Larry Kudlow points out that the essential question behind President Bush's social security reform plan is: do you trust governments or do you trust markets?
For me, the issues are simple and clear. First, Bush’s reform would create true retirement asset ownership. Beneficiaries could bequeath their money to their children. Spouses would be well taken care of if the breadwinner prematurely passes away. Young people would think differently and take more responsibility. Second, a prudent combination of stock and bond investing over 30 or more years will generate a much higher rate of return. Third, the reform plan will generate savings for private sector capital formation rather than funding government spending.
For these simple reasons, I believe it is essential that a sensible form of Bush’s idea becomes law. If that means cutting mythical benefits for longer retirement or price indexing, so be it. Those benefits aren’t real because we’d have to double the payroll tax to achieve them. And that will never happen. But ownership and market-based investment returns would be a revolutionary development.
Politicians must be willing to take some risks in order to achieve this revolutionary reform. Our economic welfare over the long-run will be greatly enhanced in the event. Either you believe in markets, or you believe in government. FDR and Maynard Keynes believed in government. But 70 years later sensible people around the world have come to believe in markets. Is it just this simple? I believe it is.
He's right, it's very simple. Everything the government does gets screwed up. Sometimes government is the best answer, but it should be our last resort, not our first. It's time to move Social Security into the 21st century.