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Media Struggles To Report On Flaws Of Social Security Privatization

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Amid the news of "Bailouts, bailouts, bailouts!" comes word that John McCain has started flirting with the reanimation of one of his predecessor's zombie policy proposals -- Social Security privatization. That the policy was a massive failure for the Bush administration, and deeply unpopular with the public, is not lost on anyone. In their reporting on the matter, the Los Angeles Times leads with the sentence, "It was a spectacular flop."

But even though the media is good at reporting on the policy's lack of popularity, they are less adept at reporting on the policy's lack of merit. And that leaves the door open for the Bush/McCains of the world to suggest that with just a little more understanding, or with some slightly better information, the popularity could be turned around. So, to better brace yourself for a possible public relations blitz from McCain, here's the essential dope on this dopey policy.

1) The real costs of Social Security privatization are hidden in the PR, and do not take into account any contemplation of the potential consequences of badly invested money. What happens when someone loses their retirement? Will they be allowed to starve? Or will they, like everyone else, be entitled to some sort of bailout? And once the government has set a precedent for bailing out investors, how long before this risk-free investment become a ballooning burden on the back of taxpayers, as more and more people take advantage of the freedom to invest unwisely?

2) The policy serves to exacerbate economic inequality. People with the time/expertise/energy/paid help to wisely manage their investments will do much better than people who go into whatever the "default" option is. How long before Social Security goes subprime? Look for the coming scam advertisements that read: "Manage your Social Security for a low annual fee!!!"

3) The only people that clearly come out ahead are the special interests within the industry. In this case, fund managers. But even here, an old adage applies: "Mo' money, mo' problems." Could the managers of this money achieve an intelligent level of diversification without ending up with a controlling interest in lots of companies? Will there be constraints on investing this money (U.S. Securities only, no foreign, no derivatives)? Will this exacerbate the problems with diversification? And how does a flood of newly converted Social Security money into the market not drive down security prices across the board?

4) When this whole proposal finally craps the bed, I'd lay odds that the government just tosses the whole thing on the scrap heap. And this is what that future looks like, should you want to cut an updated version of McCain's "In The Year 2013" advertisement: individual retirement security takes a net hit, taxpayer burden is increased, and all sorts of precious time is lost on another quixotic attempt to make kicking the can down the road look like some sort of achievement.

All of this constitutes reality-based pushback that can, and should, be brought to bear on any discussion of Social Security privatization, but you hardly ever hear of it. Considering how unpopular the idea is with the public based solely on what amounts to a mythological understanding of the matter, any factual vetting of the proposal should be enough to kill this baby in its crib. Yet one can predict that McCain and Obama will heretofore be known as having "competing" plans on Social Security. If regurgitating this failure is McCain's plan, then there is no competition at all.