Forbes vs. Bauer on Social Security

December 27, 1999

In a December 22 Washington Times column, Bruce Bartlett discusses the Social Security debate going on between Republican presidential contenders Steve Forbes and Gary Bauer, and cites two recent studies that show why Forbes's pro-privatization stance is superior to Bauer's desire to maintain the current system. Forbes has proposed allowing workers to invest most of their payroll taxes in personal retirement accounts. Bauer wants to retain Social Security's pay-as-you-go financing.

Bartlett first cites Federal Reserve economist Kevin Lansing, who in the November issue of the Federal Reserve Bank of San Francisco's Economic Letter, reviews the rates of return workers can expect to receive from Social Security. In that paper, Lansing declares, "The 'average' U.S. worker faces a rate of return on contributions that is quite low--less than 2% after adjusting for inflation. By comparison, the real yield on a 10-year inflation-indexed Treasury Bond is currently around 3.5%. In addition to being low, rates of return from Social Security must be viewed as risky because they are subject to change from future political actions that will be needed to ensure long-term solvency of the program."

Bartlett goes on to cite Cato scholar Peter Ferrara's new study, "Social Security Is Still a Hopelessly Bad Deal for Today's Workers," in which Ferrara "thoroughly demolishes" arguments put forward by John Mueller, Bauer's principal advisor on Social Security. Bauer shows that for Mueller to argue that Social Security will give a higher return to workers than a system of private accounts Mueller must make assumptions so outlandish that he ends up proving the very opposite of what he seeks to show.

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