I posted this as a comment, but I thought I would expand on it and get more input. I think a great way to point out the problems with privatization would be for Democrats to say they would support privatization if and only if the following conditions are met-
- All transition costs (~$2 trillion) have to be paid for through budget cuts or revenue increases, not added to the national debt;
- Administrative costs must be kept below current levels (or some reasonable cap);
- There is a guaranteed minimum level of return for each individual;
and,
4) After factoring in all these conditions, the returns must be significantly higher than in the current system.
This has big political benefits, it focuses the debate on the weaknesses of privatization, it allows Democrats to appear willing to compromise, and it adds some level of accountability to Bush's proposals. Ideally press coverage would then center on which of these conditions are being met. My guess is that it is impossible to meet all four conditions.
I chose these three conditions because I think they are three areas where the Republican spin is particularily weak.
Here are further justifications for each condition:
- The additional $2 trillion transition cost would have to be financed with Government Bonds many of which would have to be bought by foreign investors. At the current levels of debt, having foreign governments finance our debt is a dangerous national security problem. This increases interest rates, lowers the value of the dollar, and increases burdens on future generations.
- Administrative costs of a decentralized system are 20 times the costs of the current system. This is a massive giveaway of regressive payroll taxes to Wall Street. Social Security is income insurance, privatizing health insurance through HMO's has huge administrative costs and so will privatizing Social Security.
- The essence of Social Security is guaranteeing that the elderly can live with dignity. As guaranteed pensions become rare, a guaranteed Social Security system is more important than ever. As everyone that had Enron stock in their pension or 401k knows, the stock market is risky, there are winners and losers. It will be difficult to guarantee a minimum return without encouraging risky investments.
- Social Security is not currently in financial trouble, the general fund is. Working men and women have paid extra payroll taxes for the last 21 years to make sure Social Security is solvent. Looting Social Security to pay for irresponsible income tax cuts for the rich is a betrayal of their trust. Unless privatization can provide tangible benefits after meeting all these conditions we should not even be considering it.