DAILY SUMMARY May 26

[National Dialogue Moderator <moderator>]

		DAILY SUMMARY FOR MAY 26,1999


PANELIST'S COMMENTS

CAROLYN WEAVER offered a critique of Robert Reischauer's last post.
She thinks a good case can be made, as does Milton Friedman, for
general fund financing of the unfunded liabilities of the Social
Security System.  She thinks that the present work force should
not bear the burden of financing the present system's liabilities
alone and that general revenues should be used to pay benefits
during the transition to a privatized system. She applauds Mr.
Reischauer for recognizing that President Clinton's social security
proposals utilize general revenues to further shore up the trust
funds but she criticizes him for linking these transfers to the
financing of or repayment of the Social Security debt. She goes on
to point out that under the Clinton plan there is no link between
the general fund revenues going into the trust funds and  "the
repayment of anything." Thus, nothing would prevent Congress from
using these funds to bail out Medicare or finance some other social
program.

Ms. Weaver challenges Mr. Reischauer for endorsing centralized
investment. She thinks that he would agree with her that the
government is "thoroughly ill-equipped to manage" the assets that
would meet the system's unfunded liabilities.

Ms. Weaver also thinks that it is fallacious to frame the debate
as an either -or choice between social insurance and mandatory
savings accounts.  She points out that the welfare and redistribution
functions of Social Security can be handled separately and that no
aspect of privatization precludes achieving redistributive goals
in other ways.

Ms. Weaver endorsed the comments of those who advocate simplifying
Social Security. She thinks the complexities of the present system
have made if much more difficult for individuals to make prudent
decision about retirement savings.   She also agreed with those
who bemoaned the growing tangle of rules governing private retirement
savings vehicles.

PUBLIC COMMENTS

--Steve Johnson comments in "the issue of size" that if we want to
replace Social Security with private accounts or if we want to fund
the system either fully or partially that we have to look at the
real world numbers.  He estimates that Social Security's intake
runs around 4.5% of GDP and that its obligations will approach 7%
of GDP as the baby boom retires. Because he thinks that both benefit
cuts and payroll tax hikes are politically untenable, he thinks we
need to accumulate a sizable capital pool. He further estimates
that under privatization or collective investment that the pool of
capital has to be roughly worth 65% of GDP.   He also asserts that
the historical market capitalization to GDP ratio has been in the
65% range and that it is unrealistic to assume that the current
market capitalization levels are sustainable.   He says a sober
look at these numbers should compel both sides of this debate to
acknowledge that the program cannot be fully funded through the
trust funds or private accounts.

--Michael Jones agrees with Mr. Johnson's rationale until he
postulates that the pool of capital to close the gap is 65% of GDP.
He thinks that our economy can absorb much more capital and that
the 65% figure ignores capital appreciation. He observes that
retirement incomes will be funded not just by the earnings on
capital but by the appreciation of the assets held, which will be
much greater.

--Ridgeway again questions Mr. Reischauer' s argument that the
present generation has received a net benefit from the overpayment
of benefits to previous cohorts of retirees. He certainly does not
view the political leadership and the citizenry as measuring up to
the historical standards of other great American generations. He
asks both our experts if they have any spreadsheet models of the
econometric data that they utilize that they would be willing to
share with us.


Barbara Brandon