Investor's Business Daily

November 1, 2001

SECTION: A; Pg. 18

Usual Demagoguing

By, Investor's Daily

Social Security: The Democrats are trying to frighten old folks again. And, as usual, they're distorting the real picture. The Democratic National Committee has mounted a fund-raising campaign attacking President Bush's plan to let younger workers invest part of their payroll taxes in private markets.

The large mailing was sent to senior citizens before the Sept. 11 terrorist attack, the party says. To characterize the letter, signed by Party Chairman Terry McAuliffe, as misleading would itself be an act of dishonesty.

While never allowing that Bush wants stock market investment to be an option for young workers, the letter claims the president wants to move as much as $ 1 trillion from "safe, interest-bearing accounts" to Wall Street, according to The Associated Press, which obtained a copy.

First, the Social Security trust fund is far from being safe. In fact, no trust fund actually exists. And even if it did, courts have ruled that once the money is in the Social Security system, workers have lost their claim to it. It's doled back to them - with little or no return on investment - at the government's discretion.

Second, Bush wouldn't move anything. He simply wants to set up a way to reform the dying system and would let workers escape it if they chose to do so.

Third, the interest on these accounts stems from agreements by the government to pay Treasury rates to the trust fund on the money coming into it. And where does the government get the money to pay this interest? That's right, the same people - taxpayers - who are allegedly to benefit from the Social Security system.

The McAuliffe letter also warns old folks that "Had the Bush plan been in place this last year, it would have been a disaster of epic proportions. The Nasdaq index fell more than 60%! Other stock indexes also saw deep declines. Imagine if the value of your Social Security benefits had been reduced by 60%?"

Judging the stock market by a small slice of time is a gross distortion. A privatized Social Security system, either partial or whole, is still a retirement system. It's not a get-rich-quick plan, like McAuliffe's line of work. It's a system that builds security over the long term. The stock market moves up and down, but over the life of a 30-year retirement plan, stock values always move up. (See chart.)

McAuliffe's opportunistic rubbish is sleazy, but alas nothing new from the party that created the Ponzi retirement scheme. When in doubt, the party's wisdom holds, play the Social Security card. It's also a threat to personal wealth and the economy.

Suggesting to people that they should not be investing is to suggest that they be poor for the rest of their lives. His rhetoric demonizes investment, the driving force of our economy, as well. Scare enough people out of the market, and it will have real-world effects.

McAuliffe should be ashamed, but we doubt he's uneasy about using lies to terrify old folks into a "generous contribution" for his party. McAuliffe lives for power today. He won't have to deal with Social Security's enormous problems that begin 15 years from now, except perhaps as a beneficiary.

Still, if the Social Security system collapses, his distortions, and those of his party, will be at least partly responsible.