On Friday, Larry Lindsey broke new ground -- for someone associated with Bush administration economic policymaking -- in his testimony to a House panel on Social Security reform: He proposed something resembling a good idea. Lindsey's basic pitch is that each worker should contribute 1.5 percent of his or her payroll taxes to a private retirement account. The first $150 per year would be matched by the federal government on a 4-to-1 basis, with a 1-to-1 match for contributions above that total. One could quibble with the details here. Rather than dropping from 4-to-1 to 1-to-1, there should probably be a 3-to-1 phase (and a 2-to-1 phase, in between) to make the plan more generous to the middle class. total contributions -- to say nothing of federal matches -- should be capped at some fairly low number to prevent the plan from turning into too much of a subsidy for the already rich. In essence, however, this is a good idea. While exactly how good an idea it turns out to be depends on the details, the broad outlines are more important.
What's not such a good idea is that Lindsey wants to pay for all this by cutting Social Security benefits. I won't rehearse the long set of reasons why this is a bad idea. Instead, it's worth simply flagging the point that, while the current structure of public debate seems to presume that any new initiatives in the field of retirement must be paid for by Social Security cuts, this is a highly unusual way to think about things. The current issue of The Atlantic contains a large cover story by Robert D. Kaplan that, among other things, makes the case that we ought to invest more money in something called the littoral-combat ship (LCS) that "requires only a small crew, can operate in very shallow water, can travel very fast (up to forty knots), and will deploy Special Operations Forces (namely, Navy SEALS)." I'm not entirely sold on the idea, but readers understand -- as they generally do with such proposals -- that the merits of spending more money on the project are assessable independently of the merits of any offsetting cuts in defense spending. I think, as most liberals do, that the construction of a national missile defense (NMD) system is a waste of time and money. If we eliminated the project, that would free up more money to spend on other things. But these are separate issues. Even if the LCS is a bad idea, that doesn't make NMD a good one. Whether we should dramatically cut Social Security benefits is one question; whether we should build add-on savings devices onto whatever remains is an entirely different one.
I'm against Social Security cuts. It might prove necessary to implement some mild ones in the future, but steep cuts should be ruled out entirely, and there's genuinely no reason to be contemplating cuts of any sort at the moment. Add-on accounts, however, are a perfectly good idea -- one that liberals should be embracing. And not just embracing in a token way as a political tactic or a pale imitation of some Republican initiative; they should be an important element of a liberal vision for the future.
On the level of pure economics, the issue is the one Lindsey outlined: A higher national savings rate would probably improve economic growth over the long term. Liberals may be more interested in the moral case. Widespread asset ownership is integral to trying to build a more egalitarian future. As we saw during the late 1990s, under conditions of full employment economic growth is a win-win proposition. wages and living standards go up at the top and the bottom of the economy. In recent decades, however, a more common pattern is the one we saw in the 1980s and are seeing again in the present day: The economy grows, but the gains overwhelmingly accrue to high-income people and, in particular, to people who own a lot of assets like stocks, real estate, and bonds. One way to combat this is by implementing sensible policies in the fields of taxation, fiscal policy, and labor law, as we had in the 1990s, to ensure widespread growth. The problem with this strategy is that, as we've seen, tax and fiscal policies can change very rapidly. It would be nice if the White House were to perpetually remain in the hands of smart, responsible, moral people; but, realistically, it's not going to happen. The great thing about enduring, well-designed programs is that they keep on doing good things even when the bad guys win elections. Social Security, Medicare, and Medicaid are still plugging along, still doing excellent and important things for the American people, even with the government totally dominated by their enemies.
A real asset-building policy would be reasonably difficult to repeal, even under adverse political circumstances, and would therefore ensure that all Americans could share in the benefits of the sort of mediocre economic performance that right now only really helps the wealthy. Now would it be very difficult to start creating one. William Gale, Mark Iwry, and Peter Orszag have proposed the simple first step of automatic 401 (k)s which, in essence, "consists of changing the default option at each phase of the 401 (k) savings cycle to make sound saving and investment decisions the norm, even when the worker never gets around to making a choice in the first place." It doesn't sound like this would accomplish much of anything, but research indicates it would actually dramatically broaden the scope of asset ownership in the United States. The next step would be to build in something along the lines of what Lindsey suggested -- government matches for small contributions, so that working class families prepared to save in a responsible manner can be assured that their savings will really pay off. A further step would be the notion of "stakeholder accounts" -- the government makes a gift of savings to every baby born, with the gift being somewhat more generous to the poorest children.
These are all workable ideas and, fortuitously, are the sort of thing that could do a lot of good even on a small scale, only to be scaled-up later as their success builds additional political support. It's even stuff conservatives could probably get behind -- if not for the fact that paying for it would require tax revenue, which, apparently, today's Republican Party thinks we should do without altogether.
Matthew Yglesias is a Prospect staff writer.
