Henry Aaron, a noted health care expert and senior fellow in economic studies at the Washington-based Brookings Institute, notes in his latest analysis that as bad as the current financial chaos is, it could have been catastrophic had a partially-privatized Social Security system been in place.
When President Bush won a second term, he strongly advanced a proposal to divert a portion of payroll taxes into personally owned savings accounts. These accounts were to be invested in privately traded assets — portfolios of stock or bonds.
Aaron points to the argument made at the time by Bush that privately traded bonds and stocks had for decades earned higher returns than Social Security pensioners received from their amassed contributions.
There was further assurance from the president and his advisers that the personal accounts would support benefits that would more than make up for the built-in benefit reductions that would come with the plan.
Fortunately, notes Aaron, no bill incorporating the presidents proposal ever made it to the floor of either the House or the Senate.
”As American financial markets are hammered by a financial storm more frightening and more damaging than Hurricane Ike, it is worth imagining what the world would have been like had President Bush’s Social Security proposal been enacted and been effective for a couple of decades,” says Aaron.
Aaron paints a grim picture of an imaginary future with the partial privatization plan enacted. People have been socking away funds in individual accounts for years. Social Security benefits have eroded continuously. Citizens will have adjusted their consumption and savings to leave themselves with savings that they expect to be sufficient for retirement. After people have retired or become disabled, or just on the cusp of claiming benefits, a financial panic strikes. Stock prices collapse — the very assets in which private accounts were invested.
“The financial crisis would become a personal calamity for tens of millions of retired baby-boomers and their successors,” warns the expert.
”In the midst of today’s well-founded angst about whether current financial turmoil will precipitate serious and sustained economic recession or even depression, it is worth taking a moment to recognize that Social Security has remained what it was intended to be — a solid foundation of financial security for retirees and people with disabilities,” he adds.
But if Congress works its magical fix and starts regulating with a vengeance, won’t that make it safe for Social Security privatization?
No, concludes Aaron: “Whatever changes in regulation of banks and financial organizations Congress may yet enact, another financial storm will surely strike...
“[H]owever well intentioned, [they] cannot anticipate the infinite imaginativeness of really smart financial and legal experts at finding new ways to skirt controls put in place to prevent the recurrence of the last crisis.
“It would be naive to imagine that regulators who have never been able to plug all the ways around previous safeguards will suddenly find the perfect fix that prevents financial crises from ever happening again.”
© 2016 Newsmax. All rights reserved.