Social Security: Reform, Refund or Opt-Out (Part 1)

Several years ago, I did some research on Social Security.  I thought I’d share that with you now as we look to more possible reforms coming from the Obama administration.   This part is just introductory.  Part 2 will be on Public Pension Concepts and Alternatives.

One of the most successful and significant programs put into place by the Roosevelt administration’s “New Deal” has been the U.S. Social Security System.  It has met its goal of alleviating poverty among the elderly.  It has become known as the ‘third rail’ of politics because of its success and acceptance by the majority of the populace.  Elderly voters—an active and vocal voting constituency—do not take kindly to any discussion concerning social security reform.  While other countries around the world have been reforming and restructuring their public pension systems, the U.S. social security system remains firmly entrenched in its current form.  Any discussion of reduced benefit or increased contributions is political suicide.  Reform discussions are difficult at best.

Most recently, President G.W. Bush spent a large amount of time and taxpayer money being educated on third rail politics while trying to convince America that some form of privatization was the right vision for the future elderly.   While the highly selected audiences at these events was convinced that opting out completely was the way to go, the rest of America hit their panic buttons then phoned their congressional delegated.  These re-education forums are now part of America history.  The public reform debate has gone quietly into the night while discussion continues in the offices of institutions like MIT, Harvard, and the NBER.

Fortunately, many economists are still researching the efficiency of the U.S. Social Security System.  Additionally, they now have around 20+ years of experience from other countries’ public pension reforms to analyze.  This—at the very least—gives the United States the benefit of not going first so it can learn from the problems of the rest of the world.  Learning the lessons of others may still not be enough to bring sensible and truthful debate back to the public arena.  This must happen before reform or refunding actually occurs.

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