Taking The Plunge

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Presumably, private accounts with some assets in the stock market would perform better. But free-market solutions come with free-market problems. What happens if individuals don't invest wisely? Or if the stock market tanks after they retire? Some economists are worried that the plan is especially risky for the two-thirds of seniors who rely on Social Security for their main source of income. "The burden of [cutting benefits] is going to fall on lower- and middle-income households," says Mark Zandi of Economy.com. Yet supporters say the dangers could be easily mitigated by allowing investments only in broad stock and bond indexes, which are relatively safe, and by limiting the size of personal savings accounts to a fraction of one's Social Security taxes — say, 2 to 4 percentage points of the 12.4% annual levy.

Advocates of partly privatized Social Security point to a system of personal savings accounts in Chile that is widely regarded as a success. In contrast to Britain's plan, Chile's is compulsory and presents workers with only a handful of conservative, income-oriented investment options. The architect of Chile's plan, Jose Piñera, is now a co-chairman of the Cato Institute's Project on Social Security Choice and has conferred with Bush on the subject.

An overhaul of the Social Security system — in theory welcoming millions of the working class into the investing class — might aid G.O.P. mastermind Karl Rove's plan to fashion a permanent Republican majority. "What does it mean when every truck driver and waitress becomes a stockholder?" asks Michael Tanner, an economist at the Cato Institute and one of the architects of the private-account movement. "You can create inheritable wealth for low-income people and minorities. If you turn those truck drivers and waitresses into stockholders, they vote and behave very differently."

Bush long ago started down this road. During the 2000 campaign, he argued that "ownership in our society should not be an exclusive club. Independence should not be a gated community. Everyone should be part owner in the American Dream." Last year he signed into law health savings accounts, which allow workers to build a kitty that can be rolled over from year to year and can be used to pay for unreimbursed medical expenses. Bush wants to boost homeownership too by making nothing-down loans available to low-income buyers and by helping anyone who is willing to pick up a hammer and contribute sweat equity.

But the funding issue may be an insurmountable obstacle for the President's Social Security ambitions. In the long run, personal savings accounts pay for themselves and then some, because in exchange taxpayers receive reduced traditional benefits. In the short term, though, an already huge federal budget deficit would continue to swell, potentially driving up interest rates and slowing the economy. Even if all parties agreed on the promise of an "ownership society," it remains unclear how we would get there.