Thursday, February 17, 2005
Social Security: The attrition war of all against all
- There is usually agreement on what has to be done, but a political stalement over who pays for stabilization.
- Stabilization usually occurs after a political consolidation, since the burden of stabilization is often quite unequal. Consolidation means that a majority has gained power enough to put the costs of stabilization onto the minority.
- Successful stabilization plans are seldom the first one adopted. Failures usually occur before success.
Let me repeat that to be clear: The fight is over these "transition costs". If there was a way to have private accounts and no transition costs, I doubt this is much of a fight. You don't fight to the last foxhole over keeping the Social Security trust in the government's hands and away from households; Democrats in the early 1980s were all too happy to hand over tax cuts to kick off the Reagan Revolution. Giving personal accounts to millions of American families is a political winner. Democrats indeed say now they would be happy to take personal accounts as a supplement to Social Security, just not as a replacement of the current system. Why? The problem is on whom the taxes to pay the transition costs will fall. Raising the retirement age puts the cost on those in their 40s and maybe their 50s. Raising the cap on wages subject to Social Security taxes puts the cost on the upper middle class (not necessarily the same groups.) Reducing benefits puts the cost on current retirees -- something AARP is already lobbying to prevent.
So we have agreement broadly that something has to be done. We have a political consolidation in an expanding Republican majority in the House and a second-term presidency. And we've certainly had no shortage of failed attempts to save Social Security.
If Bush is to succeed -- and I've been more optimistic than most of my friends and colleagues on this -- the Alesina-Drazen approach suggests three things. First, any program has to be credible. The reason Bush is delaying, I would hope, is to be sure the plan passes not only a test of technical efficiency (that it actually solves the problem) but that it is salable to the public at large. So far, he hasn't done that, but there's yet time. Second, Bush needs to be seen as being fully committed to getting this passed, to use the political capital he said he had won in the election. On this Bush has a record of success in passing his legislation to fall back on. Last, he should be persistent. If the current Congress does not pass his plan, he will have an opportunity in 2007 to work with a new Congress, and while current betting is that the Republican majority will not expand then, it's simply too early to say. Plans that are unsuccessfully advanced at one time can pass later on.