GOP Presidential Contenders Duel Over Social Security

In today's edition of the WSJ, the editorial board contrasts the position of Texas governor Rick Perry with that of former Massachusetts governor Mitt Romney.   They criticize Perry for being correct but engaging in rhetoric that is too harsh, while Romney is too Obama-like in his defense of the status quo.

Be that as it may, for my money this is the best part of the editorial:

Even a pyramid system such as this could be solvent if it took advantage of compound interest. But the overriding problem is that not a dime of the payroll contributions the government collects over a lifetime is saved and invested for a worker's retirement. Social Security's pay-as-you-go financing model means that 12.4% of all wages are transferred to current beneficiaries, the surplus dollars are spent by Congress on other things, and Social Security gets an IOU from the Treasury.

In other words, the program is building up debt even as benefits become less sustainable as the baby boomers begin to retire and the ratio of workers to seniors shrinks. The feds will then have to pay out of other tax revenue to meet Social Security's obligations.

The key point is that, unlike a Ponzi scheme, Social Security can be reformed and it will have to be if current workers are to receive any return on their current taxes. Everyone serious knows what the reform options are—from changing the benefits schedule, to "progressive indexing," to raising the retirement age. We'd prefer private accounts so that young people could build wealth as a property right and not depend on the promises of politicians, while the money would be put to productive economic use in the meantime. Herman Cain mentioned it in last week's debate. But if that's too politically adventurous for the two Governors, maybe they can meet somewhere in between their rhetorical positions.

To me, this is just one more reason to like Herman Cain.

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