REVIEW & OUTLOOK
So 19th Century
Gore would stick with Otto von Bismarck's vision for Social Security.
Collars must be tightening at Al Gore headquarters. The latest evidence is the Vice President's decision to end his campaign for the White House on the uplifting theme that Governor George W. Bush wants to ruin Social Security.
"He's grabbed the third rail. He just didn't realize that we hadn't switched on the electricity yet," declared Democratic Party chairman (and Gore minion) Joe Andrew last week. The veep himself is charging that Mr. Bush wants to "cut benefits," while Halloween-appropriate TV ads are running in multiple states.
Then there's left-wing actor Ed Asner, who is taping scare calls to seniors, and deceptively invoking this newspaper along the way. "George W. Bush has a proposal that would undermine Social Security," the former union boss says, "even threatening current benefits." Mr. Bush "promises that won't mean a cut in current benefits, but the independent Wall Street Journal shows that the Bush plan drains money that is needed now to pay our current benefits," the call adds. For the record, we believe no such thing and no story we've published has asserted it.
Thus is the candidate who wants credit for creating the Internet making his last campaign stand the defense of a program first conceived by German socialist Otto von Bismarck in the 1870s. What an inspiring vision: Scare enough grandmothers in Florida and other swing states to salvage one last victory for the 19th century.
We'll discuss the details of Mr. Gore's attacks on Mr. Bush's proposal for personal retirement accounts in a future editorial. But today we'd like to dwell on the politics of entitlement reform and the status quo. For in this year the Vice President is the candidate, as William F. Buckley Jr. once put it, standing athwart history yelling, "Stop."
That history is the global trend toward market-driven prosperity and individual empowerment. Bismarck's vision was a product of his time, the industrial era. He offered the state as the guarantor of individual security against the then-new phenomenon of giant industrial companies. But that was an age when few workers earned enough to afford vacations, much less to build their own retirement nest eggs. Both job mobility and choice were far more constricted.
More than 100 years later, we are in the information age. There are hundreds of TV channels instead of three, dozens of telecom companies instead of one, and workers bounce from job to job. Half of all Americans have some stake in the stock market, either directly or via IRAs or 401(k)s or pensions. And there is a large health and security safety net (worker's comp, disability benefits). Yet Mr. Gore wants to treat American workers as if they are the same cogs in the capitalist machine described by Marx and Engels.
Mr. Gore is also behind the times on social security around the world. Bismarck's socialist model has been updated into a retirement system based on investment from Chile to Britain. The Chilean model gives workers individual retirement accounts that they can switch from one pension fund to another, much as with mutual funds. These retirement accounts are individual property.
Estelle James of the World Bank reports that Chile's 1980 reform has become a model that "has spread throughout Latin America to Argentina, Mexico, Peru, Bolivia and Uruguay. It is going to sweep South America and is moving to Central America." Hungary and Kazakhstan have also signed on. But Al Gore says it can't happen here.
Ms. James also describes what she calls a "group choice" reform that has taken hold in Australia, Switzerland and Denmark. In this model, individuals still get to invest their pension funds, but "the employer and/or the union trustees choose the investment manager for the company or the occupational group as a whole." The United Kingdom has a hybrid system that allows individuals to opt out of their version of Social Security into either company or personal retirement funds. About 60% of those eligible opt out. We prefer the individual model, as does Mr. Bush, but the bigger point is that all of these reform models bring retirement into the 21st century.
In the private sector, everyone builds retirement wealth over time through saving and investment. That's also true for government employees, state pension funds, even for the leaders of the AFL-CIO. The exception is Social Security, which insists on taxing young Peter to pay old Paul and on using any excess tax to buy government bonds that yield a paltry 2% a year. Over the long haul even a conservative portfolio of stocks and bonds yields 5% or better.
The status quo Gore response is that a pitiful return is the price society must pay for a basic safety net. But there's no reason America can't have both higher returns for retirement and some minimum retirement benefit for those who earn the least over their working lives. A reformed Social Security system would be best for precisely the poorest workers, giving them a chance they otherwise might not have to accumulate wealth.
With his last-ditch demagoguery on Social Security, Mr. Gore is showing himself to be yesterday's man.
