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Posted on Wed, Dec. 22, 2004

Who bears risk for Social Security reform?

Experts, not retirees, should be putting their money on the line

Special to the Observer

Those who sanctimoniously shout from the rooftops that they want to "save" Social Security are members of the same crowd who violently opposed it when it was started in 1935, and who have opposed every real effort to improve it ever since.

An example of their duplicitous motives was the increase in the retirement age to 67, and their proposals to raise it higher. Retiring at 67 can be a good thing if you're white and you're a management consultant, stock broker, college professor, lawyer, doctor or corporate executive. Your body will allow you to work until you're 90 -- although you can retire on your own by age 60 -- and you don't have to pay taxes to support the retirement of those who helped make you rich by performing society's hardest, most necessary and lowest-paid jobs.

But let's face it. If you're an average black man with a life expectancy of 67, it's not such a good thing. It's also a bad deal if your job wears your body out before you are 60 -- orderlies in nursing homes and hospitals, workers in construction, sanitation, coal mines, the chicken processing industry, and so on -- and you simply can't produce as you once did.

If Social Security is partially privatized, who will be the sure winners? Even the conservative financial news media admit that one of them will be Wall Street. Fortune magazine noted that "Gambling may be legalized. ... Wall Street is salivating at the prospect of investing even a fraction of the half-trillion-dollar Social Security trust fund."

The Wall Street Journal opined that "The politically charged issue of allowing workers to divert a portion of their Social Security taxes to individually controlled accounts investing in the stock or bond markets is back on the table, and speculation about the windfall that Wall Street would reap already is swirling."

Other sure winners are politicians who receive campaign donations from lobbyists for mutual funds that hope to be among those chosen to receive the federal largesse. Also included are the apparatchiks of the securities industry who have traditionally demanded huge fees for providing such a worthy public service: stock analysts, lawyers, accountants, fund executives and owners, etc.

Social Security retirees also may win, if:

 They happen to choose a mutual fund that actually increases in value, after every professional associated with it has taken his cut, and

 Globalization doesn't totally destroy working Americans' incomes and ultimately our economy -- and the stock market, and

 The exploding federal deficit doesn't destroy our economy, and

 Our trade deficit can be turned around and we actually begin to export more than we import.

If any or all of these qualifications ends in disaster, then what is our country going to do to bail out those who invested unwisely in the wrong politically "approved" mutual funds?

What a sweet deal privatization is for our conservative politicians and the securities industry. They get ironclad, surefire benefits and take none of the risks. Those who are taking all the risks are individual Social Security retirees, many of whom don't know the difference between a stock and a convertible bond.

As it now stands, Social Security is the most efficient government program we have, with yearly administration costs hovering around 1 percent. Think of what will happen to that statistic after the securities industry takes its cut.

The right way to fix Social Security, if investing in the stock market is your main solution, is to let the experts take the risks. If Merrill Lynch, PaineWebber, Morgan Stanley Dean Witter, and all the others honestly believe that funds can be better invested in stocks instead of in short-term U.S. government securities, then let them bid on chunks of the Social Security funds.

They would guarantee the government a specific return in exchange for the opportunity to use Social Security funds to play the stock market. If they invested well, they would make a legitimate return for their efforts. If not, they would suffer a loss.

In exchange, the taxpayer and the retiree would be assured a better return than short-term government securities. It wouldn't be a windfall, but it would also remove the risk -- which is supposed to be the purpose of Social Security in the first place.

Chuck Kelly is a retired management consultant living in Tega Cay, S.C., and author of "The Destructive Achiever; Power and Ethics in the American Corporation" and "Class War in America." Write him at

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