George W. Bush has made "the ownership society" a main theme of his re-election campaign. The slogan is intended to link and dignify a variety of controversial policies, notably tax cuts and Social Security reform. Cutting taxes on dividends, capital gains, and inheritance is not just a way to make the rich richer (though it does) but supposedly part of a broader, nobler strategy to help all Americans accumulate assets and gain financial independence. Bush's boldest idea for domestic policy in his second term is the semi-privatization of Social Security—part of the same strategy. Again, according to the president, the goal is empowerment not of the rich but of ordinary Americans with moderate incomes.

Bush's critics see this stance as cynical and hypocritical. John Kerry views the administration's tax changes, both enacted and proposed, merely as a reward for Bush's favorite constituency, the very wealthy. In recent speeches, Kerry has attacked the administration's Social Security proposal in the same way. The Bush plan for individual pension accounts would have two main effects, Kerry charges: It would cut benefits, and it would transfer huge sums in extra administrative costs ($940 billion, according to a study Kerry cites) to the finance industry. Privatizing Social Security, critics say, is just more of the same: Take from the poor and give to the rich.

The administration has done plenty to justify this contemptuous response. This is a shame. Taken one at a time, the policies mostly make sense—especially the plan to privatize Social Security.

The Bush tax cuts were not wrong because cutting taxes is bad in principle, as many Democrats seem to believe. Cutting taxes is a good thing, when circumstances allow. The problem was that circumstances did not allow. The administration's tax cuts, which Bush now wants to make permanent, were too big: Combined with hefty increases in outlays, they created a long-term budget deficit that will be difficult to close. Also, the cuts were unbalanced. More than necessary, they leaned in favor of the rich, especially the extremely rich. In choosing to defend the tax cuts as a way to spur the economy and avoid a worse recession, the administration was guilty as charged of hypocrisy or incompetence: New jobs could have been encouraged more effectively, more equitably, and at far less cost in forgone long-term revenue and increased government borrowing, with temporary cuts in payroll taxes or with other measures to boost the disposable incomes of ordinary Americans. (People on m! oderate incomes spend more of any given tax cut than do the very rich.)

In principle, the partial privatization of Social Security is another good idea—an even better one, in fact, than cutting taxes. And the reasons are much as Bush claims. It does not make sense, least of all in a country as prosperous as the United States, for people to look to the government for their income after they have retired.

Bush is quite right to cast this as an issue of liberty and self-determination more than one of economic efficiency. Citizens who accumulate assets of their own to support themselves in retirement are far more in control of their lives than those who rely on handouts from the state, financed out of taxation. Moving from a system that makes most citizens dependents of the state after their working lives are over to one in which they have financial independence—and, most likely, higher incomes as well—constitutes a real advance in individual freedom. It makes no more sense for the government to pay pensions to all citizens than it would for the government to provide housing for all citizens.

It is true that a sizable minority of Americans earn too little to accumulate assets that would be sufficient to finance a private pension. This is something that any plan for privatizing Social Security must address. But it need not be an obstacle to reform. There is no reason why the government should not guarantee an adequate income in retirement for the poor within a largely privatized system.

Most reform schemes, including the president's proposal, envisage that some or all of the payroll taxes levied on workers should be diverted, at the initiative of each taxpayer, to an individual pension account. Anybody who pays payroll taxes would therefore be able to make contributions, if he chose, toward a private pension. For people on low incomes, the government could then supplement those contributions, bringing them up to the level needed to pay an adequate pension—one at least as good as that payable under current law.

Supplementary contributions are only one way to safeguard or improve the pensions of the poor. Some such guarantee is a basic requirement of reform, but there is no reason why this cannot be done. In any case, it would surely be ridiculous to argue, as some of the administration's critics do, that a universal system of publicly provided, taxpayer-financed pensions is needed mainly to assure adequate pensions for the minority of poor Americans. That is hardly a solution that fits the scale of the problem.

It is right to see privatizing Social Security as, above all, a way to give most citizens (namely, the ones who are not already rich) more control of their lives. But it so happens that this policy would also be good for the economy, and, hence, for conventionally measured living standards as well.

The present system finances retiree pensions by taxing current wage-earners. Note that the Social Security Trust Fund is not a pool of real economic assets that can be drawn upon for this purpose: It is merely a bookkeeping device. Under plausible assumptions, this pay-as-you-go method implies lower national saving than if people prepared for retirement by saving for themselves. Greater private saving would increase the rate at which the economy invests and accumulates real economic assets. The value of the additional income generated by this extra investment could run into the tens of trillions of dollars.

Financial independence and (most likely) higher economic growth would be the greatest benefits of privatization. Other frequently cited justifications for the policy are less compelling. The looming bankruptcy of the Social Security Trust Fund is not a genuine concern, any more than the fund's current holdings of government bonds are a genuine asset. It is true that the present level of benefits cannot be paid indefinitely without higher taxes, but there need be no sudden crisis that brings the entire system crashing down. If Social Security is not reformed, taxes will have to be increased or benefits cut (perhaps by raising the retirement age); or else other kinds of public spending will have to be reduced; or government borrowing will be higher. Any of these options produces an endurable outcome: The real loss in failing to reform Social Security is that a fundamentally bad system will go on.

What then of the objections to reform, notably the one recently emphasized by Kerry? He said privatization would make most retired people worse off and would reward the financial institutions administering the new private pensions with a fabulously generous payday. Is that right? No. If the system is left unreformed, cuts in benefits are likely: Done right, privatization offers pensioners a better deal. And Kerry's estimate of the administrative cost is at the top end; other estimates put the cost at around half as much. But there is a more important point. Private enterprise justifies its profits by working more efficiently than the government does. Does the fact that banks make profits mean they should be nationalized? Think of the savings if banks were consolidated into a single organization run by the government. Well, the same logic applies to pensions.

Kerry's objection is wrong, and in a revealing way. But there is a much better reason to question Bush's plan for Social Security—despite the likely benefits of privatization. Paying for the transition to a private system will be very costly. As current taxpayers are allowed or encouraged to divert their payroll taxes to private pension accounts, there will be an immediate shortfall of tax revenue. Meanwhile, for many years to come, the public system's outlays to existing and future dependents will still have to be paid. Given the benefits of privatization, and contrary to Kerry's thinking, filling this transitional gap would have been an excellent way to spend a big budget surplus.

Unfortunately, the administration has already spent the surplus, and then some, on its unbalanced tax cuts. As a result, its proposal for privatizing Social Security is simply not credible: Unless a second Bush administration raises taxes, or makes severe cuts in other spending programs (after four years of doing just the opposite), its plan will be unaffordable.

Privatizing Social Security as part of a plan to advance "the ownership society" is a good idea. But, tinkering aside, the opportunity is gone for now. Bush has already squandered his chance to do it.