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Whatever Happened to the Liberal Privatizers?

Via Talking Points Memo, I notice that Congressman Rangel said yesterday on Meet the Press, "There is no Democrat in the House of Representatives, on my committee, that this president has reached out for. I'm telling you now, Social Security reform by the president is dead, and he killed it."

It's true -- there really is no "Fainthearted Faction," and while that's a testament to a newfound party discipline among Democrats, it also has something to do with the fact that the White House seems to have done absolutely nothing to nurture the faction, despite knowing well in advance that they would need some Democrats to achieve anything on Social Security.

It suddenly occurred to me that, in addition to the missing Democrats on the Hill, there was also a faction entirely missing from the public debate: the pro-privatization liberals. I'm thinking, for example, of Sam Beard, who I got to know a little bit in the mid-1990s, when he created Economic Security 2000. Beard is an eloquent, engaging former Bobby Kennedy staffer, did economic development work in Bed-Stuy, founded and chairs the National Development Council, and ran for Senate as a Democrat from Delaware in the 1990s. Sam had an exciting, "everyone a millionaire" vision of Social Security, framing it in terms of opportunity, equality and wealth for the poor. I never thought that his numbers quite worked, but leaving that quaint concern aside, it was a hell of a more compelling vision for a low-income or African-American audience than Bush's offensive nonsense about how Social Security is a bad deal for black people because they die young. (A fact he seems to have no interest in changing.)

But where's Beard today? He was on Bush's 2001 commission, and he's on the advisory committee for the Cato Institute's Social Security project, but I don't see anything public in the current debate. No op-eds, nothing in Lexis-Nexis since early 2003. And what about Bob Kerrey, who joined Moynihan to push private accounts in the late 1990s? Yes, he wrote an op-ed in the Wall Street Journal, but that was hardly an endorsement of anything like the White House plan, more like a plea to Democrats to put forward a progressive, add-on plan of their own rather than just oppose.

If Bush were serious about passing something on Social Security, he would have started long ago with a list of not only the congressional potential "faint-hearted faction," but also liberals like Beard who were really quite passionate about privatization, and made sure that they felt involved, consulted, rewarded. Why didn't they do it? One explanation is that more than actually enacting changes to Social Security, they wanted to set up the sharpest partisan contrast, even knowing that this was not something they could pass with only Republican votes.

An alternative explanation: The Democrats who served on the Bush 2001 Social Security Commission were so offended at the way they were treated and in particular the way Senator Moynihan was treated that they know better than to get back into that bed with that crowd.

Whether by choice or miscalculation, Rangel's point is correct, and it extends beyond Congress.

Posted by Mark Schmitt on February 14, 2005 | Permalink


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Why look for Democrats who are for privatization? All Democrats have decided that you cannot trust Republicans. Besides, Bush does not want to save Social Security; he wants to kill it. Privatization is his way of doing this.

Posted by: Paul Siegel | Feb 14, 2005 6:35:13 PM

The Democratic Party wouldn't be in the sad shape it is today if it wasn't for pathetic efforts of politicians like Moynihan to provide a bipartisan fig leaf to the Republican "wreck and ruin" agenda. Fortunately the Democratic wing of the Democratic party has finally stood up, and organized to stop any more appeasement of the radical right by Democrats. Without the grassroots uprising of the last year, there would be many congressional Democrats in Washington rushing to sell-out to the Busheviks, just like they did over the war, the tax cuts, and NCLB. It's the grassroots that has put an end to it. We're weren't strong enough to defeat the Rethugs in 2004, but at least we've stopped retreating. Social security will be the Rethuglicans' "stalingrad."

Posted by: aenglish | Feb 14, 2005 6:50:39 PM

Bottom line___ Bush cannot be trusted with fiscal policy. His tax cuts were supposed to protect the SS surplus___ they created a deficit. His Medicare Drug was supposed to cost $400 Billion__ it costs twice that. Iraq was supposed to pay for itself with oil revenue___ $200 billion and counting. Bush tax cuts were supposed to create jobs___ didn't happen. His steel tariffs were supposed to protect jobs__ thousands of steel parts mfg jobs were lost. A weak dollar was supposed to increase exports__ export increases are not nearly enough.

With Bush, its my way or the highway. Evan Bayh tried to put triggers on the tax cut and failed___ He got burned. Ted Kennedy worked on NCLB to make sure it was funded__ He got burned. Numerous times Democrats have tried to help Bush and he turns around and spits on them. At some point Charlie Brown needs to cut his losses and quit trying to kick the football. Results matter. When your fiscal policy batting average is 0.002 it says something.

The liberal version of private accounts is the one Paul O'Neill signed onto. His private accounts are "in addition" to SS and recognize that poor people do not make enough money to establish the accounts themselves and so need contributions from societies wealthy. This is a non-starter with Bush because he is not collecting enough revenue to run the programs he currently supports, let alone new programs. The refusal of Bush to deal with the revenue shortfall means that no meaningful negotiations on SS, Private accounts or any new social spending can take place.

Posted by: bakho | Feb 14, 2005 11:32:08 PM

Bush needs more money. He needs to do 1986 over again, raising taxes on middle class people and cutting taxes on rich people. The cutting taxes on rich people has already happened, but the raising taxes needs some work. That what social security reform is for.

Posted by: | Feb 15, 2005 2:08:24 AM

The answer is in this table from EPI.

In the early 90's the numbers showed Social Security in some danger. Absent economic growth significantly higher than historical averages, it would need some sort of fix. Indeed right up to the 1997 Trustees' Report the cost for totally fixing the problem without outside intervention was for growth for 1997 and every subsequent year to exceed a pretty good 1996 number.

And it did, and due to the effects of compounding every .1 percentage point of growth above the projection in the current year allows a > .1 reduction in needed growth in one of the out years. A string of good years starts carving away at the amount of growth needed going forward. And we had that string. The subsequent effect is that the growth needed going forward to fill the gap completely keeps shrinking. Even if the economy slows somewhat it only needs to beat the current year prediction to shove depletion back. The current year prediction (Intermediate Cost 2004 Report) is 1.8% productivity growth. We beat that and 2042 gets shoved back.

Liberal privatizers went away because the problem went away, policy planning and language that was perfectly appropriate in 1993 has become stale dated by real world economic performance.

Posted by: Bruce Webb | Feb 15, 2005 10:22:23 AM

I don't believe that any liberal privatization advocate would condone the mechanism by which Bush plans to put his plan into action.

Since the early days of the current debate on privatization, there have been a lot of numbers thrown around by both sides debating whether the yields from stocks could beat the 3% real rate of return from US Treasury bonds. I never understood the preoccupation with the 3% RROR, since Social Security and its implicit rate of return has nothing to do with the T-bond RROR. It is just a convenient place for the T-bonds to be stored.

Then Bush outlined his "personalization" plan, and some of the details emerged. Eureka, there was the 3% RROR in the plan. On thinking about it, that made sense, since the only way that the plan would have no net effect on the (relatively) short term plan for SS would be if Bush essentially made the people who opted for private accounts pay the US T-bond interest rate that would have accumulated if their money had gone into the trust fund instead of into private accounts. After all, in the long run, a good chunk of the Social Security benefits are scheduled to be paid from the interest earned on the T-bonds. If some money did not go into the trust fund, that interest would not be earned, thus the solvency of the program would become worse. So the 3% RROR was introduced as a "loan" to put the system back into net balance. The fact that a person who opts for private accounts receives a larger relative benefit cut than the relative amount that they actually put into their private accounts (2/3 benefit cut vs. 1/3 tax money put into private accounts, even assuming that the benefits are at the lower level resulting from no change in the current system) has been pointed out by Jason Furman.

This begs two questions.

1) Is Bush somehow trying to make his plan look "reasonable" compared to the current projections by the SSA? It makes little sense to, in effect, reduce the federal government's obligation to pay interest on the T-bonds in return for an even larger transition debt...

2) What happens in the long run, when the trust fund is no longer existing and a worker who opted for personal accounts is paying 2/3 of current taxes for 1/3 of the benefit? In a new steady-state analysis of the Soc-Security system, say, a hundred years in the future, assuming everyone decided to opt for a private account, 2/3 of the current taxes would be paid into the SS system, and 1/3 of the "sustainable" benefits would be paid out into retirement benefits (of course, the likely "full benefit" figure may well be lower)... from reviewing the SSA reports, I'm not sure if the non-retirement-benefits aspects of the SS program account for 1/3 of the total expenditures of the SS program, not to mention the fact that, knowing the way that "they" think, SS benefits to dependents, etc. may very well be reduced as well "because the workers can pass on their private accounts".

Perhaps my thinking is a bit muddled, but I'm not an economist, but quite frankly, I doubt that people really understand the fundamental shift in perspective that all this discussion about the 3% RROR vs. other potential RROR's has done to the debate. It's almost like we're no longer discussing two systems that have a completely different purpose, rather, we're now fundamentally discussing two different retirement investment vehicles.

Posted by: Scott | Feb 15, 2005 1:33:32 PM

If Senate comity and bipartisan spirit are important to Bush on Social Security, why, for the sake of a handful of rejected, extremist, judicial appointments, would he make a declaration of war on the Democrats by re-submitting their candidacies? Why would he threaten the nuclear option on judicial filibusters for a handful of yahoos when he needs Democratic cooperation on SS?

Posted by: Bob H | Feb 16, 2005 7:52:33 AM

What happened to the liberal privatizers? They're here:


Posted by: Bulworth | Feb 18, 2005 12:30:13 PM