A brilliant social security retirement solution

Senator Jeff Session (R - Alaska) has just become one of my favorite Senators.

Today, in the December 26, 2006 Washington Post, Jeff advocated a social security solution that is really brilliant, both substantively and politically.

A Bipartisan Fix for Retirees

Jeff's plan would establish personal savings accounts for every child at birth with $1000 invested by the Federal government. It's an idea that has been floated around in wealth equity/poverty circles for quite awhile, now, and Jeff combines it with a lifelong, cradle to grave, social security personal savings plan with small paycheck contributions from both employees and employers over the course of every citizen's lifetime, that can be invested in 1 of 6 investment accounts (building on an already established Thrift Savings Account program for Federal employees) resulting, Jeff thinks, in a retirement nest egg of at least a half a million dollars at retirement.

There are substantive and political problems with Jeff's plan, I think. The first and most important, I think, is a budget problem. Where does $1000 for every newborn child come from? There's plenty of wealth in America to make that happen. The problem, as always with wealth equity issues, is the political will. But unlike many liberal political activists, I have much confidence that the American people might support this kind of bill in spirit, but very little confidence that they will want to pay the tax bill along with the tax bill for a million other programs in an already bloated Federal budget.

The problem and resolution around almost every wealth equity issue is peoples' willingness to give. If they are willing to give through this or any other Federal program, I say so be it. But many, many people and businesses and lobbying organizations generally fight and resist and kick and scream and complain and yell bloody murder whenever new spending is proposed. And at a time when the Federal budget is out of control, it makes sense that people would be skeptical of new spending until it is clear that the current spending commitments are covered.

It's the very sad consequence of so many groups demanding that their cause get funded now, that a very worthy cause like fixing Social Security gets lost in the shuffle of Washington pressure politics.

The substantive problem, I think, is that while some kind of retirement nest egg will be created and mandated for every American, it still doesn't resolve the responsibility issues that are involved, with every American needing to take more seriously their long term financial needs. I'm definitely guilty, here. I've thought about retirement, but, overwhelmed with work responsibilities, I've done almost nothing about it, as of yet. That will be changing, soon, as I organize my financial affairs this Christmas vacation. But it's a serious responsibility that needs, long-term, to be taken seriously by every citizen, so that savings and money earned in accounts is not frittered away. A half a million dollars can go quickly if retirees are not serious about being responsible for their limited resources rather than too enthusiastic about their newfound wealth. And no federal program can mandate that kind of responsibility.

But that substantive problem illustrates the really remarkable strength of Jeff Sessions' proposal here. There is no way for any government to guarantee responsibility by citizens for their financial welfare. And the bare minimum protections of the current Social Security guarantees are so small that they leave far too many older citizens, in a nation with this much wealth, among the lower middle class, the poor, or worse, wards of the state, as state governments require the elderly citizens sell off assets and enter nursing homes before medications and services will be provided, among other fates.

Once legislators and citizens come to terms with that limitation of federal involvement to promote the kind of responsibility that we need long-term and with the really remarkable amount of wealth in the United States that could potentially stem the problem of elderly poverty, it only makes sense to adopt some kind of proposal, public or private, that provides this kind of modest but substantial nest egg for seniors. The private for-profit or non-profit market could help provide for this kind of proposal and there has been much talk in philanthropic circles about just that (at least the $1000 at birth proposal) for some time now. Philanthropies could pool resources and ask for investments and contributions that could guarantee this kind of idea without generating the kind of conflict and resistance that typically follows efforts to raise taxes to fund such efforts.

Or Congress could take the path of shrinking the Federal budget to levels within their means and to find money through cuts in other programs. Or they could roll the dice and ask for a tax increase. If any proposal might get a tax increase, it is a plan to resolve Social Security woes with personal savings accounts, that would likely be more popular with the very people being asked to fund them.

The tax increase, itself, still has consequences for GDP increasingly absorbed by government largesse and the subequent government spending and borrowing crowding out private spending and borrowing, which is much more likely, long-term, to grow the economy (the goose that lays the golden egg, and all that).

But potential to resolve some of the more serious woes of the Social Security system and its woes is pretty hard to pass up.

Ideally, I would prefer for such an idea to be coordinated and funded through the private and non-profit sector, where it would have the huge long-term advantage of a more flexible and responsive system that could make adjustments in the proposal as problems are identified and opportunities are recognized. A private system would also have much more opportunity for a market of non-profit giving and investment by beneficiaries, where all parties would have far more choices and could engage much more thoughtfully and responsibly in making wise choices for contributing and investing money made available. Money contributed to such a proposal beyond that needed for individual accounts could be pooled and invested by philanthropic funds or for-profit investment firms to create a self-generating fund that would not need to ask for future tax increases or government spending each year, for instance. The Grameen Bank in Bangladesh, FINCA in Latin America, and many other microenterprise lending models throughout the world operate under just such a self-sustaining, self-generating model of poverty alleviation and wealth equity generation. A more successful model of wealth equity could be initiated and sustained around the basic proposal like Jeff's nurtured in the private and non-profit communities and grown to tackle a whole host of wealth equity issues, very much like how philanthropic and non-profit groups, themselves, grow to tackle many issues well beyond their original charters.

And private and non-profit system modeled after Grameen and other self-generating, self-sustaining wealth equity proposals would have the other benefit that Grameen offers: offering a road out of poverty and to fuller participation in the global economy with support from non-profit and for-profit financial planners to help individuals become more responsible for their financial futures. Supporting retirees in becoming aware and taking serious long-term financial planning is a valuable service that could be better provided by private and non-profit sector financial planners, I think, who are not bound by the bureaucratic, inflexible, red-tape suffocation of Federal, state, or other government efforts.

I think that would be a better idea that funding such an effort through Congress. But the two are not mutually exclusive, necessarily, given the vast wealth in America. And I very much applaud Jeff Sessions' efforts to tackle this very difficult problem, politically and substantively, head-on with intelligent proposals that much better account for workings of the market than far too many proposals for government programs and spending.

Thanks to Jeff for putting together a proposal meant to circumvent the substantive and political problems with efforts to improve Social Security and to resolve its most serious issues.

May that kind of intelligent bipartisanship lead this next session of Congress and Washington politics.

Love,
Ben