These numbers do not lie.

• Author: Tanner, Michael
• Position: Economics

OPPONENTS of allowing younger workers to invest a portion of their Social Security taxes privately through personal accounts long have pointed to the supposed riskiness of personal investment. The volatility of private capital markets over the past several years, and especially recent declines in the stock market, have seemed to bolster their argument. For example, Pres. Barack Obama warned that, "A few years ago, we had a debate about privatizing Social Security, and I'd have thought that debate would've been put to rest once and for all by the financial crisis we've just experienced. I'd have thought, after being reminded how quickly the stock market can tumble, after seeing the wealth people worked a lifetime to earn wiped out in a matter of days, that no one would want to place bets with Social Security on Wall Street." Moreover, then-Speaker of the House Nancy Pelosi (D.-Calif.) claimed that personal accounts would have meant that "seniors would have lost trillions more in the financial crisis."

In reality, however, given a long-term investment horizon, not only is private capital investment a remarkably safe bet, but the returns from long-term private investment still beat the return from Social Security. Contrary to what the President and Rep. Pelosi implied, if we had established a system of individual accounts 40 years ago, individuals retiring now, and investing privately through those accounts, would be better off than they are under Social Security.

Given Social Security's ongoing financial problems and its inability to pay currently promised benefits, personal accounts remain an important and viable option for reforming the troubled system. It is important, therefore, to examine carefully market performance and compare that performance with Social Security benefits.

Although Social Security reform largely has been off the political radar since Pres. George W. Bush's failed attempt to reform the system in 2004, the problems facing our national retirement system have not gone away. In fact, since the demise of the Bush proposal, Social Security's long-term unfunded liabilities have increased by nearly six trillion dollars, to roughly 21 trillion dollars. This year, Social Security actually began running a cash-flow deficit, paying out more in benefits than it takes in through taxes.

In theory, of course, Social Security is supposed to continue paying benefits by drawing on the Social Security Trust Fund until 2036, after which...