RE: Will Congress answer the public's call for action?

[Steven Johnson <info@sscommonsense.org>]

Can Congress act in a bipartisan manner to save Social Security?

It can and it should.

At the moment, it doesn't seem to be so inclined.  Democrats would
rather cut benefits than sign on for a capital accumulation program
based on Personal Retirement Accounts.

Republicans would rather cut benefits than sign on for a capital
accumulation program based on Trust Fund investments.

The reality is that we need both.  We need a strong capital
accumulation program based on the Trust Fund.  We need a strong
capital accumulation program that includes Personal Retirement
Accounts.  A capital accumulation program using the Trust Fund, in
the absence of Personal REtirement Accounts, is a high risk program.
The share of the stock market that winds up in the Trust Fund is
unacceptably high.  A capital accumulation program using Personal
REtirement Accounts is a high risk program.  Individual retirees
are placed at much higher risk than today, for a variety of reasons
- market risk, longevity risk, high management fees, broker deception,
etc.

But the circle can be squared.  A capital accumulation program
based on the Trust Fund has much less risk if there is also a PRA
program at the same time.  If we have PRA's, we'll have a hundred
or more investment management firms handling PRA's.  Trust Fund
assets can be farmed out to those same firms.  Trust Fund assets,
by law, would be invested only in very broad market index funds.
The investment management firms would have full voting control over
the stocks.  The allocation to investment management firms would
be proportional to their popularity with America's employees.  If
two percent of all employees use Merrill Lynch, two percent of
Trust Fund assets would be managed by Merrill Lynch.  This totally
decentralizes the control of Trust Fund stocks and defuses the
concern about the Trust Fund's influence over our capital markets.

At the same time, a PRA program would have much lower risk if it
were combined with a strong Trust Fund.  All the risk factors
associated with PRA's can be alleviated if Social Security has its
own pool of backup capital.

The more capital Social Security accumulates, in PRA's and in the
Trust Fund, over the next 30 years, the less need there will be to
cut benefits.

A solvent Social Security system ought to reach the year 2050 with
a pool of capital - in PRA's and in the Trust Fund - equal to about
50% of GDP.  It ought to reach the year 2075 with a pool of capital
that's still worth about 50% of GDP.  That's solvency.

Too bad that's not on the agenda of either party right now.  As
mentioned, each party would rather cut benefits than embrace the
other party's strategy for accumulating capital.  Yes, a bipartisan
solution is possible.  And it's not conceptually difficult to see
what it ought to be.  It's just politically difficult to get each
side to let go of its aversions long enough to think more openly
about the problem.

-Steve Johnson.