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 bviously,
the attack on the U.S. on September 11 moved the public focus away
from domestic-policy issues, to a virtually exclusive concern with
the war effort. But the trends spawned by that attack only greatly
increase the long term prospects for fundamental reform of Social
Security involving a personal-account option.
Long-Term
Prospects for Reform.
The most important
long-term political effect is that the stature and political clout
of President Bush has been enormously enhanced. Consequently, when
the war effort settles down, and the nation returns to domestic
priorities, the president will be extremely effective in promoting
a personal-account option.
Indeed, as
a highly successful, war-time president who has etched a major profile
in U.S. history, Bush will be able to take the message of Social
Security reform to new constituencies who will grant him a hearing
they would never have considered before. As a result, the president
will be able to speak credibly on the issue to union members, African
Americans, and other liberal/left groups. This opening is so momentous
because there is such a powerful case that can be made to these
groups regarding the enormous benefits of personal accounts for
them. This raises a realistic prospect for an ideologically and
politically broad-based coalition to emerge in favor of personal
accounts. That, in turn, would surely lead to quick passage of personal-account
reform, as discussed further below.
But there is
a less obvious but highly important secondary political effect as
well. The divisive, attack-dog, smear-campaign strategy of the Left
in opposing such reform has been shattered. They quite clearly will
not be able to personally attack the president over the issue. Nor
will the public be open to demagogic attacks on "Wall Street,"
"the rich," or other targets of the Left-wing bully-boys.
The public instead will be in a mood for inclusive arguments about
benefits for all Americans, which is precisely what is involved
in the case for personal accounts.
Moreover, seniors
will be in a patriotic mood and more open to hearing about changes
that will benefit the country while not hurting their benefits.
They will be far less inclined to listen to the fundamental, foolish
arguments of opponents that this is all somehow a plot by the president
to deprive them of their benefits.
At the same
time, the hearty survival and now rebound of the capital markets
also further strengthens the case for reform. It took just a few
weeks for investment markets to absorb this mighty blow before mostly
returning to the levels achieved before the attack. Long-term personal-retirement
account investors would simply have reaped bargains continuing their
regular investments during this period.
What
is the Long Term?
But just how
long term is this prospect for reform? When will the public attention
return to top-priority domestic issues, allowing the Social Security
reform process to continue?
Domestic priorities
will not have to wait until a final and total victory over terrorism
has been won. A focus on true domestic priorities will start to
return when the high-profile military action ends and the whole
terrorism matter settles down into some sort of watchful and defensive
routine.
As of this
writing, the Taliban government in Afghanistan has all but fallen.
Before the end of the year, a friendly regime will have been established
there that will cooperate in rooting out terrorist forces in that
country. Then the issue merely becomes hunting outlaws in the hills.
Here is a prediction: We will ultimately find that U.S. and British
special forces are much better hill fighters and guerrillas than
the comparatively rag-tag, poorly trained, poorly equipped bully-boys
of the much ballyhooed terrorist network.
The key question
is whether this war effort moves on to seek removal of another pro-terrorist
government, such as Saddam Hussein's regime in Iraq. If not, then
the president will be able to restore momentum on his domestic agenda
in the State of the Union speech next January.
If the battle
moves on to fight other Mafia-style, terrorist-harboring regimes
in the Middle East, that fight will again be quicker than is now
generally recognized. The brutal fact is that none of the other
possible target regimes have much military punch to resist the U.S.
Saddam is the only one who could put up a fight, and he is without
the extensive forces we took out in just a few weeks ten years ago.
The truth is,
when defeat is inevitable, as it is for any pro-terrorist regime
we may now target, resistance crumbles quickly. Who wants to die
in a lost cause? As a result, the prediction here is that any major
military action will be over by the end of next year in any event,
and probably before the end of the summer.
Undoubtedly,
the terrorist network will try to sponsor further attacks on the
U.S. as the military battles unfold. The public is now rightly quite
deeply concerned about the anthrax scare. But step back for a minute.
If all they can muster is a few letters laced with anthrax, quite
treatable with antibiotics, that is a feeble response to the wholesale
destruction of the terror network that is currently proceeding.
Deprived of
all state sponsorship, as they will be shortly, the terror network
will be far weaker. With action taken against their assets, and
the greatly heightened state of alert against their possible attacks,
a manageable measure of security may be achieved sooner than is
now commonly thought.
As a result,
even with a second wave of U.S. assaults against one or more other
regimes, on this analysis we can expect a return to the top domestic
issues no later than the 2003 State of the Union address following
the next congressional elections. That will probably be an ideal
time for a victorious president to renew his domestic agenda.
Spending
the Surplus.
The major substantive
implication of the Sept. 11 attack is that the federal government
is now spending most if not all of the Social Security surplus,
as well as any additional general budget surplus. The weakened economy
has further depleted these surpluses and may even produce deficits.
Yet, the administration was planning on using these surpluses to
finance personal-account reform.
But the war
related expenditures, both for the rebuilding and for the fighting,
are temporary items that will not continue over the long run. Once
the antiterror effort settles down into a long-term routine, and
the major military action is over, the spending will phase down
as well.
The Social
Security surpluses will then return. At that point, the administration
should reprioritize general spending restraint as well. That along
with Bush's primarily tax-cutting economic-revival program will
lead the economy to come roaring back and produce general budget
surpluses once again. These surpluses can then also be devoted to
Social Security reform.
Of course,
surpluses are not needed for personal-account reform. When the Cato
Institute's first book on Social Security privatization was published
in 1980, both Social Security and the general budget were in deficit,
with no expectation that this would change soon absent reform. Indeed,
Chile adopted Social Security personal accounts with its system
in deep long-term deficit. The transition can be financed with general
spending restraint, short-term issuance of government bonds, and
the revenue reflow resulting from increased saving and investment,
among other sources.
An
Action Agenda for Reformers.
With sharply
improved but delayed prospects for reform, the key question is what
do reformers do now. The public is not going to be ready for conferences,
town halls and other public events for the rest of this year. But
there are 2 other urgent priority areas on which reformers should
now focus.
The first is
to reach across the ideological and partisan divide and make the
case for a personal-account option to liberal/Left constituencies
and Democrats. Reformers should aggressively seek out leaders of
labor unions, the African-American community, Hispanic organizations,
women's groups, and Democrats generally to make the pitch that was
made in the last memo in this series and before — personal
Social Security accounts are the most progressive idea of this generation.
Done right,
personal accounts would increase benefits substantially for all
working people, including the lowest income workers. They would
allow workers in the bottom half of the income distribution into
the capital markets to join upper-income workers in their rightful
role as owners as well as laborers. Ownership of wealth would become
far more equal and democratic as a result.
African Americans,
Hispanics, and other low-income communities would gain tremendously
from this new control over substantial capital that can be passed
on within the family. African-American males would no longer lose
out, as the majority of black males born today have no prospect
of collecting any significant Social Security retirement benefits
due to their lower life expectancies.
Moreover, the
general economic benefits of personal accounts will include higher
wages and more jobs resulting from the increased savings and investment.
Avoiding the major benefit cuts and/or higher payroll tax increases
that would otherwise be necessary under the current system would
also be most beneficial to working people, especially those with
lower incomes.
Of course,
hard-core ideological socialists will not be swayed by these arguments.
But this is a small and dwindling group. By contrast, those who
truly have the interests of working people, minorities, and lower-income
families at heart cannot help but be moved by the compelling case
for personal accounts.
If reformers
could just win some support from these quarters, the campaign for
reform would be all but won. The opposition will then have been
totally outflanked and will collapse. Sure, the diehards will fight
on. But the battle will be over. Therefore, this is an urgent priority
with a potentially huge payoff that reformers have not fully appreciated.
The second
major area for action is to maximize interest, support, and organization
among the grassroots conservative base. Quite frankly, no other
domestic economic reform could be bigger for conservatives than
a personal-account option for Social Security, not by a long shot.
Well-designed and ultimately expanded personal accounts would effectively
produce the biggest tax cut in world history, the biggest reduction
in government spending in world history, and the biggest reduction
in government debt in world history. They would short-circuit an
otherwise inevitable sharp increase in Social Security payroll taxes.
They would do more than any other possible reform to increase the
long term prosperity of working people. By vastly broadening capital
ownership, they would cement much greater support for free markets
with even greater long term prosperity as a result.
Ideologically
attuned and motivated grassroots conservatives will listen to this
case even this fall. They can be moved now to work on the grassroots
organization and infrastructure that will be essential for eventual
success.
This action
agenda leaves much to do, now.
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