Where I Stand — Mike O’Callaghan: Don’t rush changing U.S. Social Securi ty programs

Saturday, May 2, 1998 | 4:57 a.m.

MIKE O'CALLAGHAN is executive editor of the Las Vegas SUN

A RED-HOT STOCK MARKET for many years has affected American society in several ways. Growing numbers of people have great confidence in the future, and they don't hesitate to push their extra dollars into the market. An even greater number continue spending their money at a faster rate than it comes in, because they are sure more will arrive next payday. This is human nature, but those of us living during the Great Depression still suffer from flashbacks about what can, and did, happen more than 60 years ago when the stock market crashed.

It was the social, political and physical destruction of the Great Depression that forced the United States, under the leadership of Franklin D. Roosevelt, to develop the nation's Social Security program. It has been a life-saver for millions of elderly and injured Americans during the past several decades. Now, Americans foresee problems for the program because, soon, the large number of citizens born following World War II will become eligible for benefits and fewer workers will be contributing to the trust fund.

The WWII baby boomers have experienced an upward social lifestyle and have been denied few, if any, material benefits needed for comfortable living. They have also developed great confidence in the stock market and have only felt the shocks of a few minor depressions or sharp recessions. From these, the stock market always rebounded and continued its upward trend. They also have a measure of confidence in the Social Security program.

The generation that's sweating what they believe may be the collapse of Social Security are the children of the WWII baby boomers. They have been heard complaining for the past few years as they worry about being major contributors to the fund but, when arriving to gain benefits, will find it empty. They have good reason to be concerned if Congress doesn't take some action to stabilize the future of the fund.

There's no argument about the trust fund being in trouble by the year 2032, but there is plenty of disagreement about what should be done to stabilize it. Conservative groups have pushed for privatizing the system, pointing out how successful the stock market has been over the years. No matter how sharp the dips in stock returns, the overall results have been positive. Recently, liberal Sen. Daniel Patrick Moynihan, D-N.Y., has joined the chorus coming from conservative think tanks and is singing the song that will let workers direct two percentage points of their payroll taxes into private retirement accounts.

Now, national polls show that taxpayers and politicians are leaning toward risking a share of payroll taxes directed toward private funds. This burst of courage has been boosted by a Dow closing above 9,000 for the first time in history. Thinking about any kind of privatization of the fund can only be attributed to the financial good times the nation is experiencing. Not all financial experts are satisfied with this move. Henry Aaron of Brookings Institution told Time magazine's Bruce van Voorst, "For the public to put retirement funds into the stock market is like taking a trip to Las Vegas." Very simply, what goes up must come down.

Aaron's remark reminds me of what so many workers are already experiencing with the 401(k) funds they plan to use for retirement. Will a stock market collapse turn a rosy plan for retirement into a bare-bones existence with Social Security being the only stable part of their income?

If privatization of the trust fund does move forward, then it will be forced to bring with it regulations that will reduce the risk for investors. The American taxpayer might like the idea of investing in a mutual fund but will insist that additional FDIC-type safeguards are put in place. Taxpayers want higher returns from their payroll taxes but aren't about to take unnecessary risks. How will the private funds view this?

A good example of the American view of these issues is the demand for lower health care costs. They got their HMOs and, almost immediately, began to demand government intervention to ensure that the level of medical care doesn't deteriorate. Certainly, the Republicans haven't forgotten the political explosion resulting 12 years ago when they attempted to reduce cost-of-living increases provided by Social Security.

President Bill Clinton and members of Congress see a problem for Social Security on the horizon. Exactly what will be the resulting solution, I can't predict. You can bet that they will do nothing concrete this year, but the wheels will be set in motion for some action to take place during the next Congress. If the stock market gets sick, the political appetite for privatizing will vanish when the final decisions are made.

It's my opinion, it will be a major debate issue during the next presidential election and the year 2001 will see some positive steps taken to stabilize the Social Security trust fund. There's no need for action until all alternatives have been explored and debated publicly.