WASHINGTON — I remain an agnostic when it comes to the idea of allowing workers to invest a portion of their Social Security payroll taxes. But I'm starting to feel like an agnostic inching his way toward belief.
I'm still not sure whether this is due more to the persuasiveness of those advocating privatizing part of Social Security or to the breathtaking weakness of the arguments on the other side.
To begin with the latter: Enron. The reason we shouldn't be allowed to put part of our Social Security money in the stock market is that markets go down as well as up. The collapse of Enron Corp., which shredded the savings plans of thousands of workers, is ringing proof of the danger of tinkering with Social Security. Suppose you were approaching retirement, and the bulk of your Social Security nest egg was in Enron stock.
But if that's an argument against allowing workers to put part of their payroll taxes into the market (as opposed to an argument for diversification), then it must also be an argument against allowing me to have stocks and bonds as a part of my 401(k) plan. And since no one is making that second argument, my conclusion is that no thoughtful person believes the first.
Another argument against partial privatization is simply mechanical, based on the fact that the Social Security checks of current annuitants are paid out of the payroll deductions of current workers. Thus, any part of payroll taxes diverted to the market would reduce the amount of money to pay today's retirees. Either the deductions would have to be increased (or supplemented from general funds) or the checks would have to reduced.
At least that is the argument. I don't know if it's true. A lot would depend on whether there is enough money in the Social Security Trust Fund to offset the stock market investments until stock appreciation and compounding close the gap.
Much of the argument against a thrift-savings component to Social Security amounts to little more than liberals against conservatives. Conservatives love it, so ever-vigilant liberals must oppose it.
The issue of transition, it seems to me, could be solved by simply decreeing that no Social Security recipient would receive less in monthly payments under the reform plan than under the current one.
A much more serious issue is: Who would choose and manage the investments? Leave it to individual workers and you'll get a certain number of idiots putting the whole shebang into some equivalent of Enron or the recently humbled dot-coms. Leave it to private managers or government agents and you give them the power to make or break market sectors or individual companies.
It's a problem, all right, but not beyond the ability of bright minds to solve. One approach might be to establish age-specific guidelines for stock/bond/cash ratios, with the stock portion comprising the broadest available stock-market index — say, the Wilshire 5000.
But opponents might fairly ask, why bother with all these fixes? Why not just leave things as they are, automatic and guaranteed against market fluctuations?
The simple answer is: You can't. As Henry J. Aaron, a senior fellow at the Brookings Institution, explains it, the system is unsustainable for the long term. Either taxes will have to be increased or benefits cut.
One way to soften the impact, he says, is to invest in the private market, which, over time, should produce a better return than the government bonds Social Security invests in now.
But Aaron makes a point that keeps me agnostic about privatization. "Make the investments through individual accounts and you increase the administrative costs to the point where it eliminates the difference in the implied rate of return. The greatest savings would come through a pooled investment fund, where administrative costs could be kept relatively low."
Moreover, he said, if you assume that the funds would be invested in the broadest index, over a long period of time, the payoff would be the same as the average payoff from individual accounts. In other words, individual accounts could beat the average only if others fell below it. And since the whole idea of Social Security is to guarantee basic income in retirement, individual investment accounts become a less attractive idea. All the tsk-tsking about Enron is just a distraction.
William Raspberry's e-mail address is willrasp@washpost.com .