In a new column for Bloomberg I argue that to solve its pension problem the US needs to revisit the idea of the ownership society--recast as a liberal rather than conservative program, which it should have been all along. Don't replace or reduce Social Security to direct savings into private accounts. Create mandatory private accounts, with public subsidy, as an add-on, and cover the cost to taxpayers by redirecting existing tax preferences for saving.
Why not simply acknowledge that Social Security is not a savings plan but a transfer system, make it more generous, means-test it to limit the cost and then raise other taxes to pay the bill? That approach has the advantage of fiscal simplicity, but the politics doesn't work.
The fact is, the masquerade serves a purpose. Support for Social Security is strong precisely because people see it as a savings plan. They have paid into the system -- or so the letters from the Social Security Administration tell them every year -- and they feel entitled to what the system owes them. Recasting Social Security as just another welfare program would be the first step toward dismantling it altogether.
The opposite approach is partial privatization, as tried by George W. Bush. The idea was to let people divert some of their payroll taxes to a private pension. All being well, they could expect a higher return on that money, so adding their private pension and their diminished entitlement to Social Security together, they would come out ahead. One problem is that savers would have to bear more financial risk -- not something you should ask people of limited means to do. Another is that the shortfall in payroll tax receipts would drive Social Security deeper into deficit, which subtracts from national saving when one of the goals in all this is to increase it.
Even so, it's a pity that Bush's plan was trashed so viciously. Greater private saving should be part of the solution -- as an addition to Social Security, rather than a replacement in whole or in part. Building the "ownership society" Bush talked about is surely a worthy goal. Democrats shouldn't renounce that idea because of its provenance. The idea that retirees "own" their Social Security benefits -- as illusory in fiscal terms as that notion might be -- accounts for the country's devotion to the system, and this devotion is telling. People want and should be granted ownership of the assets they will need to support them in retirement.