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Stick with Public Pensions

By Richard C. Leone
July/August 1997
Article Summary and Author Biography

Although privatization zealots backed by Wall Street have called for replacing Social Security with mandatory investment in stocks and bonds, their promised high rates of return do not accord with experience. Any form of private investment is much riskier than a government program, and in the end can be more expensive if the government must bail it out. For at least a generation, retirement taxes would rise, funneling money to private investors. With small adjustments, the current pay-as-you-go system can continue its historic success.

Richard C. Leone is President of the Twentieth Century Fund.

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GETTING USED TO IT

People everywhere are living longer, filling leisure communities and nursing homes, and alarming public policy analysts. The widespread failure to die in a timely fashion has inspired countless predictions of political chaos and economic ruin in the industrialized countries. The large American generation born after World War II will have to cope, it seems, not just with the usual intimations of mortality, but also with the unhappy consequences of their longevity for their societies and indeed for their own children.

But a measure of caution is appropriate because, as Bismarck, often credited with inventing social insurance, noted, politics is not an exact science. Neither is predicting economic, demographic, and social trends. Fertility experts, for example, foresaw neither the beginning nor the end of the American baby boom. And 2030 -- the year of peak U.S. boomer retirement -- is as far away from us now as 1964. How many, 30 years ago, could have predicted stagnation of wages, the decline in birthrates, the rise of computers, the fall of the U.S.S.R.?

The shift in the balance between retirees and workers is real, and the sooner adjustments in retirement programs are made, the smaller they will need to be. But the hit-'em-over-the-head-to-get-their- attention approach is having perverse effects. In the running-scared politics of the 1990s, the insistence on revolutionary changes may frighten off officeholders who need the reassurance of knowing that incremental revisions can preserve the pension safety net. In fact, it would be foolish to react to longer life by throwing out the basic features of successful and popular pension programs.

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