Social Security reform …

Robin Klay and Todd Steen merely repeat the tired and self-serving homilies of the American financial establishment, blaming working people for not being "responsible" ("Social insecurity," Feb. 12). The real irresponsibility lies with the financial elites of this country.

I would refer CENTURY readers to three recommendations made by Robert Ballce, a former Social Security commissioner under three presidents and a prime author of the Greenspan Commission's restructuring of the program in 1983:

1. Raise the cap on earnings so that 90 percent of all earnings would be subject to Social Security (putting a number on Klay and Steen's proposal).

2. Supplement payroll taxes with income from the estate tax, which affects only the extremely wealthy.

3. Raise the rate of return on the Social Security Trust Fund by permitting the trustees to invest a portion of the fund in a conservative mix of equities.

Ball's approach would make Social Security perfectly solvent without any reduction of the minimal benefits promised to the "irresponsible" people who have been working longer hours at less secure and poorer-paying jobs for the past three decades.

Kenneth W. Frese

Lakewood, Ohio

Klay and Steen do a very good job of providing a libertarian viewpoint of Social Security funding issues and solutions. Other analysts assert that predictions of the system's unavoidable demise are overblown.

The statement that "initial beneficiaries of Social Security made no financial contributions into the system" is incorrect. Social Security taxes began to be collected in 1937. The first benefit checks were paid in 1940 to insured workers and their dependents and survivors. The workers may not have paid much, but they paid something.

Although Chile's personal savings account (PSA) scheme was highly touted in some quarters in the 1990s, it is unusual to find a favorable reference to it in the 21st century, because by most significant measurements it has turned out to be a failure. Fewer than half of Chilean workers actually contribute to their PSAs, and expenses range from 15 to 20 percent of contributions (compared to about 1 percent for Social Security). The military junta that implemented PSAs kept themselves in the prior pension system. Chile will have its own day of reckoning.

Klay and Steen assert that "people began to think of retirement funding as a right and primarily a public responsibility, and so--not surprisingly--started saving less." They offer no proof of this causal relationship, and what evidence I've found suggests that there is none. National savings rates in European countries, which generally have Social Security systems comparable to our own, average about 20 percent. I suspect the cause of lower savings in the United States is not Social Security but lower real earnings. As Warren Buffett has put it, "If there's class warfare going on in America, then my class is winning."

We can pick and choose dates to give a best or worst case for the value of stock portfolios "over history." I'll pick a person who decided to retire on September 3, 1929, when the stock market reached its pre-crash high. Within three years, the Dow Jones Industrial Average fell almost 90 percent. Imagine that was your portfolio. The Dow took 25 years (through the Great Depression and World War II) to recover its pre-crash high, and 30 years to recover its inflation-adjusted pre-crash value. As we look around at today's financial landscape, we might be wiser to place our trust in each other than in the performance of the market "over history."

I am a believer in personal responsibility, but not when it is flipped to mean I am not my brother's keeper.

Robert L. Miller

Chicago, Ill.

Klay and Steen rightly point out the long-term financial problems of the national Social Security program. What I object to is their conclusion that the only remedy is to partially privatize the program, setting up within it some form of individual savings accounts as recommended by President Bush.

First, the program can be returned to long-term financial balance by a non-draconian package of tax increases and benefit cuts as was done in 1978 and 1983, while retaining the program's defined-benefit form with its bias toward lower-wage earners.

Second, partial privatization will not solve the problem. The wisdom of classical economics is that our economy's rate of growth correlates closely with our national savings rate; more savings leads to a larger economy. This forces the conclusion that the partial-privatization scheme would--assuming no reduction in aggregate benefits occurs--make Social Security more affordable only if it leads to a reduction in current consumption and an increase in aggregate current savings.

Third, partial privatization of the program will damage its social insurance nature. Personal accounts will emphasize individual equity where workers will expect returns on their accounts, limited only by the amount of their contributions and their skill in choosing their investments. These expected returns will be irrespective of their needs as measured by their wage levels and family size. While a portion of the traditional program would continue even for those with individual accounts, it will likely be greatly reduced to the point where the strong bias in the benefit formulas for those with the greater need would be irreparably damaged.