This post publishes, with his permission, a commentary written by my colleague Dick Kaplan to the Wall Street Journal in response to a story on the White House's campaign to privatize Social Security.
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Why Social Security Reform Failed (October 20, 2005)
by Richard Kaplan, Peer and Sarah Pedersen Professor of Law, University of Illinois College of Law
Today's front-page story quotes President Bush's "chief economic adviser" as saying that he "really can't identify where we went wrong" in the effort to dismantle (or "privatize" if you prefer) Social Security. If that is the case, that person needs a serious reality check. The reasons for this massive policy failure are legion, but I'll specify only four big ones.
4. Finally, President Bush failed to acknowledge the realities of "participating in the financial markets." He was correct to note that Americans have gained experience with investing for their own retirement, but they have not always enjoyed the results. In 2000, the populace might have been more receptive to Social Security privatization, but by 2004, the meltdown in securities markets had left most employees referring to their 401(k) plans as 201(k) plans, and surveys showed people increasingly insecure about their retirement prospects. Against a backdrop of wide-scale (and possibly illegal) elimination of retiree health benefits, Social Security privatization provided only more insecurity in a world that was already overflowing with it.
1. President Bush won his election by promising to make sure than homosexuals cannot marry. That was the "wedge" issue that brought his margin of victory. In addition, he spooked the populace into thinking that terrorists would endanger America if Kerry won. Never once during the long election campaign did President Bush set out any details about Social Security beyond euphoric bromides about an "ownership society," and he never mentioned that Social Security privatization would require serious trade-offs and substantial offsets.
2. As the Journal itself said in a typically wonderful turn of phrase, there is a difference between a "man of confidence" and a "confidence man." President Bush portrays himself as the former when in reality he is the latter. He can be upbeat about Iraq all he wants, but the painful reality is that 2,000 Americans have died after "Mission Accomplished" was proclaimed and no WMDs were ever located. The corrosive effect of the Iraq war on the Administration's general credibility can not be overstated.
3. This credibility problem was exacerbated by President Bush's repeatedly claiming that Social Security was "in crisis," "unsustainable," and even "bankrupt." Such claims were at best rhetorical overkill and more likely what lawyers call "fraud in the inducement." Social Security's "imbalances," if they exist at all, are statistical issues that can be addressed as such shortfalls have been addressed in the past. When these realities were pointed out, the Administration refused to admit its overstepping and thereby bolstered the impression that they were essentially peddling snake oil.
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