Steve Forbes in the latest issue of Forbes (link requires free registration but not subscription to the magazine):
Critics of President Bush’s plan for reforming Social Security–the President would allow working people, if they so choose, to put up to 4 of the 12.4 percentage points of their gross wages that are withheld as the Social Security payroll tax into their own personal retirement accounts–claim that we can’t afford the $2 trillion or so of needed borrowing in coming years to finance the transition. They’re wrong. We could easily finance such a transition.
During World War II, after all, we borrowed in less than four years what would today be the equivalent of $10 trillion, and we did so at interest rates of less than 3%.
The U.S. has $80 trillion in assets. Factor out our debts and the nation as a whole still has a net worth in excess of $50 trillion, which could double over the next decade. Those numbers don’t even take into account all the portfolio assets that are held in other countries. Under the circumstances, borrowing an extra $100 billion to $200 billion a year is, in the vernacular, no sweat.
The markets would quite easily, quite willingly buy bonds that would transform our unsteady, increasingly troubled pay-as-you-go system into one that would become a generator of capital of historic proportions, capital that would give us a far more muscular economy in the years ahead.
If anything, the Administration should be criticized for taking such a cramped view of Social Security reform: Workers should be allowed to put 6 to 8 percentage points or more into private accounts. The cap of $1,000 a year (and rising $100 a year thereafter) on those contributions is ridiculously small.
Companies with pension plans have to recognize their future liabilities for promised benefits on their books. The government doesn’t recognize its liability for promised Social Security or Medicare benefits. If it did, the officially reported deficit of $7.7 trillion would be at least $24 trillion higher. Every year the system isn’t changed, another trillion or so gets added to the unfunded liability, until at some point it will become unmanageable without massive changes (huge tax increases, big benefit reductions, or both).
Forbes’ point that more private set-asides should be allowed is important too. Increasing what people can invest in their own accounts will increase the current borrowing but over time will put a bigger dent in the unfunded (and real) liability. What’s not to like about that?
Taking on a few trillion in debt doesn’t seem so intimidating now compared to the alternative, does it? It would be nice if the Administration would acknowledge the need to borrow, and sell the country on why it’s necessary.
