Social Security needs help, but don't start changing it

July 28, 2002|By JAY HANCOCK

Social Security, born in Baltimore's Candler Building in 1936, is bloated, bumbling and wasteful, which is to say, a typical government program.

It employs more people than live in Portland, Maine, and controls 5 percent of the U.S. economy, but it adds no value to the hundreds of billions that pass through its accounts.

The agency is a transfer clerk with an attitude, forcibly collecting money from productive workers and employers and handing it out to the idle, but not before raking aside $7 billion annually for itself.

You'd think all that money would produce a well-run, responsive organization. Think twice.

For a decade, Congress tried to get Social Security to write literate, intelligible letters to beneficiaries, but the agency continued spewing typed gibberish. Not until a federal court ordered action in 1999 did the bureaucracy, now based in Woodlawn, agree to broad steps to improve its correspondence.

A year later, the General Accounting Office checked the progress. This is what it found, in a letter to a retiree from Social Security's Birmingham office:

"We have determined that you have been overpaid $607.00," the letter said. "You should refund the $2,213.00 overpayment within 30 days."

Huh? This kind of non sequitur was common, and GAO also found that Social Security's letters often failed to explain a given decision, describe the decision's financial effects or even state why the letter was sent.

Social Security's benefits program for the disabled is a Dickensian maze of functionaries, paperwork and delay. A major step forward for the agency was reducing the disability claims-appeal process last year by 11 days - to 447 days.

A swarm of lawyers representing dubious claimants hovers around the appeals offices, living off the cash that issues forth. Previous instances of lawyers collecting huge portions of benefits intended for the disabled required additional administrators to approve legal fees - another case of Social Security bureaucrats monitoring bureaucrats who supervise bureaucrats who pay the benefits.

And you don't even want to hear about Social Security's computer problems.

As everybody knows, the agency faces a grim fiscal forecast. When the numerous baby boomers are retired, the ranks of remaining workers may not be sufficient to finance all the benefit checks. Social Security will become insolvent in 2030 or so, many analysts project, unless something changes.

And why shouldn't something change? For years, policymakers have proposed semi-privatizing Social Security by giving a portion of the cash collected by Woodlawn back to employees. President Bush favors this. The money would be owned by workers, kept in tax-favored accounts and put into stocks, bonds or whatever.

It would finance retirement, just as Social Security does, but employees would have control, and the funds would be invested in the productive private sector instead of federal farm subsidies for Ted Turner.

Would a privatized system let many employees achieve better returns? Yes. Would it stimulate private-capital formation and economic growth? Yes. Could the improved returns help bail out Social Security? Yes. Should the system be implemented?

No.

Social Security, God help it, for all its problems, is one of the most successful government programs in history - the way it is now. It has hugely reduced the once-widespread misery of senior-citizen poverty. And the recent stock market plunge has again shown why this government safety net should underlie the free-market trapeze.

Millions of presumably intelligent investors didn't diversify. Millions put money they needed soon into stocks. Millions made the opposite mistake - selling stocks even though their retirements are decades hence. To be frank, millions are not smart, diligent, interested or lucky enough to manage all their own retirement money.

All but the most ardent libertarians agree that free markets can't do it all, that government must fill some gaps. Social Security was created because of a market failure called the Great Depression. It should be kept as a cushion against repeats.

Of course, Social Security should also be harried forever by good-government types; give its inspector general a locker of andro and a kennel of Dobermans. (An agency spokesman says the letter and appeals-process problems are being addressed, "but there's certainly still a lot to be done.")

And the fiscal problem must be solved. Delaying retirements could help, but Social Security's real savior should be the economy - yes, the economy that I don't trust with the agency's assets.

Give U.S. business room to fight its global competitors, and the American economy, one of the world's freest, will grow fast enough to turn Social Security's insolvency projections into last night's dream. But we should keep some reserve capital stashed in this ponderous, inefficient, stable government program, just in case.

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