Sunday, February 13, 2005

Social Security, Part III: Congress or Wall Street...

...which is the bigger gamble?

This is the third installment in my series on Social Security. Click here to go to the beginning of the series if you haven't been following it.

I'm sitting here watching Rep. Charles Rangel (D-NY) and Sen. Chuck Grassley (R-IA) on Meet the Press, and Mr. Rangel tried to frame the privatization issue as government bonds vs. private investment. If it were really that, then government bonds really would be less risky. Unfortunately (for Mr. Rangel), the issue is not government bonds vs. private investment. It is the whim of congress vs. private investment.

The truth of the matter of the "guaranteed benefits" that Mr. Rangel refers to is that they are anything but guaranteed. Congress can vote to adjust benefits at any time. So far, the powers that be, namely the political parties and the media, have managed to frame Social Security as the third rail of American Politics, creating an illusion of security around Social Security's benefits. They say, "No politician would dare vote to cut Social Security benefits! It would be political suidicide!" This is no longer the case. Benefit cuts are now on the table as part of a serious solution. The third rail has lost its charge.

Now, the issue of security of benefits really comes down to what one trusts more, government or the market. Those on the left, who see government as the benevolent guarantor of a smootly-run society, believe that having their benefits in the hands of Congress is preferable to having them in the market. Those on the right, who see government as a necessary evil in economic matters, believe that having their benefits in the hands of the market is preferable to leaving them to Congress. It really depends on one's point of view.

What does not depend on one's point of view is the truth of Mr. Rangel's statement about today's benefits being guaranteed. It is false. Today's benefits are subject to change at any time. That's a gamble. So's the market. Which is bigger? It depends on who you trust.

Coming Up Next: Social Security, Part IV: A pension or insurance?
Previously: Social Security, Part II: 2018 or 2042?