowell is a senior fellow at the Hoover Institute and author of The Housing Boom and Bust.

Creators Syndicate