The Carrot and the Stick

There are pretty much two ways to motivate people, the Carrot (or the hope for a positive result) and the Stick (or the hope to avoid a negative result). Rich Lowry today urges President Bush to stop using the stick so much in the Social Security debate.

Lowry notes that Social Security crisis is some 40 years out so it's hard to get people worked up about it now. To his credit, Lowry doesn't mention those worthless IOUs. Rather he'd like to see President Bush forsaking on the positive aspects of his Social Security phase out plan.

Bush must keep his priorities straight: Private accounts are what he campaigned for, they are relatively popular, and they will create more savers and investors in America, shifting the electorate in a more pro-free-market direction over time. By focusing on the private accounts, Bush will stay on the strongest possible rhetorical ground, offering a better, new deal for younger workers. Any eventual compromise with Congress will have to include some measures to improve Social Security's finances -- if nothing else than to reassure the financial markets -- but it won't have to solve everything in one fell swoop. Who cares if Congress in, say, 2020 has to come back to adjust the program's financing again?

A few points might help clear this up. Democrats are largely in favor of Personal Retirement plans; but feel that they should be implemented on top of Social Security, not instead of Social Security.

Secondly, a quick conundrum. The projections to show that Social Security will run out of money in 2042 are based on the assumption that economic growth will be slow--2-3%. If the economy grows faster than that, say at 6%, than the trust fund will last considerably longer. One interesting note. In projecting how much money the new social security private accounts will save, you have to make certain assumptions, such as how fast the economy will grow. Well in order to sell private accounts as bringing in a lot of money they have generally assumed that past economic growth rates (right around 6%) will hold.

Or to put it another way, if the economic projections that project a crisis in Social Security hold, it's unlikely that private accounts will make enough money to make a difference. On the other hand, if the economy grows at a rate where private accounts will bring in an adequate amount of money, than Social Security isn't really in a crisis at all.

Something to think about.

In other Social Security news, Jack Kemp writes an article today that starts with this crowdpleasing paragraph.

In the face of an audacious stonewall by Democrats against President Bush's ownership society vision, personal retirement accounts in particular, there is growing pessimism among some conservatives. A few Republicans fear that aggressively pursuing the vision could endanger their congressional majorities.

I'd just like to point out that President Bush has yet to propose a social security plan, and that no voting or parliamentary procedures have been taking place in regards to this issue. So I'm not sure how Democrats are stonewalling President Bush. Unless "stonewalling" is a new Republican word for disagreeing (Republicans love making honest disagreements sound like vicious stabs in the back).

The rest of Kemp's argument compares the debt question of the Revolutionary era with the Social Security Crisis of today, in order to suggest that phasing out Social Security is a step forward. Personally I see it the other way. Alexander Hamilton and George Washington worked to figure out a way to pay the debt owed America's Creditors. In the same vein President Bush needs to figure out a way to pay back the debt owed America by saving the Social Security Program, not thrusting the risk back onto the people he owes the money too.