Is it Time to Reform Social Security?

• Author: Baker, Dean

By Edward M. Gramlich. Ann Arbor, MI: University of Michigan Press, 1998. Pp. xi, 103. $24.95.

This brief book will be a useful guide to the present state of the national debate over Social Security. It is a clearly written accessible account of the problems that face the system and the proposed solutions that came out of the President's Advisory Council last year. As the chairman of this Council, Gramlich is a person well situated to write this book. His political views on this issue also place him very much in the center of the debate. He occupies a middle position between those on the right, who support more extreme privatization proposals and people to his left who would like to leave the current system largely intact.

Gramlich's preferred solution is a combination of benefit cuts and small mandated individual accounts, which would be an add-on to the existing program. The benefit cuts would be large for middle income workers but would still preserve the progressive payback structure of the current system. The mandated accounts would be 1.6 percentage points of payroll, less than one-third the size advocated by privatizers. These accounts would be centrally managed through the government, rather than put directly into the hands of the financial industry as preferred by most advocates of privatization. Gramlich's plan, and other similar proposals, have garnered considerable attention in recent months. Many in Washington believe that the Clinton Administration will ultimately end up supporting some version of this proposal.

While this book serves as a solid rendition of the conventional wisdom, it also suffers from all the shortcomings or shortsightedness that characterize the current debate on Social Security. Of course it is not fair to blame Gramlich alone for the narrowness of this debate, but it is at least worth noting some of the key issues that the book sidesteps.

Going in reverse order of importance, Gramlich presents the standard argument on projected trends in entitlement standard as part of the rationale for restructuring Social Security. The basic story is that entitlement spending for the elderly is projected to soar over the next few decades, therefore we should look to contain Social Security spending. This argument is at least misleading, because the real culprit in the story is Medicare spending. Furthermore, the projected increases in Medicare spending are driven primarily by higher per capita medical costs, not...