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Republicans Can Win on Social Security

By: Ramesh Ponnuru
Wall Street Journal, January 31, 2002

"We must make Social Security financially stable and allow personal retirement accounts for younger workers who choose them," President Bush said in his State of the Union address. Congressional Republicans would have been happier if he had said nothing about private accounts. They think advocacy of Social Security reform will hurt them badly in the November elections. That's why they greeted the final report of the president's commission on the subject -- which outlined three reform plans that would let Americans invest some of the taxes they pay to the program -- with silence rather than the discussion the commission urged.

But their worry is misplaced: Republicans are less likely to hurt themselves by running on reform than by running away from it. If he continues to promote the idea, President Bush will be saving congressional Republicans from themselves.

Private Social Security accounts are, for one thing, the best growth issue the Republicans have. No other policy reform being contemplated today would do as much to help the political fortunes of free markets and limited government. When workers become investors by participating in 401(k) plans and the like, over time their economic behavior and political outlook shifts. They become less likely to strike, for example. They also become more Republican. In October 2000, a Zobgy survey found that having owned stocks or bonds for more than five years made people 30% more likely to identify themselves as Republicans.

The democratization of capital ownership made Social Security reform thinkable in the first place, as millions of people learned they could invest their money better than the government could. Actually enacting that reform would make even more voters investors, further helping the GOP.

That doesn't mean that Republicans should try to pass a bill this year. There aren't enough votes for it in Congress yet, and Washington will have a lot on its plate in 2002. Republicans don't need to have a detailed reform plan. But neither should they retreat from the basic idea of private accounts. Under attack from Democrats for daring to consider an investment-based reform, Republicans on the campaign trail will be tempted to disavow it -- locking themselves into a position that precludes them from voting for it in 2003 or 2005, when it might otherwise become doable.

It's not just long-term considerations that should lead congressional Republicans to follow the president's example of boldness. Reform will be their ally in 2002 -- as it was for George W. Bush during his presidential campaign. Both supporters and opponents of reform have pointed to the exit polls from the 2000 elections to show that the voters are with them. Reformers note that 57% of voters favored private accounts. The accounts were thus more popular than President Bush or congressional Republicans.

Opponents stress the 14% of voters who say Social Security was their top issue -- and that they chose Al Gore over Mr. Bush, 58% to 40%. But both of these analyses miss the point. They represent failures to think on the margin.

Social Security has been an issue that has hurt Republicans almost since its inception. Even when Republicans do not talk about private accounts, Democrats accuse them of wanting to gut the program, and some voters reject them on that basis. Bob Dole didn't go near private accounts, and he got clobbered on entitlements for the elderly: Among the 15% of voters who say the issue decided their vote, he took 26% to Bill Clinton's 67%. By presenting an attractive alternative to benefit cuts, Mr. Bush cut a 41-point Democratic advantage to 18 points.

Private accounts give Republicans something to say about Social Security in addition to denying that they would cut benefits. They can and should mollify potential opponents of reform by noting that they won't cut benefits and that private investment would be voluntary. But it's also important to mobilize potential supporters by talking about the benefits of higher returns from reform.

Indeed, Mr. Bush might have done even better in 2000 if he had taken this lesson to heart. The Gore campaign unleashed a last-minute ad barrage on Social Security. Mr. Bush responded with ads that made all the defensive points well, but didn't tell young workers that his plan would let them accumulate wealth just as they do in their 401(k)s.

Republicans shouldn't worry, either, that the recession has made private accounts unattractive. Millions of Americans started to invest in the 1990s. For the vast majority of them, it's been a wealth-building experience -- even accounting for the bear markets of 2000 and 2001. Remember, the Dow Jones index is still about 2,000 points higher than it was in January 1998. People are still putting money in defined-contribution plans; the flow of funds into them has barely slowed. Surveys suggest that, by and large, the new investors are in it for the long haul.

That's why they have tended to react to market declines by holding on to their assets or even seeing buying opportunities. It's also why they aren't likely to be spooked by stories about Enron that don't jibe with their own experiences of managing diverse portfolios. This week, Gallup found support for private accounts holding steady at 63%.

The new investors aren't panicking. Neither should Republican politicians.

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