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Archive for Saturday, September 1, 2001

Second thoughts on two ‘reforms’

September 1, 2001

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Here are two "reform" ideas that I now think should be dropped, though at first I thought that they had merit and they do, just not enough to justify implementing them: partly privatizing Social Security and giving federal money to "faith-based" organizations to take care of the needy. That these two ideas are now declining in popularity suggests that people have started to look into them more thoroughly.

First, Social Security: The Bush administration, many Democrats and some others, many connected with the financial-services industry, want to have private investments replace at least part of what we now call Social Security. Wall Street and many residents of Greenwich, Conn., see this as a bonanza.

And it does initially sound nifty. After all, returns on stock-market investments averaged about 11 percent during the 20th century, and so people might think that they could develop much larger nest eggs than they'd get from stodgy, old-fashioned Social Security.

But proponents ignore a basic fact Social Security is supposed to be social insurance not an "investment." A sure thing, not a bet. It means that people can count on, and plan, for at least something in their retirement. Yes, the financial markets tend over time to go up but they have been known to fall, too, over a decade. Not great if you plan to retire at the end of that unlucky 10 years! A stretch of inflation could make things worse.

The generally affluent people who are traditional investors in the market can usually handle these declines. They have lots of money socked away in various well-diversified places. Middle-class and poor folks don't have such buffers.

Privatizing Social Security would lead throngs of people to invest in things they can't understand, and so be under the sway of unscrupulous investment promoters. The well-off have good information, often corporate-insider information, that middle-class and poorer people don't have. Many of the latter will be lambs to the slaughter in the even more frantic investment world of a privatized Social Security. Investment-business folks naturally give preference in all things, especially information, to the well-off.

And trying to keep track of the new and more complicated post-privatization world would further complicate Americans' already too frazzled lives, while leading many to financial disaster. Do we really want to make life more complicated? Must everyone be a "player" in the market, glued to cable TV financial-news shows?

Furthermore, some fairly straightforward and simple things can be done to ensure that Social Security remains solvent without spinning off part of it to Wall Street making sure that all state and local government workers join the system, raising the eligibility age, etc. And if keeping Social Security structured as is means raising taxes, so be it! It's well worth it.

For that matter, there are already huge government tax-sheltered programs for encouraging retirement savings in the financial markets IRAs and 401(k)s. The government pays for these programs dearly through lost tax revenues.

The simple need for diversification and national economic stability would argue for not privatizing any more of the average American's retirement income. When times get tough, such as now, it is good to know that purchasing power can be kept alive by such social insurance that there's a floor under consumer spending, which props up two-thirds of the economy.

Another thing that would further complicate life is the plan to give federal money to "faith-based" groups. Now, I recognize that many such organizations do wonderful things, often better work than what government agencies can do. But I challenge the capacity of government officials to determine which ones do good stuff while avoiding breaking the constitutional barrier between religion and government.

For instance, would Minister Louis Farrakhan's anti-Semitic organization be welcome to join this program? Would we be creating "established" religions while rejecting others not politically acceptable? In any event, the potential for fraud, political pork and other abuse in the faith-based movement is extensive.

And government already in effect gives many billions to faith-based organizations through the tax-exemption that religion gets, fairly or not, and via direct grants, especially to Catholic colleges. This means that all Americans, believers or not, are in effect subsidizing religion, big time. Do we need or want to do even more of this?

But perhaps most troubling is that sending federal money directly to churches, synagogues, mosques and so forth would undermine true religion by making it increasingly dependent on the government and politicians.

As a well-known religious leader of the Roman era said, "My kingdom is not of this world." I say protect religion from government, and let government continue to perform its basic role of promoting the general welfare for the devout, the agnostic or the atheist.

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