February 23, 2005
santorum and social security
Posted by David Skeel

One of the big stories here in Pennsylvania today is the chilly reception Sen. Rick Santorum got in several Phila area events designed to promote the Bush Administration's social security proposal (or rather, proposal-to-be). (See, for example, this story.).

My own view on the debate (touched on a bit at the end of a new book, "Icarus in the Boardroom" and in a couple of op-eds) has been that the existing level of benefits should be guaranteed, either by making any private accounts supplementary to the exiting benefits or by including a minimum guaranteed payout as part of the conversion. But I wonder if a compromise strategy might be to combine a change in the government's investment strategy with a small move to private accounts. The change in investment strategy would consist of an authorization for the government to invest a portion of social security funds in stock, rather than putting everything in treasury bonds. This would create the possibility of higher returns, a central part of the case for moving to privatization. The standard complaint (raised when Clinton floated the idea) is that this gets the government into the corporate governance business. But this is overstated, particularly given that the investments would surely be indexed. Moreover, the government's stake in the market, and our indirect stake as beneficiaries, would partially counteract any political pressure to pass inefficient corporate governance legislation, such as legislation that would protect managers agst takeovers. One can imagine a variety of quibbles with a plan that combined a shift in government investment with small private accounts; but it's worth considering. And thinking in these terms might make a genuinely bipartisan proposal possible.

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