A NEW TROJAN HORSE?….The basic economic argument behind Social Security privatization has always been simple: In order to solve Social Security’s future deficit, we have to cut benefits. But if we give everyone a private account invested in the stock market, the returns from the accounts will be high enough to make up for the benefit cuts.
You might recognize this as the same kind of free lunch argument beloved of supply side enthusiasts in the early Reagan years. Back then, the idea was that if we cut taxes, the resulting economic boom would provide the government with more tax revenue than it would have had in the first place.
Reagan’s budget director, David Stockman, figured out pretty quickly that the supply side fantasy was a ruse ? a “Trojan horse” to bring down tax rates for the wealthy, he called it ? and no one aside from a few dead enders pretends to believe it anymore. Now, via Josh Marshall, it appears that George Bush has quietly stopped talking about the private account free lunch as well:
A Bush aide, briefing reporters on the condition of anonymity, was more explicit, saying that the individual accounts would do nothing to solve the system’s long-term financial problems.
That candid analysis, although widely shared by economists, distressed some Republicans.
“Oh, my God,” one GOP political strategist said when he learned of the shift in rhetoric. “The White House has made a lot of Republicans walk the plank on this. Now it sounds as if they are sawing off the board.”
Now why would Bush do this? Possibly because he’s finally realized he just won’t be able to get away with continuing the pretense. After all, as I mentioned last month, the president’s plan is based on something called CSSS Plan 2, a plan the CBO has already examined and found wanting. As this CBO chart shows, even if Social Security is left alone and runs out of money, it’s still a better deal than CSSS Plan 2:
For more details, see this post. The bottom line is that private accounts by themselves don’t improve the solvency of Social Security. They actually make it worse.
And now, for extra credit, answer this question: if private accounts don’t solve anything, if indeed they actually make Social Security’s problems worse, then why is Bush pushing them? Cui bono?