Policy Days.

• Author: Lynch, Michael W.

In which our man in Washington hears retirement talk, takes in an intentional congressional comedy show, and enjoys a Texas breakfast.

Subj: Trolls under a bridge

Date: 2/6/01

From: mwlynch@reason.com

'Tis the season to push policy. With Bush's Cabinet in place and Sen. Ted Kennedy (D-Mass.) enjoying movies with Dubya at the White House, there's a sense that anything is possible.

How about private Social Security accounts? That's the topic at a two-day confab at the Cato Institute. I knew the event was a big deal, as Cato President Ed Crane made it downstairs to the F.A. Hayek Auditorium to deliver the introduction. (I last ran into Crane in September at his annual Salmonfest, where we talked about Bush's electoral prospects and he asked me not to mention his hat, a baseball cap with a salmon grafted onto it.) Social Security privatization has been a rich fishing hole for Cato since its early days, the late 1970s.

"It's time to move from advocacy to action," said Harvard economist Martin Feldstein, who advised Dubya on Social Security during his campaign and was the morning's featured speaker. Feldstein thinks budget surpluses, which can be used to help fund a transition, make it an excellent time for bipartisan action on the issue. "An investment-based plan makes it possible to maintain current benefits without raising taxes," said Feldstein. "How can any responsible member of Congress reject that?"

Feldstein's main claim is that if current funds were invested in private assets, current benefits could be maintained with only one-third the taxes necessary for the pay-as-we-go system. But he doesn't advocate a purely private system, which he feels would be too risky for many Americans. He proposes a mixed system that devotes 9 percent of payroll to the pay-as-we-go system and 3 percent to individual accounts.

This was too soft for one audience member, but Feldstein disagreed, arguing that a mixed system would minimize both the the market risk of private investment and the risk that taxes will have to skyrocket (or benefits will have to be cut) to meet the system's obligations.

I'd settled into a game of Tetris on my Palm Pilot by the time Charles Rounds of Suffolk University Law School took the podium. Rounds declared that we need to privatize Social Security because the current system is too risky for widows and orphans. Sporting a yellow bow tie, Rounds resembled a coked-up New England prep-school headmaster soliciting alumni donations...