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Jewish World Review May 26, 2000 / 21 Iyar, 5760

Ben Wattenberg

Ben Wattenberg
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Wealth trumps income -- IT APPEARS that Social Security will be the big presidential campaign issue. There is an elemental question behind the debate: What's better, wealth or income?

Who is richer, Joe, with a million dollars in the bank, drawing 5 percent interest per year, equaling $50,000 a year, OR Jane, with no money in the bank, getting $50,000 per year from a public pension?

When Joe dies, his kids get the million bucks. When Jane dies, her kids get burial expenses from Uncle Sam. If Joe gets very sick, with costs beyond those covered by his health insurance, he can take money from his bank account. Jane has no bank account. If Joe decides to travel around the world, he can take money out of his bank account, buy a new suitcase and a funny hat. Jane, lacking wealth, just keeps getting her monthly check.

Wealth is better than income. If, over the din of demagoguery, that is explained in the course of the campaign, George Bush will come out ahead of Al Gore.

Gore's argument is that Bush's plan for partial privatization of Social Security is "a risky scheme." What's risky is to do nothing. If Social Security policy remains unchanged, Jane will receive only about 70 percent of her benefits in the 2030s.

Gore says it's too risky to invest pension funds in the stock markets. But in the definitive "Stocks for the Long Run," author Jeremy Siegal of the University of Pennsylvania analyzed American data over 200 years. He found that, after discounting for inflation, stocks went up an average of 7 percent per year. Moreover, they were less risky than bonds in any given decade.

Still, Gore says, "too risky." Gore says something can happen that hasn't happened before. Let's suppose that the U.S. markets defy experience and instead of rising, they stay flat or fall. Is Jane then better off than Joe?

No. In the 2030s, remember, Jane will only get 70 percent of her projected earnings, unless the law is changed mandating her to pay more in Social Security taxes or work more years. But, depending on the details of the various projected personal account plans, the government could make Joe almost whole in the event of adverse circumstances. If Joe invested unwisely, or unluckily, or during an unprecedented long-term market decline, the government might pledge to make good up to 80 percent or 90 percent of what Joe would have received had he stayed in Social Security as we now have it. That's better than Jane's 70 percent.

Where would such money come from? From U.S. general revenues, the same magic mountain from which Gore gets his money to transform the 70 percent into 100 percent. That spending, of course, could ultimately raise federal taxes or ignite inflation.

(And, by the way, Jane too has risk, even though her pension is backed by Uncle Sam. What if the nation is in a long war, or facing a terrible epidemic, or the Congress decides to means-test Social Security, or longevity goes up to 125? See you then!)

Gore's argument is that Bush's "risky" tax-cut proposal, coupled with his "risky" Social Security proposal, would cut general revenues too much. (CONTEST! PRIZES! Submit a bumper-sticker slogan, or a rhyme using the word "risky" or the phrase "risky scheme." E-mail to

Assume the worst: The Bush tax cut turns out to be too big. It is politically easier to change tax rates (we do it often) than to change the structure of Social Security (which happens rarely) with blood and feathers in the chamber.

The issue remains -- wealth. Albert Einstein said "the most powerful force in the universe is compound interest." Wealthy people always understood that: Make money off your money. Alas, non-rich people don't have a stash of money off which to make money. But the so-called "401(k) Revolution," which includes IRAs, Keoghs, Roths and more, has shown that when the non-rich are encouraged to accumulate a stash, compound interest follows, and they end up with that flexible wonder -- wealth.

For me, this is no-brainer. The puzzle is why is it being so vigorously opposed, particularly by the AFL-CIO. After all, it would make all union members part of the wealth-owning class. Is that bad? Once, the non-rich had no pensions. Now they have Social Security. Once, the non-rich had no wealth. Now is the time to give them wealth as well as pensions.

Samuel Gompers, the patron saint of the American labor movement was asked, "What does labor want?" His answer was: "More." The current leadership, self-styled activist progressives, seem to be saying, "No More Than The Same, Please."

That Al Gore is following this line is equally mysterious. The case in favor is so strong that opposing it is politically dangerous, even risky, even possibly a risky scheme.

Ben Wattenberg is a senior fellow at the American Enterprise Institute and is the moderator of PBS's "Think Tank." You may comment by clicking here.

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