Social Security And The Wall Street Hobgoblins

The author says that of all of the ideas offered by politicians regarding Social Security, privatization is among the worst.

Today, campaign strategies for Social Security write themselves. The message starts with how important Social Security is, and proceeds to how popular the program is. Then we tell the voters what we will not do, before closing with how vital the program is for future generations.

In the end, voters get euphemisms and empty rhetoric instead of an honest discussion about the state of the system, and the implications for America. In the latest Democratic debate, we heard more fear-mongering about the privatization of Social Security. Hillary Clinton demonized the GOP for wanting to privatize Social Security. She said, “In fact, their whole idea is to turn over the Social Security trust fund to Wall Street.”

Is her claim true? PolitiFact says no. Andrew Biggs, the resident scholar for Social Security at the American Enterprise Institute, goes further to remind us that it was Hillary’s husband, former President Bill Clinton, who tried to turn over the Social Security Trust Fund to Wall Street. (“Did Hillary oppose Bill’s idea to invest the trust fund in stocks? Does she even remember it?”)

Clinton’s statement is a sign of how little value remains in the discussion of Social Security. Campaigns focus on what they won’t do, or in this case what we can’t do. The promise to protect Social Security from privatization is no more meaningful than a promise to protect the program from hungry leprechauns.

The concept wasn’t even popular the last time politicians proposed it more than a decade ago. The ideas of George W. Bush Jr. took shape in multiple forms of legislation. Those bills could not even escape a GOP controlled committee intact. Ever since the issue has been a straw dragon for Democratic fund raisers.

The word “privatization” is a misnomer. Privatization should mean that a private concern will provide a government service for profit. In the debate about Social Security the word means that we are going to replace a service that the government provides with a completely different concept.

In reality, privatization ends Social Security. It transforms the program from insurance to forced savings. Insurance is an expense, which manages risk. Savings is an investment, which profits from taking risk. We are only preserving the name of the program for the sake of nostalgic voters.

Is this a good idea? No. But, the mechanics of “privatization” does not even make an interesting question. Campaigns use the word because it evokes an emotional response. It inspires fear in the left, and hope in those on the right. It is little more than a dog-whistle meant to rally the base.

The reality is that we can’t afford it. Privatizing Social Security isn’t free. We cannot fix revenue shortfalls by diverting more money away from the program. As money leaves the system, the unfunded liabilities grow even larger. That may be great for the guy who gets to keep his money, but it is a problem for a system on which seniors depend.

The system today expects to spend more on benefits than it receives in revenue every year for eternity. You can’t solve that problem with less money. Today the conversion of Social Security to personal accounts would cost between 20 and 30 trillion dollars depending upon the details. These “transitional costs” make privatizing Social Security is no more likely than a meteor strike.

Assuming that we aren’t going to tell seniors to pound sand, how do you expect pay existing retirees with even less money? The money can come from retirees in the form of reduced benefits, say means testing. It can come from increased taxation, say removing the cap. The most likely source of the revenue is public debt that will be carried by the future generations whom we claim that we are trying to help.

No candidate today has a plan that could be to privatize Social Security. Ted Cruz has said that he would like to offer younger workers the option to keep a portion of their taxes in personal accounts. Without the details of how he will pay for it, his words are a chicken-in-every-pot promise that politicians make to get elected.

No one is voting for Senator Cruz for Social Security. Senator Cruz doesn’t even list Social Security as an issue on his campaign site. On one hand he tells voters that younger workers should be allowed to keep a portion of their payroll taxes in a personal account. In another bullet point, he wants to end payroll taxes all together.

The issue of privatization is theater for voters meant to give us the impression that someone in Washington is paying attention to the largest expense in the federal budget.

About the Author

Brenton Smith (A.K.A. Joe The Economist) writes nationally on the issue of Social Security reform with work appearing in Forbes,, MarketWatch,, and regional media like The Denver Post.