Washington The White House used the front page of Monday's Washington Post to cashier a Cabinet member. A story headlined "Bush to Change Economic Team" said: "One senior administration official said Treasury Secretary John W. Snow can stay as long as he wants, provided it is not very long." Obviously the office will need filling before "very long."
The president should fill it with Alan Greenspan. He has headed the Federal Reserve System under four presidents -- since August 1987. Now he is needed elsewhere.
Historian Allan Nevins, Grover Cleveland's biographer, said Cleveland's problems "never came as spies but as battalions." President Bush may soon know that feeling, partly because global economic winds will blow as they will, but mostly because of his ambitious agenda, particularly Social Security reform.
Greenspan, a black hole of charisma, is, because of his reassuring lack of dash, precisely the person to embody sobriety in defense of bold changes, of which there soon will be many proposed. Greenspan, whose demeanor -- call it caution cubed -- does not suggest a man hurrying to Mardi Gras, has an unrivaled reservoir of credibility which can be drawn upon for five purposes:
- For preaching, as the Doha round of tariff reduction talks proceed, the rewards that flow from the discipline of free trade.
- For managing the decline of the dollar while reassuring financial markets that the decline is managed and healthy.
- For defending whatever tax reform the president proposes.
- For strengthening the forces -- if there still are any -- for spending restraint, moving the discussion beyond Vice President Cheney's pithy but, well, incomplete theory of public finance: "Reagan proved deficits don't matter."
- Above all, for defending Social Security reform against economic illiteracy and political demagoguery.
The political difficulty with Social Security reform is related to two facts: No government program directly touches as many Americans as does Social Security, and none is more misunderstood. The term Social Security trust fund surely was designed to confuse -- to obscure the fact the money paid in Social Security taxes does not prefund the future benefits of the particular taxpayers. That is, the Social Security trust fund is a financial obligation, not a financial asset. What Americans pay in payroll taxes -- roughly 80 percent of taxpayers pay more payroll taxes than income taxes -- provides benefits for current retirees, and the surplus of yearly outlays ($64.4 billion this year, but probably gone by 2018) buys Treasury bonds that will be redeemed when needed.
But payees do not build up a Social Security equity that they can leave to beneficiaries. Neither do they own their entitlements, which can be changed by a future Congress facing the need to sharply raise taxes or run huge deficits to fund the entitlements. Concerning possible future exigencies, two years ago two former senators, Democrat Bob Kerrey of Nebraska and Republican Warren Rudman of New Hampshire, proposed a thought experiment:
"Suppose that a member of Congress introduced legislation called 'the Social Security Do Nothing Act.' Under this bill, promised retirement benefits would be cut by 16 percent for today's 30-year-olds, by 29 percent for today's 20-year-olds and by 35 percent for today's newborns. Alternatively, payroll taxes would go up by roughly 40 percent in 2041. How many politicians would rush to endorse this bill? And yet these are the choices under the Do Nothing Plan."
The president probably will propose a plan that will permit individuals to invest a portion of their Social Security taxes in broadly diversified and conservatively managed funds. This would provide a higher return on Social Security taxes. And it would narrow the nation's wealth gap by giving individuals of modest incomes ownership of bequeathable estates.
The plan will be attacked primarily on two grounds: Investments are risky. And transition costs might approach $2 trillion as young workers pay less into the system while older workers continue to receive full benefits.
Greenspan has the standing, with Congress and the public, to contrast the risks of the market with the risks of doing nothing, and to reiterate what Kerrey and Rudman emphasized: Because any reform involves problems, no reform looks desirable when compared with the false hypothetical of the existing system being forever solvent.
Having been in Washington most of the 30 years since he became chairman of President Gerald Ford's Council of Economic Advisers, Greenspan understands political possibilities. Having served from 1981 to 1983 as chairman of the National Commission on Social Security Reform, he knows the issue. The man and the moment have met.