When you've lost US News...

When you've lost US News and World Report, you've lost middle America.

US News is the most conservative of the US weekly news magazines. It currently employs no liberal columnists. Last week's column by editor-in-chief Mortimer B. Zuckerman should sound a major warning for conservatives eager to privatize Social Security. Zuckerman, otherwise solidly center-right, is having none of it:

A 'cure' worse than the cold

In other words, there is no current financial crisis in the program. So, what's with all the hand-wringing? Well, if you make pessimistic predictions about economic growth, immigration, and wage inflation, the projected revenues may not be enough to pay benefits. The Social Security actuaries, for instance, project that growth will average only 1.6 percent after 2010, about half the rate we have enjoyed in the past century. But if the economy grows at anywhere near the levels that Bush's own budget experts project, the surplus, in effect, would never run out. And more-optimistic forecasts than those of the Social Security actuaries are supported by the recent history of economic and demographic trends.

Most important, to the extent that there is a deficit, it could be covered by a variety of modest combinations of tax hikes and benefit cuts--each of them quite manageable....

President Bush has a different answer to all of the above. In pursuit of his "ownership society," he wants to move Social Security toward "greater individual opportunity, risk, and reward" by allowing individuals to carve themselves private investment accounts out of Social Security payroll taxes, much like a 401(k) plan. This raises a whole host of problems. It discriminates against poorer workers, for one thing. Why? Because the lower your income, the less you have to invest, and the smaller your return will be. The Bush plan offers nothing close to the financial security of the existing program. Then there's this: Are individual investors sophisticated enough to match the higher returns now being forecast? At least 10 studies analyzed by the Securities and Exchange Commission indicate a disturbing level of financial illiteracy. Only 12 percent of the investors studied could distinguish between a load and a no-load mutual fund; only 14 percent understood the difference between a growth stock and an income stock; only 38 percent knew that when interest rates rise, bond prices fall; almost half somehow believed that diversification guarantees that their portfolio would not suffer if the market dropped; and 40 percent thought that the trust fund's operating costs would not be deducted from their investment return....

Furthermore, historical stock-market returns are not a guide for future performance. A lot depends on when you buy or sell, especially when America faces not only dramatic fiscal problems but a threat to profit margins in growing global competition, particularly from India and China. If someone retires after the market dives, he or she could lose a good chunk of retirement savings. The market, after all, fell by 45 percent in real terms between 1968 and 1978--never mind the bust between 2000 and 2002. Individuals would be glad to pocket gains, but if millions of retirees suffered dramatic losses, there would be enormous political pressure to come to their rescue. We would very likely end up privatizing gains and socializing the losses.

Upside down. The macroeconomic consequences of privatization of Social Security are equally significant. Privatization fails to address the long-term gap in the program's financial resources. It would make things worse because the government would have to borrow the money that otherwise would be paid into the system. This amounts to roughly $2 trillion in the first decade, over $3 trillion in the second decade, and approximately $5 trillion in each of the third and fourth decades--a run-up of about $15 trillion in the national debt, based on a Congressional Budget Office estimate widely believed to be close to the Bush plan. Privatization does not begin to save money until 2050--hardly a solution to a crisis the administration has described as imminent. Even worse, it might create a fiscal crisis, inflating future budget deficits to unprecedented levels and sending the economy into a tailspin....

Privatization thus gets things upside down. Social Security was not meant to re-create the free market; it was intended to insure against the vagaries and cruelties of the market and to permit Americans to count on the promise that the next generation will take care of them in their old age.